11 July 2016

AVALON MINERALS LTD JUNE 2016 QUARTERLY REPORT

Lithium Portfolio, Scandinavia (Avalon - 80%)

• Avalon entered into two agreements over known lithium properties in Finland and Sweden;

• The flagship property includes the known high grade Kietyönmäki lithium pegmatite and surrounding area which includes 24m at 1.3% Li2O in historical Diamond drilling by the Finnish Geological Survey. Peak assays include 3m at 4.35% Li2O;

• Drilling at Kietyönmäki is expected to commence in Q3, 2016 and is aimed at delivering a maiden Resource estimate;

• Avalon's move into the lithium sector builds on its Scandinavian expertise and network, and is a complementary business to its advanced Viscaria Copper Project.

  Viscaria Copper Project, Sweden (Avalon - 100%)

• The Viscaria Copper Project Environmental and Social Impact Assessment (ESIA) process is progressing, and represents the critical path to final permitting;

• Work continues on increasing the scale of the Viscaria Copper Project.

• Additional geological and mine modelling studies on A and B Zone have enabled delineation of a larger open pit and captured more Mineral Resource into Mining Inventory to support a larger scale mining operation;

• In addition, further growth of the D Zone Mineral Resource estimate is expected with additional drilling in 2016 and 2017 (see ASX announcement 5/4/16).

  Corporate Highlights

  • A$0.6 million in cash at 30 June 2016;

  • Placement of approximately $1.9M to new sophisticated investors and existing cornerstone shareholders announced 6 July 2016.

Exploration and Development Activities

Lithium Portfolio

During the quarter Avalon entered into agreements to secure interests over known lithium properties in Finland and Sweden.

In Finland Avalon, through subsidiary Scandian Metals Pty Ltd (Scandian), finalised an earn-in joint venture with Canadian company Nortec Minerals Corp. over the Kietyönmäki lithium occurrence in southern Finland. The terms of that agreement were announced on 19 May 2016.

Tammela (Somero) Lithium Project

Lithium mineralisation at Kietyönmäki is hosted in a spodumene-bearing pegmatite dyke swarm. The Kietyönmäki lithium pegmatite deposit was drilled during the period 1987 and 1988 by GTK. Seventeen shallow Diamond drill holes were completed to test down to 70m below surface across three traverses, including one traverse of very shallow holes to identify bedrock. Assay results are tabulated in table below.

Assays from drill holes completed by the Geological Survey of Finland (GTK), and confirmed by Nortec, included 9m at 2.2% Li2O within a broader zone of 24m at 0.1.3% Li2O within R310.

Table 3: Kietyönmäki assay results

The Kietyönmäki lithium deposit is held under approved claims and field work is planned to commence in July with drilling expected to commence in August-September 2016. Avalon has also lodged further Exploration Reservation applications in the Somero district in southern Finland.

Avalon has included an Exploration Target of 8-15Mt at 1.4% - 1.8% Li2O (refer to ASX announcement dated 14 June 2016). The potential quantity and grade is conceptual in nature. There has to date been insufficient exploration to estimate a Mineral Resource and it is uncertain if further exploration will result in the estimation of a Mineral Resource. The Corporate Presentation released on 14 June 2016 provides further background on this target.

The Exploration Target is comprised of:

•4 -6Mt at the Main dyke drilled to a depth of 300m below surface. Existing drilling has tested the dyke to 65m below surface

•2 -5Mt from outcropping and lithium bearing pegmatite dykes immediately south-west of the Main Dyke, where there has not been previous drilling

•2 -5Mt from lithium pegmatite dykes, partially drill tested, to the north-east of the Main Dyke

•2 -3Mt from mapped dykes within a 1km radius, and primarily along strike, of the Main Dyke, where there has not been previous drilling

Tammela Gold Opportunity

The Nortec JV also includes two defined gold opportunities (Satulinmäki and Riukka) held within the claim areas and further exploration will be undertaken to assess these areas. All historical drilling is shallow and has only tested to ~70m below surface. Historical assays by GTK included 22m @ 3.6 g/t Au from 50 metres (hole 391) at Satulinmäki.

