quarterly activities report - gtp...matrix metals limited – march 2006 quarterly report page 5 of...

Quarterly Activities Report

for the Quarter ended

31 March 2006

“The Funding Mandate

with Westpac Bank, the

Enhanced Project

Economics and the

Continuing Upward

Spiral of the Copper

Price, all Support an

Early Commitment to the

Development of the

White Range Project”

Highlight Snap Shots: • Westpac Bank chosen as Debt

Provider for White Range Project

• Enhanced White Range Project Economics announced

• McCabe Copper Resource Increased by 135%

• Uranium Joint Venture with Deep Yellow Limited

• New Uranium Anomalies Identified

• Cash at Bank of $7.7 million

• Copper Price continuing to rise significantly

For further information: 1131 Hay Street Andrew P. Chapman West Perth WA 6005 Managing Director & PO Box 1036, Chief Executive Officer West Perth WA 6872 Telephone: (08) 9486 7100 Facsimile: (08) 9486 7300 Email: [email protected] Website: www.matrixmetals.com.au

TABLE OF CONTENTS

1.0 HIGHLIGHTS.................................................................................................................3

2.0 MATRIX PROJECTS AND EXPLORATION OBJECTIVES...........................................4

3.0 WHITE RANGE PROJECT UPDATE ............................................................................6

4.0 EXPLORATION REPORT .............................................................................................7

5.0 URANIUM JOINT VENTURE WITH DEEP YELLOW..................................................15

6.0 EXPENDITURE REPORT ...........................................................................................15

7.0 OUTLOOK FOR THE JUNE 2006 QUARTER.............................................................15

8.0 COMPANY INFORMATION.........................................................................................16

LIST OF FIGURES

FIGURE 1 MATRIX PROJECT AND PROSPECT LOCATIONS .........................................5

FIGURE 2 McCABE RESOURCE UPGRADE COMPARISON OF THE 2005 AND 2006 RESOURCE SHELLS.......................................................................9

FIGURE 3 NEW URANIUM RADIOMETRIC ANOMALIES MATRIX SOUTHERN AREA ..........................................................................................11

FIGURE 4 NEW EPMA’S RADIOMETRIC ANOMALIES & URANIUM OCCURRENCES MATRIX SOUTHERN AREA...............................................13

LIST OF TABLES

TABLE 1 WHITE RANGE PROJECT UPDATED PROJECT FINANCIAL ANALYSIS FEBRUARY 2006 ............................................................................6

TABLE 2 McCABE DEPOSIT RESOURCE ESTIMATE JANUARY 2006 ..........................8

MATRIX METALS LIMITED – MARCH 2006 QUARTERLY REPORT PAGE 3 OF 16

1.0 HIGHLIGHTS

Westpac Bank Mandated

Following completion of a competitive selection process, the Company has chosen Westpac Banking Corporation as debt provider in respect of the development of the White Range Project. Matrix is also in receipt of indicative offers of funding of approximately $15 to $25 million related to providing off-take rights to an off-take party, with the preferred off-take partner yet to be selected.

White Range Project Update Enhanced White Range Project economics reported, Project funding package negotiations and grid power supply negotiations near completion and construction and operating contract preparation continuing.

McCabe Resource Increased by 135% The re-estimation of the McCabe copper resource that incorporated the results from the recently completed drilling program resulted in 135% increase in the resource to:

1,700,000 tonnes grading 1.24% Copper

Uranium Joint Venture with Deep Yellow Deep Yellow Limited (“Deep Yellow”) and Matrix Metals Limited (“Matrix”) have agreed a Uranium Joint Venture (“UJV”) whereby Deep Yellow will be granted access to explore for uranium on Matrix’s 5,000 square kilometres of tenement holdings in the uranium rich Mt Isa – Cloncurry region. The UJV will be formally known as the NW Uranium Joint Venture.

New Uranium Anomalies Confirmed Exploration work completed in recent months in the Company’s large tenement block area to the south of Cloncurry has been successful in identifying a host of new uranium anomalies. The anomalies are widespread across a very large area and in regard to future exploration success, complement the extensive occurrences of uranium mineralisation and anomalism.

Cash Position As at 31 March 2006, the Company had cash at bank of $7.7 million.


2.0 MATRIX PROJECTS and EXPLORATION OBJECTIVES Matrix’s ongoing exploration and development programs are targeting the development of the White Range Project, commencement of a feasibility study on the Company’s second Mt Watson Project and the continued successful exploration for oxide copper, primary sulphide copper, copper/ gold, gold only and uranium resources.


