Magnetite Mines : Third Quarter Activities & Cashflow Reports

ASX ANNOUNCEMENT 27 APRIL 2022

THIRD QUARTER ACTIVITIES REPORT

ENDING 31 MARCH 2022

Highlights

•  Positive Expansion Study completed for the Razorback Iron Ore Project, demonstrating the business case for further, staged expansion scenarios at the Project.

•  The Single Step Expansion case generated a post-tax IRR of 27% and NPV-8 of A$2,455m at a 62% Fe iron ore price of US$110/t and has an all-in 62% Fe breakeven price of US$40/t

•  Completion of metallurgical and shallow infill drilling at the Iron Peak Deposit for a total of 17 diamond drill cores (~2000m) to deliver metallurgical and resource definition datasets.

•  Advancement of permitting and approvals baseline studies and stakeholder engagement towards statutory permitting requirements

•  Significant progress achieved for the Definitive Feasibility Study including the engagement of key consultants for mining (AMC) and tailings design (Hatch) as well as considerable progress in engineering and design of the proposed processing plant

•  Appointment of new Non-Executive Directors, Mr. Jim McKerlie and Mr. Paul White, strengthening the board's experience and expertise.

Magnetite Mines Limited (ASX:MGT)(Company) continues to advance the Definitive Feasibility Study (DFS)1 for its flagship Razorback Iron Ore Project (Project).

During the quarter, a number of key work programs were completed for the Project. An Expansion Study2,3 assessing production expansion at the Project generated a post-tax IRR of 27% and NPV-8 of A$2,455m at a 62% Fe iron ore price of US$110/t and has an all-in 62% Fe breakeven price of US$40/t.

In addition, a 17 hole diamond drill program at the Iron Peak Deposit4,5 was completed to supply the project with metallurgical and resource definition datasets together with significant DFS study progression including processing plant design, metallurgical testwork and optimised mining studies.

RAZORBACK EXPANSION STUDY

In March 2022, Magnetite Mines completed an Expansion Study assessing the benefits of increased scale at the Razorback Iron Ore Project following production start-up.2,3 The key features of the study were as follows:

•  The Project would initially be commissioned as a low-capital, 3Mtpa capacity development per the PFS design

Magnetite Mines Limited | ABN: 34 108 102 432 | Suite 1, 22 Greenhill Road, Wayville, SA 5034 | email:[e-mail] |www.magnetitemines.com | Tel: [phone]

Page 1

•  Additional production capacity would be achieved through replicating the modular 15.5Mtpa processing plant designed by Hatch to an AACE Class 5 standard, which is currently undergoing detailed design in the DFS

•  In the Single Step Expansion case, representing a one-off increase in production from 3Mtpa to 7Mtpa, two 15.5Mtpa processing modules would be added three years after production, for a final capacity of 7Mpta

•  In the Staged Expansion case, representing a two-step phased increase in production, an additional 15.5Mtpa processing module would be added in year three and again in year six after initial production, equating to capacity of 5Mpta and 7Mpta respectively

•  The study produced attractive financial outcomes which reflected economies of scale in operating and capital expenditure, and a material reduction in transportation costs from replacing road haulage with rail haulage three years into production

•  The Single Step Expansion case generated a post-tax IRR of 27% and NPV-8 of A$2,455m at a 62% Fe iron ore price of US$110/t and has an all-in 62% Fe breakeven price of US$40/t

•  ESG considerations were at the forefront of project configuration decisions with additional power to be sourced from the renewables-weighted South Australian grid and additional water likely to come from saline wastewater offtake

The table below presents the key financial and operating metrics of the two cases, both at a project level and in terms of individual stages.

Table 1. Summary of Expansion Study financials on an ungeared basis

Single-Step Expansion	Staged Expansion
62% Fe iron ore reference price	US$/t	110	110
AUD:USD exchange rate	:	0.71	0.71
Average product at scalea	Mtpa	6.8	6.7
Construction capital	A$M	1,985	1,985
Contingency %	%	26%	26%
All-in breakeven iron ore priceb	US$/t	40	41
Post-tax NPV-8c - all stages	A$M	2,455	2,239
Post-tax IRR - all stages	%	27%	25%
Nominal plant feed	Mtpa
Average product in 3 years after construction	Mtpa
Construction capital	A$M
Incremental post-tax NPV-8d, each stage	A$M
Incremental post-tax IRRd, each stage	%

Stage 1	Stage 3	Stage 1	Stage 2	Stage 3
15.5	46.5	15.5	31.0	46.5
2.7	7.1	2.7	4.8	6.8
671	1,315	671	850	465
660	1,794	660	894	685
19%	33%	19%	28%	38%

a. Calculated as average annual production of concentrate in the first ten years following Stage 3 expansion

• b. The 62% Fe iron ore price at which the NPV-8 of post-construction net cash flows equals zero, calculated at the commencement of Stage 3 production

• c. NPVs in real terms as at 30 June 2022 using 8% post-tax real discount rate, ungeared basis

• d. IRR of the expansion capital and marginal net cash flows reasonably attributable to each stage. Stage 1 net cash flows were taken to equal those of the PFS's Plant Optimised case - therefore, the Stage 1 incremental IRR of 19% represents the IRR of the Plant Optimised case at an AUD:USD exchange rate of 0.71.