Kaustinen Lithium Project

In the Kaustinen district in central Finland Avalon, through Scandian, has lodged an Exploration Reservation application covering up to 500 km2, within the Central Ostrobothnia district, home to several known lithium pegmatites some of which are at an advanced stage of PFS and held by private Finnish company Keliber Oy. The area of the Exploration Reservation application by Scandian does overlap in part with competing applications and these are yet to be resolved.

Avalon has also applied for smaller Exploration Permit applications directly adjacent to defined lithium deposits.

Seinäjoki Lithium Project

One Exploration Reservation application has been lodged by Scandian over an area of 207 km2 covering a documented lithium pegmatite occurrence, and at the southern end of the regional geological province that includes the Kaustinen district in the north. Reconnaissance exploration will commence upon approval of the Exploration Reservation.

Applications for Exploration Reservations in the Tammela, Kaustinen and Seinäjoki areas are still being processed by the Finnish Safety and Chemicals Agency (Tukes; the government department responsible for administering mining tenure in Finland), and some of the areas under application have competing applications, but these do not compromise Avalon's exploration and proposed resource definition drilling program at the Kietyönmäki deposit.

In Sweden Avalon, through subsidiary Scandian Metals Pty Ltd (Scandian), has entered into a Heads of Agreement with private Australian interests to explore two approved Exploration Concessions and an application for an Exploration Concession in Vasternorrlands, referred to as the Ladum Project.

The Australian interests include a private company held by well-known and highly respected geologist and analyst David Ransom, with a 20% equity position in Scandian, and the issuance of 5 million shares in Avalon being granted to the private Australian interests in exchange for vending these prospects into Scandian.

The Ladum Project covers areas within a regional pegmatite district that has seen minor historical exploration primarily for tin. Most of this exploration was undertaken by LKAB in the 1980's. The exploration included geophysics, till-sampling, and general geological mapping and investigations. This work resulted in a number of tin, niobium, tantalum and lithium bearing pegmatites being defined. After this initial program LKAB ceased all exploration and focussed its business on iron ore developments in northern Sweden near Kiruna.

The main prospect secured under approved Exploration Concession consists of a NE-trending lithium-bearing pegmatite dyke swarm.

The main prospect area is within forested terrain with easy access through logging roads. Main roads, power lines and local towns such as Sollefteå are all nearby. Ports are located approximately 75km to the south-east. The climate in the area is relatively mild due to proximity to the Baltic Sea.

Data compilation and an initial field program on the Ladum Project, Sweden is scheduled for July.

Avalon, through Scandian Metals, assumes responsibility for a 1% net smelter royalty payable to the original Swedish claim owner.

Avalon will fund exploration on the Scandian portfolio of lithium projects and standard dilution clauses apply once expenditure thresholds are exceeded.

All exploration areas within the Scandinavian portfolio are supported by high quality infrastructure. Good quality open file data exists and compilation and interpretation of this data has commenced. Data from joint venture partners is also undergoing review.

Low sovereign risk in Finland and Sweden, and Avalon's operating base from Kiruna in northern Sweden, together with local partnerships, support this initiative. Securing an advanced, drill ready lithium deposit at Kietyönmäki, and documented lithium-bearing pegmatites in all other areas held and under application, allows for rapid advancement towards definition of a maiden resource.

Tenements

During the quarter, the following lithium tenements were obtained, or applications lodged in Sweden and Finland, by Avalon's 80% owned subsidiary Scandian Metals Pty Ltd (through its 100% owned Swedish subsidiary Scandian Metals AB):

• Ladumyrberget nr 1Exploration Concession, Vasternorrlands, Sweden - Granted^

• Ojaklacken nr 1Exploration Concession, Vasternorrlands, Sweden - Granted^

• Fannbyasen nr 1Exploration Concession, Vasternorrlands, Sweden - Application^

• Niinimäki Exploration Reservation, Somero, Finland - Application

• Ypäjä Exploration Reservation, Somero, Finland - Application

• Kaila Exploration Reservation, Somero, Finland - Application

• Loulus Exploration Reservation, Kaustinen, Finland - Application