Matrix’s White Range and Mt Watson Projects and the numerous exploration prospects are contained within a 100% owned tenement holding, totalling approximately 5,000 square kilometres. The semi contiguous package of tenements are located in the world class Mt Isa base metal province of North West Queensland as presented in Figure 1.

FIGURE 1

MATRIX PROJECT AND PROSPECT LOCATIONS


3.0 WHITE RANGE PROJECT UPDATE Debt Funding Mandate In March 2006, the Company announced that following completion of a competitive selection process, the Company has chosen Westpac Banking Corporation as debt provider in respect of the development of the White Range Project (“Project”) located in the Mt Isa region of North West Queensland. Subject to completion of the already well advanced due diligence process, satisfaction of conditions precedent and Matrix determining its overall preferred financing structure, Westpac will provide a facility in the order of $40 million. In addition to this debt package, Matrix is also in receipt of indicative offers of funding of approximately $15 to $25 million related to providing off-take rights to an off-take party, with the preferred off-take partner yet to be selected by Matrix. Matrix anticipates that these funding sources will allow for a rapid move to formal commitment to development of the Project. Updated Project Financial Analysis In early February 2006, the Company presented financials for the Project that highlighted a significantly enhanced economic outlook for the Project based on the current strong copper price as at 27 January 2006 with these enhancement included in the table below. It is noted that at the time of the February re-assessment the spot copper price was approximately US$2.20 per pound, whereas at the date of this quarterly report the spot copper price is in excess of US$3.00 per pound. This further significant increase in the copper price will add further enhancement to the Project when ultimately included in the economic analysis.

TABLE 1 WHITE RANGE PROJECT

UPDATED PROJECT FINANCIAL ANALYSIS FEBRUARY 2006

New Base Case Model

February 2006

Production Rate 15,000 tpa

Copper Cathode Produced

87,081 tonnes

LOM Capital Costs A$ 59m

Operating cost /lb USD 0.74c

USD/AUD Exchange rate Hedging Curves then 0.70c flat

USD Copper Price Hedging Curves then $1.10 flat

EBITDA A$186m

EBIT A$127m

NPV @ 8% Disc. A$86m

IRR 60%


Modelling Criteria and Assumptions:

• Discount Rate of 8% • The backwardation curve assumes hedging was effected 27Jan 06 for 100% of copper production,

with production commencing in Mid 2007 • Power costs assume grid power at currently indicated tariff rates • Modelling structured as per the January 2005 BFS assessment unless otherwise noted • Capital costs as at Jan 05 and are currently the subject of re-estimation for the banking review

In preparation for the finalisation of the Project Funding package, capital and operating costs are currently being re-estimated based on the outcomes of the recent optimisation studies and to take into consideration up to date price and cost structures. Project economics will then be re-assessed based on the re-estimates and importantly the significantly higher copper prices. Project Development Outlook The key component of funding for development and construction of the White Range Project has now been formally mandated, with other components of the funding package in final negotiation. Work related to completion of the banking due diligence, satisfaction of conditions precedent and activities related to commencement of development are all continuing, with development anticipated to commence this calendar year. In preparation for a final decision to proceed with the Project, the following specific Project activities are proceeding:

• The Project Manager has been appointed • Early stage engineering design has commenced • Mining tender documents are being finalised • Negotiations are proceeding with a nominated preferred Engineering Construction

Contractor • Key supply contracts are in negotiation

4.0 EXPLORATION REPORT 4.1 McCabe Copper Resource Increased by 135% As announced in January 2006 (and in the Dec 2005 Quarterly Report) the re-estimation of the McCabe copper resource that incorporated the results from the recently completed drilling program resulted in a 135% increase in the resource to

1,700,000 tonnes grading 1.24% Copper Specifically the following was reported:

• The McCabe resource has increased by 135% to 1.70 million tonnes @ 1.24% copper (0.5% cut off). This compares to the previous McCabe resource of 720,000 tonnes @ 1.2% copper (0.8% cut off), as reported in the 2005 Annual Report Resource Inventory Table.

• The re-estimation represents an increase in the contained in-ground copper at

McCabe from 9,000 tonnes to 21,000 tonnes. • This increase, when considered with the 50% resource increase reported for the

Vulcan deposit in late 2005, confirms the ongoing resource growth potential of the White Range Project.


• Planned drilling programs will continue to further test the potential of the White Range area. These programs will include additional drilling at the McCabe and Vulcan Deposits, a program to define an initial resource at the Leone Prospect as well as testing of a number of additional new prospects.

