TALISMAN

MINING LTD

ANNUAL REPORT 2015

■■ CORPORATE DIRECTORY

DIRECTORS

Mr Alan Senior Non-Executive Chairman Mr Gary Lethridge Managing Director

Mr Brian Dawes Non-Executive Director Ms Karen Gadsby Non-Executive Director

COMPANY SECRETARY

Mr Daniel Madden

REGISTERED & PRINCIPAL OFFICE

Ground Floor, 6 Centro Avenue Subiaco

Western Australia 6008

Telephone +61 8 9380 4230

Facsimile +61 8 9382 8200

Website: www.talismanmining.com.au

AUDITORS

HLB Mann Judd

Level 4, 130 Stirling Street Perth Western Australia 6000

SHARE REGISTRY

Link Market Services Level 4, Central Park 152 St Georges Terrace

Perth Western Australia 6000 Telephone 1300 554 474

SECURITIES EXCHANGE LISTING

Australian Securities Exchange Limited Level 8, Exchange Plaza

2 The Esplanade

Perth Western Australia 6000 ASX Code: TLM

TALISMAN MINING LTD

CONTENTS

Letter from the Chairman 2

Review of Operations 5

Tenement Schedule 20

Corporate Governance Statement 21

Directors' Report 22

Auditor's Independence Declaration 37

Independent Auditor's Report 38

Index to the Financial Report 40

Directors' Declaration 41

Consolidated Statement of Comprehensive Income 42

Consolidated Statement of Financial Position 43

Consolidated Statement of Changes In Equity 44

Consolidated Statement of Cash Flows 45

Notes to the Consolidated Financial Statements 46

Additional Securities Exchange Information 72

Page 1

• LETTER FROM THE CHAIRMAN

  
  

  Dear Shareholder,

  
  

  I am pleased to report on what has been a year of success and achievement for Talisman.

  
  

  Firstly, our long-standing efforts to secure a quality business development opportunity culminated during the year in the $8 million acquisition of the Sinclair Nickel Project in Western Australia from Glencore.

  
  

  Secondly - and without doubt the key highlight of the year - in June, our Doolgunna exploration farm-in partner, Sandfire Resources NL, made a significant exploration breakthrough with the discovery of the high-grade Monty copper-gold deposit at our Springfield Project.

  
  

  Additionally, we were able to strengthen our balance sheet with an $8 million capital raising in July 2015 which has put the Company in a strong financial position in what remains a volatile and challenging market for junior resource companies.

  
  

  I would like to make some brief comments on each of these promising developments.

  
  

  The Sinclair acquisition, which was funded from our available cash resources, represents a counter-cylical opportunity in the nickel sulphide industry, providing exceptional exploration upside in close proximity to existing quality mine infrastructure.

  
  

  After completing the acquisition in February 2015, we commenced planning to evaluate potential development opportunities based on the current known deposit and remnants. This will put us in position to take advantage of the anticipated turnaround in nickel price when the economics are sound. In the meantime our focus remains on prudent, targeted, low-cost exploration activities. Sinclair is well known to us as several key members of our team were with Jubilee Mines NL, the discoverer and original owner of the Sinclair deposit. We strongly believe that Sinclair is under-explored and has substantial exploration upside. Consequently we have added further ex-Jubilee Mines geological personnel, familiar with this area, to our team and commenced a regional exploration targeting exercise. This has identified a number of quality exciting new exploration targets.

  
  

  Ground-based exploration activities commenced in August 2015 and we look forward to advancing this work in the year ahead.

  
  

  In June, Sandfire's ongoing exploration activities at the Springfield Project delivered a major breakthrough with the discovery of a significant new copper-gold deposit at the Monty prospect, located just 10km to the east of the DeGrussa copper mine.

  
  

  This exciting and potentially transformational development was a direct result of Sandfire applying its extensive technical expertise and experience gained from the DeGrussa deposit to the historical work conducted by Talisman. This is the sort of breakthrough which we had hoped would flow from the collaboration between Sandfire and Talisman under the $15 million farm-in joint venture which we entered into in late 2013.

