Graphex Mining Limited ACN 610 319 769 Prospectus · Graphex Mining Limited . ACN 610 319 769 ....

Graphex Mining Limited ACN 610 319 769

Prospectus

For an offer of up to 35,000,000 Shares at an issue price of $0.20 each to raise up to $7,000,000, with 1 free attaching Loyalty Option granted for every 3 Shares issued, each

with an exercise price of $0.25 and expiry date 3 years from the Issue Date.

This Prospectus has been issued to provide information on the offer of a minimum of 21,250,000 Shares and a maximum of 35,000,000 Shares to be issued at a price of $0.20 per Share to raise a total of a minimum of $4,250,000 and a maximum of $7,000,000 (before costs) (General Offer).

Loyalty Options with an exercise price of $0.25 each and expiry date 3 years from the Issue Date will be issued free attaching on a 1 for 3 basis to every person issued Shares pursuant to this Prospectus.

This Prospectus also incorporates a priority offer as part of the General Offer to shareholders of IMX Resources Limited registered on a record date of 8 April 2016 (IMX Offer).

The General Offer and IMX Offer (together, Offers) pursuant to this Prospectus are conditional on ASX listing of the Company as outlined in Section 1.5 of this Prospectus.

It is proposed that the IMX Offer will close at 5.00pm (WST) on 26 April 2016 and the General Offer will close at 5.00pm (WST) on 2 May 2016. The Directors reserve the right to close the Offers earlier or to extend these dates without notice. Applications must be received before that time.

This is an important document and requires your immediate attention. It should be read in its entirety. Please consult your professional adviser(s) if you have any questions about this document.

Investment in the Shares offered pursuant to this Prospectus should be regarded as highly speculative in nature, and investors should be aware that they may lose some or all of their investment. Refer to Section 5 for a summary of the key risks associated with an investment in the Shares.

Joint Lead Managers

TABLE OF CONTENTS Section Page No

IMPORTANT INFORMATION ..................................................................... 3

CORPORATE DIRECTORY ........................................................................ 4

LETTER FROM THE BOARD ...................................................................... 5

KEY OFFER DETAILS .............................................................................. 7

INDICATIVE TIMETABLE .......................................................................... 8

INVESTMENT OVERVIEW ......................................................................... 9

1. Details of the Offers .................................................................. 27

2. Overview of the Company ........................................................... 41

3. Overview of the Chilalo Graphite Project ........................................ 45

4. Overview of Tanzania ................................................................ 59

5. Risk Factors ............................................................................. 62

6. Independent Technical Assessment ................................................ 72

7. Independent Solicitor's Report ...................................................... 73

8. Financial information ................................................................. 74

9. Investigating Accountant's Report .................................................. 83

10. Directors, Key Management and Corporate Governance ...................... 84

11. Material Contracts ..................................................................... 92

12. Additional Information ............................................................... 98

13. Directors' Authorisation ............................................................ 113

14. Definitions ............................................................................ 114

IMPORTANT INFORMATION

Prospectus

This Prospectus is dated 4 April 2016 and was lodged with ASIC on that date. ASIC, ASX and their respective officers do not take any responsibility for the contents of this Prospectus or the merits of the investment to which this Prospectus relates.

Within 7 days of the date of this Prospectus, the Company will make an application to ASX for the Shares offered pursuant to the Prospectus to be admitted for quotation on ASX.

Shares will not be issued pursuant to this Prospectus later than 13 months after the date of this Prospectus.

Persons wishing to apply for Shares pursuant to the Offers must do so using the applicable Application Form attached to or accompanying this Prospectus. Before applying for Shares potential investors should carefully read the Prospectus so that they can make an informed assessment of:

• the rights and liabilities attaching to the Shares and Loyalty Options; • the assets and liabilities of the Company; and • the Company's financial position and performance, profits and losses, and prospects.

Investors should carefully consider these factors in light of their own personal financial and taxation circumstances.

No person is authorised to give any information or to make any representation in relation to the Offers which is not contained in this Prospectus. Any information or representation not so contained may not be relied upon as having been authorised by the Company or the Directors in relation to the Offers.