Details of the McCabe Resource The Company’s 100% owned Mt McCabe Deposit is a part of the White Range Project and is located 6 kilometres south west of the main Greenmount Deposit. Drilling programs completed during 2005 have confirmed the significant resource potential of the deposit. The last drill program was completed in late November 2005, with the copper resource upgrade achieved as reported in Table 2 below.

TABLE 2 McCABE DEPOSIT RESOURCE ESTIMATE

JANUARY 2006

ORE TYPE CATEGORY TONNAGE Cu% Oxide & Transitional Measured 680,000 1.23

Indicated 790,000 1.23 Inferred 99,000 1.14

Oxide & Transitional Total 1,600,000 1.23

Primary Measured 42,000 1.51 Indicated 65,000 1.54 Inferred 10,000 1.52

Primary Total 120,000 1.53

Measured Total 720,000 1.24 Indicated Total 860,000 1.25 Inferred Total 110,000 1.16

GRAND TOTAL 1,700,000 1.24 Notes The mineralisation in this resource is weathered vein style copper mineralisation hosted in siltstones and breccias with copper carbonate and chalcocite mineralogy. Updated estimates are based on Median Indicator Kriging. Estimates are at 0.5% Cu cut-off. Blocks estimated to have less than 10% of material above cut off are excluded from the resource. Drilling methods are RC and diamond coring with 7,728m from 117 drill holes contributing informing samples. Bulk density is based on pycnometer and bulk core determinations and lithologic assigned densities. Ore type is based on observed mineral species. Assay is by AAS. Apparent errors subject to rounding.


Figure 2 below presents a perspective view of the McCabe Deposit showing drilling, the previously estimated resource (named “2005 Resource Outline”) and the much larger re-estimated resource (named “2006 Resource Outline”) , which has been extended to the east and to depth.

FIGURE 2 McCABE RESOURCE UPGRADE

COMPARISON OF THE 2005 AND 2006 RESOURCE SHELLS

4.3 White Range Regional Exploration Uranium Potential Enhanced Regional exploration continued across the White Range Project area with a number of new anomalies and zones of mineralisation identified. Notably, in addition to a number of significant new copper anomalies, uranium anomalism was identified in a number of new areas. The anomalies are widespread across a very large area (refer Figure 3) and in regard to future exploration success, complement the extensive occurrences of copper and uranium mineralisation and anomalism previously announced by the Company. As reported on 20 February 2006, Matrix formed a joint venture with Deep Yellow Limited (DYL) whereby DYL has the right to earn a majority equity position in the uranium rights on Matrix tenement holding. DYL have advised Matrix that field work programs on Matrix’s tenements are scheduled to commence in April. Full details of the joint venture with DYL are presented in section 5 of this report. Details of the New Anomalies and Uranium Exploration Potential In recent months in concert with the ongoing copper exploration activities, Matrix has identified a host of new uranium anomalies in the large tenement area to the south of Cloncurry (known as the Southern Area).


These new widespread anomalies in the Southern Area, as presented in Figure 3, have further enhanced the potential of this historic belt to host significant copper uranium mineralisation. This recent Matrix work on the Southern Area has highlighted the following new prospects:

• Copper Canyon Area (centred on AMG 450400E, 7685800N).

Values up to 507ppm U and 1.12%Cu have been returned from limited sampling of RC percussion drill chips whilst rock chip sampling has returned up to 480 ppm U and 1.74 g/t Au, 880 ppm As and 285 ppm Mo. The anomalous U samples are spread intermittently over a 2 kilometre strike length and are predominantly from black shale material (Marimo Shale) close to the contact with the calcareous Corella Breccia. Much of the surface is covered by a thin veneer of gravels in this area which limits the outcrop sampling. Enhancement of the U channel from airborne radiometrics has revealed a strong NNW trending anomaly over 2.5km which partly coincides with the U anomalous surface samples and requires further investigation.

• Greenmount Area ( 451150E,7674635E)

Up to 1040 ppm U has been received as well as 1160 ppm As and 5600 ppm Cu from limited RC percussion chip sampling of clay altered shales.

• Mahjong South (450750E,7681480N)

Up to 260 ppm U and 1635 ppm Cu has been returned from very limited rock chip sampling of ironstone material. Several relatively strong radiometric U anomalies remain to be inspected in this area.

• Mahjong East (454270E, 7681924N).

Values of up to 226ppm U have been returned from limited rock chip sampling of altered sediments coincident with a strong, isolated U anomaly in an area of limited exposure.