Both expansion cases were modelled over approximately thirty years - notwithstanding the significant production rates, total run-of-mine (ROM) ore in the two cases represents just 24% of the company's current indicated and inferred resources (JORC 2012) across the Braemar region.7 In the first ten years of operation, 87% of ROM ore mined fell within Probable Ore Reserves.9

The successful financial and technical outcomes of the Expansion Study validates the Company's strategy of developing the Razorback resource using a technically-rigorous and staged approach. The DFS continues to be developed as planned and the significant potential of the Razorback Project to support higher production rates will be factored into Project design to ensure optionality value is preserved. Further study work on project expansion will only occur after the DFS is complete and construction of the first stage of the Project is funded.

RAZORBACK DEFINITIVE FEASIBILITY STUDY

During the Quarter, Magnetite Mines continued to advance the Definitive Feasibility Study (DFS)1 for its flagship Razorback Iron Ore Project (Project). The DFS aims to complete engineering design and capital and operating cost estimates to AACE Class 3 level accuracy and is managed by the Company's in-house owner's team.

Major study components of the DFS were initiated throughout the quarter including mining and tailings studies as well as significant advancement in processing plant design and metallurgical studies. This quarterly report presents a progress summary of each of the key DFS study sections achieved during the quarter.

The current DFS is a work in progress and as such, the configuration and execution of the Project is subject to change. Given the commercially sensitive nature of the study areas discussed below, specific naming of locations and the pathways of some key infrastructure components are not discussed in detail.

Geology and Drilling Programs

Geological work programs to provide samples for metallurgical testwork were completed during the quarter. The aim of the work was to provide engineering consultants Hatch with a variety of spatially distributed samples representing the anticipated first 5 years of mining. Existing samples from previously drilled Razorback deposit inventory and additional drilled samples from the Iron Peak deposit were supplied to Bureau Veritas laboratories in Adelaide for Hatch designed comminution, flotation and bulk flowsheet testwork.

At Iron Peak, in addition to the metallurgical drill program completed in late 2021 (11 PQ diamond drill holes), a shallow infill drilling program comprising 6 angled HQ diamond drill holes was completed during the reporting period.4,5 The goal of this ~2000m drilling program was to obtain data for near-surface mineralisation towards improved resource definition and to provide material for high-resolution Davis Tube Recovery (DTR) testwork. An industry standard analytical technique, DTR analysis determines the amount of recoverable iron ore concentrate achievable at a given grind or liberation size. The planned testwork will provide over 2500 additional DTR representing a quadrupling of the current DTR database, critical for resource optimisation and definition.

Figure 1 - Drillholes completed in 2021-2022 drilling program

To date, all Hatch related metallurgical samples, inclusive of comminution, bulk flotation, variable flotation and bulk samples have been submitted for analysis. These samples are inclusive of three 1 tonne bulk samples airfreighted to Weir Minerals in the Netherlands for bulk High Pressure Grinding Rolls (HPGR) and air classification testwork for dry front-end processing testwork. DTR and head grade analysis sample preparation (core cutting) is ongoing at the Company's dedicated storage facility in Wingfield SA, with roughly half of those samples submitted for analysis to date.

The outputs of the metallurgical drilling and shallow infill drilling program will provide additional data required to improve resource definition of the Iron Peak deposit, in particular, near surface mineralization at this deposit. Potential updates to the Mineral Resource estimate at Iron Peak are likely to include JORC classification update and will provide inputs for mining studies as described below.

Mining

During the quarter, the Company engaged leading mining consultants, AMC Consultants to appraise selective mining optionality at the Razorback deposit.6 Using the existing resource block models available for Razorback, AMC have completed an initial assessment of the deposit together with an initial geotechnical appraisal of rock wall stability.7

The results of the mining studies at Razorback during the PFS and those of the DFS so far indicate a robust project around the long-life resource at Razorback. The DFS work to date suggests that a higher cut-off grade than that used in the 2021 PFS schedule improves returns over previous mine schedules for the targeted 30-year mine life. A higher cutoff grade and selective sequencing of ore would result in a larger pit shell and a larger low-grade stockpile for post-mining processing. Further mining studies at Razorback will primarily focus on optimisation of mine scheduling, mine design, haulage and mine cost model development before final mining schedules are prepared for DFS evaluation.

The Company continues to assess the feasibility of mining at Iron Peak during the initial years of mine life at the Project. The geological and mining studies to date encouraged the company to complete infill drilling at Iron Peak to improve resource definition for near surface mineralisation. Geochemical and DTR analysis of core samples will inform any decision to further optimise the mine plan around mining at Iron Peak early in the project mine life.

Processing Plant

Significant progress on the engineering and design of the processing plant has been completed to date by global engineering experts Hatch.8 The processing plant is currently 30% complete with initial 3D models and initial design review completed. The processing plant is being developed following the same basic configuration provided in the 2021 Pre-Feasibility Study (PFS) consisting of a dry processing front end comprised of crushing, High Pressure Grinding Rolls (HPGRs) and air classification, followed by staged magnetic separation and flotation circuits to produce a targeted high grade 67.5% to 68.5% Fe concentrate.9

Figure 2. Schematic design of wet-plant processing plant by Hatch, design subject to change.

Significant metallurgical testwork consisting of comminution, magnetic separation, flotation and air separation work programs is underway to test the favourable low work-index and liberation characteristics of the local Braemar Iron Formation ores. Samples are currently being processed at Bureau Veritas in Adelaide and Perth as well at Weir Minerals in the Netherlands for air separation testwork. The results of the testwork to date are supportive of the current processing plant configuration.