Risks

Any investment in the Company should be considered highly speculative. Before deciding to invest in the Company, potential investors should read the entire Prospectus and, in particular, in considering the prospects of the Company, potential investors should consider the risk factors that could affect the financial performance and assets of the Company. Investors should carefully consider these factors in light of their personal circumstances (including financial and taxation issues). The Shares offered by this Prospectus should be considered highly speculative. Please refer to Section 5 for details relating to risk factors. Persons considering applying for Shares pursuant to the Prospectus should obtain professional advice from an accountant, stockbroker, lawyer or other adviser before deciding whether to invest. No guarantee is given as to the success of the Company, the repayment of capital, the payment of dividends, or the price at which the Shares will trade on ASX.

Offer outside Australia

The offer of Shares made pursuant to this Prospectus is not made to persons to whom, or places in which, it would not be lawful to make such an offer of Shares. No action has been taken to register the Offers under this Prospectus in any jurisdiction outside Australia. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law in those jurisdictions and therefore persons who come into possession of this Prospectus should seek advice on and observe any of these restrictions. Failure to comply with these restrictions may violate securities laws.

See Section 1.16 for further information on Hong Kong, Mauritius, Singapore and the UK.

Forward-looking statements

This Prospectus contains forward-looking statements which incorporate an element of uncertainty or risk, such as 'intends', 'may', 'could', 'believes', 'estimates', 'targets' or 'expects'. These statements are based on an evaluation of current economic and operating conditions, as well as assumptions regarding future events. These events, as at the date of this Prospectus, are expected to take place, but there is no guarantee that such

will occur as anticipated or at all given that many of the events are outside the Company's control.

Accordingly, the Company cannot and does not give any assurance that the results, performance or achievements expressed or implied by the forward-looking statements contained in this Prospectus will actually occur. Further, the Company may not update or revise any forward-looking statement if events subsequently occur or information subsequently becomes available that affects the original forward-looking statement.

Exposure Period

This Prospectus will be circulated during the Exposure Period. The purpose of the Exposure Period is to enable this Prospectus to be examined by market participants prior to applying for Shares. This examination may result in the identification of deficiencies in this Prospectus and, in those circumstances, any Application that has been received may need to be dealt with in accordance with section 724 of the Corporations Act. Applications for Shares under the Offers set out in this Prospectus will not be processed by the Company until after the expiry of the Exposure Period. No preference will be conferred on Applications lodged prior to the expiry of the Exposure Period.

Conditional Offers

The Offers contained in this Prospectus are conditional on certain events occurring. If these events do not occur, the Offer will not proceed and investors will be refunded their Application Monies without interest. Please refer to Section 1.5 for further details on the conditions attaching to the Offers.

Electronic Prospectus

If you have received this Prospectus as an electronic Prospectus, please ensure that you have received the entire Prospectus accompanied by the applicable Application Form. If you have not, please contact the Company at +61 8 9200 4960 and the Company will send you, at no cost, either a hard copy or a further electronic copy of the Prospectus or both. Alternatively, you may obtain a copy of the Prospectus from the Company's website at www.graphexmining.com.au.

The Company reserves the right not to accept an Application Form from a person if it has reason to believe that when that person was given access to the electronic Application Form, it was not provided together with the electronic Prospectus and any relevant supplementary or replacement prospectus or any of those documents were incomplete or altered.

Diagrams

Diagrams used in this Prospectus may not be drawn to scale.

Miscellaneous

All references to "$", "A$", "AUD", "dollar" and "cents" are references to Australian currency unless otherwise stated.

All references to time relate to the time in Perth, Western Australia unless otherwise stated.

A number of terms and abbreviations used in this Prospectus have defined meanings which appear in Section 14.