  
  

  While drilling is still at a relatively early stage, there is already sufficient evidence to suggest that Monty has strong geological similarities to DeGrussa and that this discovery together with the recent breakthrough at the Homer prospect, 4km east of DeGrussa, could represent a significant new centre of mineralisation in the broader Doolgunna VMS field.

  
  

  In July, Talisman completed a successful $8 million capital raising at 47 cents per share. This raising was strongly supported by existing shareholders, including our major shareholder Kerry Harmanis, as well as existing and new Australian institutional and sophisticated investors.

  
  

  TALISMAN MINING LTD

  
  

  Page 4

  
  

  This boosted our cash resources at financial year-end to $12.3 million, putting us in a strong position to progress exploration at the Sinclair Project and also contribute to future joint venture funding requirements at Doolgunna when necessary.

  
  

  The continued drilling at Monty and that planned later in the year at the promising Homer prospect, means we are looking forward to a very active and hopefully fruitful period for the joint venture.

  
  

  It has been gratifying to see the increase in Talisman's market capitalisation over the course of the year, and I would like to take this opportunity to thank all of our long-standing shareholders for their patience and support. I also welcome those new investors to the Company who have come on board either through the capital raising or by investing on-market in the wake of the Monty discovery.

  
  

  This is an exciting and busy time for Talisman and I would like to extend a special thanks to our Managing Director, Gary Lethridge, and his hard-working team of staff and consultants for their considerable efforts during the year.

  
  

  Talisman moves into the new financial year in a great position and we are all looking forward to what the year ahead may bring.

  Yours faithfully

  
  

  Alan Senior

  Chairman

  30 September 2015

  
  

  
  

• REVIEW OF OPERATIONS

OVERVIEW

The past twelve months has seen significant activity both in terms of exploration activity at Talisman's Doolgunna Projects via its $15 million farm-in exploration joint venture with Sandfire Resources NL (ASX: SFR) and through the 100% acquisition of the Sinclair Nickel Project from Glencore and subsequent commencement of exploration activities by Talisman at Sinclair (see Figure 1).

Throughout the year extensive exploration programs continued to be managed by Sandfire at Talisman's Doolgunna Projects culminating in the discovery of a significant zone of high-grade massive sulphide mineralisation at Monty, which is emerging as an important new VMS discovery.

Exploration activities are continuing by Sandfire at the Monty prospect, the wider Springfield Project and at the Halloween Projects, under the terms of the exploration farm-in joint venture signed in December 2013.

With the securing of on-going exploration activities at the Doolgunna Projects, Talisman continued to pursue business development activities in the first half of the financial year with a strategic focus on identifying quality exploration projects located in Western Australia. This activity culminated in the acquisition of the Sinclair Nickel Project, located in the Agnew- Wiluna Greenstone Belt, a highly prospective nickel belt in the northern goldfields of Western Australia.

Since the acquisition of the Sinclair Nickel Project from Glencore in February 2015, Talisman has been conducting a detailed project wide review focused on regional targeting to highlight priority exploration target areas, which has resulted in the commencement of maiden on-ground exploration activities at the Sinclair Nickel Project subsequent to the end of the financial year, in August 2015.

The Company also commenced geological modelling and studies to improve understanding of the remnant, and extension potential of nickel mineralisation proximal to the Sinclair Mine.

Figure 1 - Talisman Mining Project Locations

■■ REVIEW OF OPERATIONS

DOOLGUNNA COPPER-GOLD PROJECTS

(Exploration Farm-in Joint Venture with Sandfire Resources)

Talisman has a portfolio of high-quality volcanogenic massive sulphide (VMS) copper-gold exploration projects in the Bryah Basin region of Western Australia. Australian copper producer Sandfire Resources NL (ASX: SFR) is funding active exploration at these projects as part of a joint venture exploration farm-in signed in December 2013. Sandfire has the right to earn up to a 70% interest in Talisman's Doolgunna Projects by spending $15 million on exploration over five-and-a-half years.