• Martin Creek (454800E, 76900N)

This area is characterised by a nest of significant U anomalies coincident with fine grained, high level intrusives. Values of up to 236 ppm U have been returned from rock chip sampling.

• McCabe Area (447100E, 7669750N).

NE trending ironstones near the Cu mineralised McCabe are radioactive and have returned up to 76 ppm U, 0.15 g/t Au and 1000 ppm V from limited rock chip sampling and up to 110 ppm U from drilling to date. The NE trending U radiometric anomaly extends over 4 kilometres and is of interest as it appears to be on an unconformity highlighted by the ironstones – this setting may be similar to the highly mineralised U province in the Pine Creek Province in the NT (Ranger, Jabiluka etc)

• Toby Barty (438900E,7682100N)

Values from limited rock chip sampling of altered metasediments have returned up to 210 ppm U as well as 3.3% Cu. A number of extensive NNW trending U anomalies have been indicated in this area (from both airborne radiometric and surface lag sampling), all that remain to be followed up.


FIGURE 3 NEW URANIUM RADIOMETRIC ANOMALIES

MATRIX SOUTHERN AREA


Uranium Exploration Outlook Whilst exploration in the Southern Area is at an early stage (in terms of surface/drill sampling, construction of productive exploration models plus enhancement and understanding of radiometric/magnetic data), the work to date has demonstrated widespread copper and uranium anomalism and augers well for the success of future exploration and resource delineation in the region. In specific regard to uranium, this opportunity is particularly evidenced by recent ground work and inspection of radiometric images that has established the presence of a number of key factors for uranium deposition, i.e. “hot” radioactive granites and dykes; favourable hosts such as calcsilicate breccias and black shales; sulphide rich intrusive dykes accompanied by clay alteration and the presence of unconformities with attendant strong hematite alteration.

Exploration for uranium within Matrix’s tenement will now have two distinct components. In the first instance, uranium will be explored for as a matter of course in Matrix’s ongoing copper exploration pursuits. In addition, Deep Yellow is planning to commence active field exploration activities on Matrix’s tenements in April 2006.

New EPM’s Applications Enhance Copper, Gold and Uranium Potential In March the Company announced that the Queensland Department of Natural Resources and Mines has accepted two new Applications for Exploration Permits for Minerals (EPMA’s). The new tenements cover an area that Matrix considers to be highly prospective for copper and gold and notably for uranium and are located about 10 kilometres SE of Matrix’s Kuridala copper resource which is a key deposit in the White Range Project. The new EPMA’s (being EPMA 15196 known as Mt Tracy and EPMA 15520 known as Top Bore) cover a total area of approximately 600 square kilometres which now brings Matrix’s total tenement holding in the Mt Isa region to over 5,000 square kilometres. The new EPM’s cover a large tract of ground that is considered to most prospective for both copper and gold and notably for Uranium mineralisation both within and adjacent to the Proterozoic Squirrel Hills Granite. Very limited previous exploration has been carried out in this area due to the limited extent of outcrop and the perception that the granite was not prospective. However, recent processing by of airborne radiometric/magnetic data by Matrix has delineated a number of relatively strong U anomalies from within the granites and it is noted these anomalies are usually co-incident with well defined basement structures (see Figure 4). Up to 78 ppm uranium has been returned from previous limited rock chip sampling, however it is noted these samples are located some distance away from the stronger airborne uranium anomalies.


FIGURE 4

NEW EPMA’S RADIOMETRIC ANOMALIES & URANIUM OCCURRENCES

MATRIX SOUTHERN AREA


New EPM’s Applications Enhance Copper, Gold and Uranium Potential (cont) The geology comprises two phases of the radioactive Squirrel Hills Granite ie. porphyritic and non porphyritic hornblende, biotite granite with dyke swarms covering much of the porphyritic phase. Proterozoic sediments are in contact with the granite on the eastern side (Doherty Formation) and on the western side (Kuridala and Stavely Formations). Much of the granite is also covered by younger Cretaceous sediments (Gilbert River Formation) whilst large portions are also covered by recent alluvium/colluvium from the Cloncurry River and Farley Creek. These areas of cover offer an exploration opportunity as they tend to subdue uranium airborne anomalies and have not been explored before. The structural setting is characterised by a conjugate set of ENE, WNW and NW structures which appear to influence the distribution of the uranium anomalies. These structures are important for mineralisation as they provide a mechanism for fluid flow (and thus mineral transport) as well as structural trap sites for mineral deposition. The area under application is considered to be prospective for the following styles of mineralisation:

• vein style gold mineralisation associated with quartz veining close to granite contacts

• disseminated , iron oxide related Cu/Au +- U mineralisation associated with breccias and magnetic/radiometric anomalies

• disseminated U mineralising associated with dyke swarms in radioactive granites

• vein style U mineralisation associated with Proterozoic sediment /granite contacts and structures and

• sedimentary U associated with the base of the younger Gilbert River sediments, derived from the U enriched granites

These new EPM applications complement the existing portfolio of tenements already held by Matrix that are prospective for both Cu/Au and U mineralisation. Under the provisions of the joint venture with Deep Yellow, these tenements when granted, will be available for uranium specific exploration by Deep Yellow while Matrix maintains rights to explore for all minerals. 4.4 Mt Watson Regional Exploration Exploration activities continued in the Mt Watson region in the form of mapping and sampling around existing deposits, as well as the commencement of more regionally focused exploration.


5.0 URANIUM JOINT VENTURE WITH DEEP YELLOW In February 2006, the Company announced that they have agreed a Uranium Joint Venture (“UJV”) with Deep Yellow Limited whereby Deep Yellow will be granted access to explore for uranium on Matrix’s 5,000 square kilometres of tenement holdings in the uranium rich Mt Isa – Cloncurry region. The UJV will be formally known as the NW Uranium Joint Venture. Key Terms of the UJV Matrix and Deep Yellow have executed a binding heads of agreement to be followed by a formal joint venture agreement on the following terms:

• Deep Yellow has the right to earn a 51% position in the UJV by spending $3,000,000 over a 3 year period.

• The expenditure commitments require Deep Yellow to spend $500,000 in the first nine months and to issue to Matrix ordinary shares in Deep Yellow equal to 2.2% of the issued capital of Deep Yellow, provided Deep Yellow elect to continue earning towards a 51% position. On election, Deep Yellow must spend $1,000,000 in the following year and $1,500,000 the year after that, to earn its 51% position.

• After earning the 51% position, Deep Yellow can acquire an additional 29% at any time up until the commencement of a bankable feasibility study (“BFS”) on any specific resource, for an additional $3,000,000 indexed at CPI.

• After completion of any individual BFS on any particular resource, Deep Yellow may buy out Matrix’s residual 20% position in that specific resource for a value equal to 15% of the in-ground value of Matrix’s 20% holding in the resource.

• Each discovered resource subject to a BFS, is subject to the buyout provision referred to above. The greater UJV continues at the respective ownership positions as may be dictated at any point in time.

6.0 EXPENDITURE REPORT Expenditure on exploration and feasibility activities during the quarter totalled $1,410,325. Expenditure on production activities was $135,406. No production occurred during the quarter, with the expenditure relating to care and maintenance activities at Mt Cuthbert.

7.0 OUTLOOK FOR THE JUNE 2006 QUARTER Key activities planned for the June 2006 Quarter will include:

• Finalisation of a funding package for the White Range Project.

• Finalisation of the grid power supply for the White Range Project.

• Finalisation of the remodelling of the White Range Project economics incorporating the new resources, updated costs, higher copper prices and a range of other project enhancement and variations that have been developed for the Project.

• Finalisation of the various construction and operational tender and contract documents for the White Range Project.

• Continuation of LAG and soil sampling programs across the greater White Range Project area.


• Commencement of field work by Deep Yellow Limited on the NW Uranium Joint Venture.

• Continuation of the regional exploration programs in the greater Mt Watson region. Yours Faithfully

Andrew Chapman Managing Director The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Tony Alston and Bob Dennis. Mr Alston and Mr Bob Dennis are both Members of the Australasian Institute of Mining and Metallurgy and are full-time employees of the Company. Messrs Alston and Dennis have sufficient experience which is relevant to the style of mineralisation and the type of deposit under consideration and to the activity which they is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, the JORC Code”. Messrs Alston and Dennis, each consents to the inclusion in the report of the matters based on information in the form and context in which it appears.

8.0 COMPANY INFORMATION

DIRECTORS David J. Humann Chairman Andrew P. Chapman Managing Director & Chief Executive Officer Shane Mc Bride Executive Director, Chief Financial Officer and Company Secretary

PRINCIPAL OFFICE 1131 Hay Street West Perth WA 6005 PO Box 1036, West Perth WA 6872 Telephone: (08) 9486 7100 Facsimile: (08) 9486 7300 Email: [email protected] Website: www.matrixmetals.com.au ASX Code: MRX

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