CORPORATE DIRECTORY

Directors Mr Stephen Dennis Mr Philip Hoskins Mr Grant Davey Company Secretary Mr Stuart McKenzie Registered Office Suite 4, Level 1 2 Richardson Street WEST PERTH WA 6005 Telephone: +61 8 9200 4960 Facsimile: +61 8 9200 4961 Email: [email protected] Website www.graphexmining.com.au Proposed Stock Exchange Listing Australian Securities Exchange (ASX) Proposed ASX Code: GPX Share Registry* Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace PERTH WA 6000 Telephone (within Australia): 1300 850 505 (outside Australia): +61 3 9415 4000 Facsimile: +61 3 9473 2500 Auditor* PricewaterhouseCoopers Brookfield Place 125 St Georges Terrace PERTH WA 6000

Australian Legal Adviser Bellanhouse Legal Ground Floor, 11 Ventnor Avenue WEST PERTH WA 6005 Investigating Accountant KPMG Financial Advisory Services (Australia) Pty Ltd 235 St Georges Terrace PERTH WA 6000 Telephone: +61 8 9263 7171 Facsimile: +61 8 9263 7129 Independent Technical Assessor CSA Global Level 2, 3 Ord Street WEST PERTH WA 6005 Independent Solicitor East African Law Chambers Plot No. 18 Rukwa Street Masaki Dar es Salaam TANZANIA Joint Lead Managers Palladion Partners Pty Ltd Level 14, 234 George Street SYDNEY NSW 2000 Telephone: +61 2 9002 5410 RM Corporate Finance Pty Ltd AFSL 315235 Level 1, 143 Hay Street SUBIACO WA 6008 Telephone: +61 8 6380 9200

* This entity is included for information purposes only. It has not been involved in the preparation of this Prospectus.

LETTER FROM THE BOARD

Dear Investor,

On behalf of the Directors, I look forward to welcoming you as a shareholder of Graphex Mining Limited (Company). The Company is a graphite-focused company with a clear strategy of fast-tracking the development of the Chilalo Graphite Project in Tanzania.

The Company was incorporated by its current parent company IMX Resources Limited (IMX) in January 2016, following a strategic review by the IMX board of its assets and a decision by the IMX board to dispose of its graphite assets into the Company. Subject to IMX shareholder approval and satisfaction of various other conditions (see Section 11.2), the Company will acquire the Chilalo Graphite Project and IMX will distribute approximately 16,454,000 Graphex Shares to its shareholders.

A recently completed Pre-Feasibility Study by IMX confirmed the emergence of the Chilalo Graphite Project as a technically sound project, with low capital intensity and attractive returns. Testwork has demonstrated Chilalo is capable of producing a high quality product with excellent flake size distribution and expansion ratios. The Pre-Feasibility Study demonstrates Chilalo's proximity to existing infrastructure and high resource grade contribute to low operating costs and capital intensity.

The Company is presently in discussions with large Chinese companies, China Gold Group Investment Co Ltd (China Gold Investment) and CN Docking Joint Investment and Development Co. Ltd (a wholly owned subsidiary of China National Building Material Group Corporation) (CN Docking). IMX has an existing memorandum of understanding (MOU) with China Gold Investment and CN Docking, pursuant to which the parties agreed to an exclusive negotiation and due diligence period with respect to the Chilalo Project, ceasing on 31 July 2016. Providing a binding agreement is reached with China Gold Investment and CN Docking, the Board believes a relationship with China Gold Investment and CN Docking has potential to:

1. provide the Chilalo Project with a credible offtake partner;

2. inject significant expertise in the development and construction of graphite projects; and

3. provide project financing via both procurement of project-level debt and contribution of equity to construction of graphite projects.

The Company has assembled a balanced Board of Directors who have extensive skills in capital markets, project finance and development, mining operations, corporate transactions, operating in Tanzania and Africa more generally, as well as having previous experience in undertaking business with China. The Board is excited about the potential of the Chilalo Graphite Project, and the predicted future growth in demand for high quality flake graphite.

Upon listing, implementation of the Company's strategy will be led by Managing Director Phil Hoskins and supported by the management team responsible for the Project's rapid development to date. The management team is expected to be complemented by experienced consultants (previously engaged by IMX) with experience in African project development and strategic Chinese relationships.