Talisman's Doolgunna Projects comprise the:

• Springfield Project that lies immediately along strike, to the east, from Sandfire's DeGrussa Copper-Gold Mine; and

• Halloween and Halloween West Joint Venture projects that abut Sandfire's Doolgunna Region tenements to the west.

  These projects are interpreted to contain extensions of the volcanic rock package which hosts the DeGrussa VMS deposits (see Figure 2).

  
  

  Figure 2: Talisman's Doolgunna Copper-Gold Projects subject to the $15M Exploration Farm-In Joint Venture with Sandfire Resources NL

  
  

  The $15 million exploration farm-in joint venture signed with Sandfire Resources in December 2013 grants Sandfire the right to earn up to a 70% interest in Talisman's wholly owned Springfield and Halloween Projects as well as Talisman's interest in the Halloween West Joint Venture under the following key earn-in terms:

• Sandfire has a minimum expenditure commitment of $5 million within the first two years before it can elect to either:

  • withdraw from the agreement with no further commitment and no project equity interest; or

  • spend an additional $5 million (for a total of $10 million) within a further 2 year period (total 4 years) in order to earn a 51% interest in the Doolgunna Copper-Gold Projects (First Interest)

• After Sandfire acquires the First Interest, a Joint Venture will be formed between Sandfire and Talisman, with Sandfire holding a 51% interest and Talisman a 49% interest, in Talisman's current rights and interests in Talisman's Doolgunna Copper-Gold Projects

• At that time Sandfire then has the option to sole fund a further $5 million (for a total of $15 million) on exploration expenditure within a further 18 month period in order to acquire a further 19% (Second Interest) in Talisman's current rights and interests in Talisman's Doolgunna Copper-Gold Projects, thereby taking its total interest to 70%

• If Sandfire gives a notice ceasing sole funding prior to acquiring the Second Interest it shall be deemed to have earned a 51% interest (with Talisman retaining a 49% interest) and the exploration joint venture will then be operated on a pro rata contributing basis or under standard industry dilution terms

  
  

• Should Sandfire elect to earn the Second Interest by spending a minimum of $15 million in total and thereby hold a 70% joint venture interest, Talisman will have the right to maintain its 30% interest by contributing to exploration expenditure on a pro rata basis or dilute under industry standard terms.

  Full details of the $15 million exploration farm-in joint venture can be found in the 2014 Annual Report.

  Subsequent to year end, Sandfire had formally notified Talisman that as at 30 June 2015 it had met the minimum $5 million expenditure commitment under the terms of agreement within the prescribed two year period and that it intends to continue sole funding exploration under the terms of the agreement.

  
  

  SPRINGFIELD PROJECT (Cu-Au)

  (100% Talisman Mining Ltd - subject to Sandfire farm-in exploration joint venture)

  The Springfield Project comprises a 303km² ground package located approximately 150km north-east of Meekatharra in the northern Murchison Goldfields region of Western Australia (see Figure 1).

  Springfield is 4km directly along strike, to the east from Sandfire's DeGrussa Copper-Gold Mine and hosts four corridors that are prospective for volcanogenic massive sulphides (VMS). These VMS corridors are Monty, Homer, Central Corridor and the Southern Volcanics (see Figure 3).

  
  

  Figure 3: Simplified prospective VMS Corridors at the Springfield Project subject to the exploration farm-in joint venture with Sandfire Resources,

  
  

  In addition to the continuation of the integration of Talisman's datasets, which commenced in the 2014 financial year, Sandfire conducted extensive exploration activities throughout the 2015 financial year across large areas of interpreted prospective stratigraphy. These activities included programs of high-powered fixed loop electromagnetic (FLEM) surveys, extensive regional aircore drilling to provide detailed geochemical information and targeted Diamond drilling.

