15 January 2016

AVALON MINERALS LTD DECEMBER 2015 QUARTERLY REPORT

Viscaria Copper Project, Sweden (Avalon - 100%)

• Scoping Study released in December determined that the Viscaria Copper Project demonstrates robust project fundamentals with low technical risk;

• Updated Mineral Resource estimate completed for D Zone of 11.14 Mt at 1.23% Cu for 137,200 tonnes of contained copper;

• Assay results for 4 Diamond drill holes (including a wedge hole) were received at Viscaria D Zone, delivering very encouraging, and locally high grade, copper results, and representing a very significant development in the growth of the D Zone orebody;

• Two holes, VDD 195 and 196, have been drilled outside of the area of this updated 2015 Mineral Resource estimate and both contain significant high grade copper intersections, indicating that further growth of the D Zone Mineral Resource estimate is to be expected with additional drilling in 2016;

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

    
    

    Corporate Highlights

  • A$1.7 million in cash at 31 December 2015;

  • Rights Issue of 1 share for every 2 held completed during the quarter with total acceptance of 61% (including subsequent placement of part of the shortfall to one shareholder of their full entitlement) raising a total of $2.1M;

  • Placement of approximately $0.4M to existing major shareholders also announced in conjunction with the Rights Issue.

  • Announcement that Avalon would not be proceeding with the Discovery Zone acquisition and issue of Refund Notice for the First Payment of $1M.

Exploration and Development Activities

Viscaria Scoping Study

The findings of the Viscaria Copper Project (VCP) Scoping Study were presented in an ASX announcement dated 14 December 2015.

The Scoping Study considered a Base Case development proposition involving standard industry technology partnered with infrastructure opportunities and local equipment manufacturer support not seen by any competitor. The Scoping Study has determined that the VCP demonstrates robust project fundamentals with low technical risk. It contemplates the concurrent development of three open pit mining operations at A Zone, B Zone and D Zone and an underground operation at D Zone all located within one kilometre of a central ore processing facility. The Base Case considers a 1.2 million tonne per year milling rate producing on average 12,000 tonnes per year of copper in concentrate.

All three deposits remain open at depth. The exploration upside is considered to be very strong as has been demonstrated in recent drilling results.

Additional drilling is planned on proposed D Zone underground areas, and proposed A and B Zone open pit development areas to deliver additional resources and to increase the production rate to

o 5.25m at 2.0% Cu from 559.5m.

Drill hole VDD 193W was a wedge hole drilled from VDD 193 and aimed at testing the up-section position of the very strong copper intersection in VDD 193 (26.7m @ 2.6% Cu from 564.6m, ASX announcement 21 September 2015). Drilling of the wedge hole was technically difficult and it deviated to the north into a position away from the target zone. Nevertheless, it intersected a well mineralised zone.

VDD 193W was wedged from a point located 220.3m down hole in VDD 193, and intersected a point approximately 45m north and above the VDD 193 intersection.

Drill hole VDD 194, located 100m south of VDD 193 and at the same level (RL), intersected a narrow copper mineralised ironstone interval and may define the southern margin of the steep shoot intersected in VDD 193.

Both drill holes VDD 193W and VDD 194 were included in the updated Mineral Resource estimate.

VDD 195 was targeted to deliver significant vertical extension to the higher grade, and thicker portion of D Zone copper mineralisation outside of the current new D Zone Mineral Resource estimate. This has been delivered as VDD 195 intersected a 130m thick altered and mineralised zone that included a 45m thick ironstone and altered sequence located 140m below VDD 193. The broad mineralised zone returned assays of 127m at 0.58% Cu and included several high grade, >2% Cu shoots.

These results strengthen the interpretations of geometry and demonstrate significant vertical extent to the D Zone high grade shoots. This is also the best intersection of copper within the tuffaceous unit host immediately adjacent to the main ironstone lode. This once again broadens the target style for additional mineralisation at D Zone.

The intersection in VDD 195 is open to the north, south and at depth.

Drill hole VDD 196 is the first hole of the 2015 drill program to assess the potential southern shoot at D Zone. VDD 196 intersected a copper mineralised ironstone and altered sequence over a down hole interval of approximately 45m. VDD 196 has been drilled at depth below holes VDD 163 and 155 which intersected down hole intervals of 3.8m at 1.8% Cu and 5m at 1.4% Cu respectively. It was particularly encouraging to see hole VDD 196 intersect 2% Cu over a 5.25m interval and supports the concept of increasing grade with depth in this southern shoot. The concept of a southern high grade shoot is supported by these recent results and will be the target of drilling in 2016.

These results further enhance the D Zone orebody by defining high grade mineralisation outside of the resource area and delivering to what the recent Scoping Study required - additional tonnes to support the next phase of assessment at a development scale of 2 million tonnes per annum throughput.

Discovery Zone

As announced on 9 October 2015, the Heads of Agreement for the acquisition of the Discovery Zone copper-iron deposit has not been extended. Since the exploitation concession application had not been granted by 8 October 2015 (being two years from the initial payment), the initial A$1 million payment made by Avalon is refundable by Hannans, and a Refund Notice has been issued. Hannans have a 90 day period to make the refund payment.

The 90 day period for Hannans to make the refund payment expired on 7 January 2016. As at the date of this report Hannans is yet to make any payment and Avalon is considering its options with regard to recovery of this debt.

Tenements

During the quarter, exploration tenements Viscaria No 101 and Viscaria No 3 were renewed.

Corporate

Cash Resources - The Company's unaudited cash position for December 31, 2015 is A$1.7 million.

Capital Raising

On 16 October 2015 Avalon announced a non-renounceable Rights Issue of 1 new share for every 2 shares held at a price of A$0.027 per share to raise approximately A$3.4 million, in conjunction with a placement of 14,851,852 shares under the Company's available capacity, at A$0.027 per share, to sophisticated investors to raise approximately A$0.4 million.

Acceptance under the rights issue was 61% which includes the placement of some of the shortfall shares post the closing date of the Rights Issue to one shareholder for the equivalent number of their entitlement under the Rights Issue which had not been taken up as at the closing date.

The remaining shortfall shares from the Rights Issue stands at 50,066,873, which can be placed at the discretion of the Board no later than three months after the closing date of the offer (i.e. by 9 February 2016).