  
  

  ■■ REVIEW OF OPERATIONS

  
  

  Sandfire conducted extensive high-powered FLEM surveys across interpreted prospective horizons at the Springfield Project covering the Homer, Monty, Central Corridor and Southern Volcanics areas. A total of 49 large (1,200m x 1,000m) fixed loop surveys were completed across the project.

  In addition to the surface electromagnetic (EM) surveys undertaken during the year, Sandfire re-entered 23 historic Talisman drill holes and completed high-powered downhole electromagnetic (DHEM) surveys.

  A total of 89km of aircore drilling has been completed by Sandfire across the Springfield Project during the 2015 financial year to provide additional geological and geochemical information. Reconnaissance aircore drilling has been conducted on nominal 800m spaced sections with infill drilling on 400m and 200m spaced lines conducted to provide more detailed data in selected target areas.

  
  

  Monty

  The Monty prospect, located approximately 10km from Sandfire's DeGrussa Copper-Gold mine (see Figure 3), was originally identified by Talisman as a prospective corridor of volcanic and sedimentary rock sequences with the potential to contain DeGrussa style VMS mineralisation.

  Historic exploration activities by Talisman included two Diamond drill holes that intersected narrow, potentially remobilised, zones of copper mineralisation that returned the following results:

  • SPD020: 0.3m @ 7.6% Cu (502.0m - 502.3m); and

  • SPD021: 0.5m @ 1.3% Cu and 1.0 g/t Au (347.5m - 348.0m)

  As part of a larger program to re-enter, and survey existing drill holes, Sandfire completed a high-powered DHEM fluxgate survey on historic Talisman Diamond drill hole SPD021 in the first half of the 2015 financial year. This survey returned a discrete off-hole conductor that was interpreted to be sub-parallel to drill hole SPD021 at a depth of approximately 400 metres below surface.

  Sandfire commenced a program of reconnaissance Diamond drilling at Monty in May 2015 to test this conductor. Diamond drill hole TLDD0002A was initially drilled (see Figure 5) to test this EM conductor.

  A high-powered DHEM survey undertaken in May 2015 on TLDD0002A identified a highly conductive late-time anomaly of 50 metres by 50 metres, approximately 15 metres off-hole centred at a down-hole depth of 410 metres, which was deemed to have the potential to represent an accumulation of mineralised massive sulphides.

  Logging of TLDD0002A by Sandfire also identified a zone of haematitic siliceous jasper nodules with trace disseminated chalcopyrite that closely resembled that of the exhalite adjacent to the massive sulphide mineralisation at DeGrussa.

  Drill hole TLDD0004A was drilled by Sandfire in June 2015 as a follow up (see Figure 5) to target the identified DHEM conductor in TLDD0002A. TLDD0004A intersected a significant zone of high-grade copper-gold mineralisation with final assays returning an exceptional massive sulphide intercept of 16.5 metres grading 18.9% Cu and 2.1g/t Au from 409.5m to 426m down-hole (not true width and from 365m below surface vertical depth).

  The intersection in TLDD0004A at Monty represents the first significant intersection of high-grade copper-gold mineralisation discovered by Sandfire or Talisman outside of the known lenses of VMS mineralisation at DeGrussa. The massive sulphide mineralisation, and the host sequence, intersected in TLDD0004A (see Figure 4) is similar to that seen in the DeGrussa, Conductor 1, 4 and 5 VMS lenses.

  Subsequent to the end of the 2015 financial year a number of additional drill holes at Monty (see Figure 5) also returned significant massive sulphide intersections including:

• TLDD0005 intersected the mineralised horizon approximately 70 metres south-west of TLDD0004A, returning an outstanding high-grade massive sulphide intercept of:

  • 9.2 metres grading 11.8% Cu and 2.9 g/t Au from 417.0m to 426.2m down-hole (not true width, from 370m vertical depth below surface)

    This intercept occurs within a broader mineralised zone of:

  • 13.1 metres grading 8.4% Cu and 2.1 g/t Au from 416.7m to 429.8m down-hole

• RC Drill hole TLRC0004 returned high grade intercepts in two zones:

• 18.0 metres grading 5.7% Cu and 2.4g/t Au from 107 metres to 125 metres down-hole including 4 metres @ 14.2% Cu and 3.6 g/t Au from 109 metres to 113 metres down-hole (not true width, from 90 metres vertical depth below surface); and

• 4.0 metres grading 4.2% Cu and 0.7g/t Au from 158 metres to 162 metres down-hole (not true width, from 140 metres vertical depth below surface).

  
  

  
  

  
  

  Figure 4: Drill Core photos of massive sulphide mineralisation from hole TLDD0004A

  
  

• TLDD0009 returned the following high-grade intercepts approximately 55 metres up-dip of the intersection in TLDD0005:

  • 1.0 metre grading 8.6% Cu and 0.3g/t Au from 343.0m to 344.0m down-hole (not true width, from 301.2 metres vertical depth below surface);

  • 7.9 metres grading 8.3% Cu and 2.4g/t Au from 363.1m to 371.0m down-hole (not true width, from 316.3 metres vertical depth below surface); and

  • 4.8 metres grading 4.9% Cu and 1.1g/t Au from 385.8m to 390.6m down-hole (not true width, from 334.7 metres vertical depth below surface).

• TLDD0010 returned the following high-grade intercepts approximately 70 metres up-dip of TLDD0006:

  • 0.5 metres grading 1.2% Cu and 1.4g/t Au from 355.6m to 356.1m down-hole (not true width, from 312.2 metres vertical depth below surface);

  • 10.5 metres grading 18.9% Cu and 3.1g/t Au from 359.7m to 370.2m down-hole (not true width, from 314.5 metres vertical depth below surface); and

  • 4.7 metres grading 12.8% Cu and 2.5g/t Au from 373.6m to 378.2m down-hole (not true width, from 328.0 metres vertical depth below surface).

■■ REVIEW OF OPERATIONS

Figure 5: Plan view of recent Monty and Homer exploration Diamond and RC drilling relative to the DeGrussa Copper-Gold Mine.

Homer Prospect

The Homer prospect is interpreted to represent the eastern extension of the DeGrussa stratigraphic horizon (see Figure 3). Sandfire have completed two Diamond drill holes on the prospect that have confirmed the continuation of the DeGrussa C5 host horizon.

TLDD0001 at Homer was the first Diamond hole drilled by Sandfire on the Springfield Project and was completed in August 2014 to a final depth of 1,099m (see Figure 5). The hole was designed to target a modelled conductor at a vertical depth of 400m below surface which was interpreted to sit within the extension of the prospective DeGrussa stratigraphic horizon, approximately 5km to the east of DeGrussa. The conductor resulted from the analysis of high-powered FLEM and DHEM surveys in six drill holes previously drilled by Talisman.

TLDD0001 intersected a 37m package of rocks which Sandfire have interpreted as being potentially analogous to the DeGrussa host horizon. The package consisted of siliciclastic rocks with variable haematite alteration, ranging from unaltered to pervasively altered. Sporadic jasper clasts were observed throughout the package. Within the most altered component of the package, a narrow zone of strong silicification, banded magnetite and fine sulphides was intersected.

The VMS stratigraphic package (including trace disseminated Cu mineralisation) identified in TLDD0001 is interpreted to be indicative of a proximal VMS environment.

In June 2015 Sandfire drilled TLDD0003 at the Homer Prospect (see Figure 5) designed to test the eastern strike extension of the interpreted C5 host horizon roughly 450m ENE of the TLDD0001 intersection.

The location of the drill collar coincided with a recently completed seismic line to facilitate stratigraphic interpretation.

The drill hole intersected haematitic exhalite with jasper clasts, which is interpreted by Sandfire to be the C5 target horizon. This horizon returned weakly anomalous base metal and trace elements.

The hole confirms the continuation of the C5 host horizon and supports additional work by Sandfire in the area heading further east along strike.