The Board believes that graphite is shaping to be a commodity of the future. The next 12-18 months will be critical in determining which of the graphite developers can successfully transition to profitable graphite operations. We are confident that we have the asset, the team and the strategic relationships to ensure that we can be one of the success stories.

The purpose of this Offer is to expand the Company's shareholder base, potentially introducing one or two cornerstone investors to the Company's shareholder register, raise sufficient funds to commence a definitive feasibility study on the Chilalo Graphite Project, and at the same time, as a condition of the Offer, seek a listing of the Company on ASX.

I encourage you to read the Prospectus, request that you consider the risks of investment in Section 5, and invite you to become a shareholder in the Company, which I believe has great potential.

Yours faithfully

Stephen Dennis Chairman Graphex Mining Limited

KEY OFFER DETAILS

Pro forma capital structure

Offer Price per Share $0.20 per Share

Shares offered under the Offers

- Minimum Subscription

- Maximum Subscription

21,250,000 Shares

35,000,000 Shares

Cash raised under the Offers (before expenses)



$4,250,000

$7,000,000

Pre-Offer Shares on issue* 20,000,000 Shares

Total number of Shares on issue following the Offers



41,250,000 Shares

55,000,000 Shares

*As at the date of this Prospectus the Company has 100 Shares on issue. Pursuant to the Acquisition Agreement, at or around the Issue Date the Company will issue a further 19,999,900 Shares as part consideration for the acquisition of the Chilalo Graphite Project. Of these, approximately 16,454,000 will be transferred to IMX Shareholders pursuant to a proposed In-specie Distribution and 3,546,000 will be transferred to MMG Exploration Holdings Limited (MMG) under an existing joint venture agreement. See Section 11.2 for further details on the Acquisition Agreement.

Note: Please refer to Section 1.6 for further details relating to the proposed capital structure of the Company.

INDICATIVE TIMETABLE

Event Date

Lodgement of this Prospectus with ASIC 4 April 2016

IMX Offer Record Date 8 April 2016

IMX Offer Opening Date 11 April 2016

IMX Offer Closing Date 26 April 2016

General Offer Opening Date 11 April 2016

General Offer Closing Date 2 May 2016

Completion of Acquisition Agreement 9 May 2016

Record date for In-specie Distribution 11 May 2016

Completion of In-specie Distribution 12 May 2016

Issue of Shares and Loyalty Options under the Offers 13 May 2016

Despatch of holding statements 13 May 2016

Expected date for Shares to commence trading on ASX 18 May 2016

Note: The dates shown above are indicative only and may vary subject to the Corporations Act, the Listing Rules and other applicable laws. In particular, the Company reserves the right to vary the opening dates and the closing dates without prior notice, which may have a consequential effect on the other dates. Applicants are therefore encouraged to lodge their Application Form as soon as possible after the relevant opening date if they wish to invest in the Company. The Company also reserves the right not to proceed with any of the Offers at any time before the issue of Shares to applicants.

INVESTMENT OVERVIEW

This Section is not intended to provide full information for investors intending to apply for Securities offered pursuant to this Prospectus. This Prospectus should be read and considered in its entirety. The Securities offered pursuant to this Prospectus carry no guarantee in respect of return of capital, return on investment, payment of dividends or the future value of the Securities.

Topic Summary More information

Introduction

Who is the Company and what does it do?

Graphex Mining Limited (ACN 610 319 769) (Company) is an Australian company incorporated in January 2016 by its current parent company, IMX Resources Ltd (IMX), following a strategic review by IMX to demerge its graphite assets, including the Chilalo Graphite Project, into the Company.

On 15 March 2016 the Company (and its subsidiaries) entered into an agreement with IMX (and various of its subsidiaries) to acquire 100% beneficial ownership of various Prospecting Licences in Tanzania, including the licence on which the Chilalo Graphite Project is located.

Approximately 16,454,000 of the Shares to be issued by the Company to IMX as part consideration for the acquisition will, subject to IMX shareholder approval at a meeting scheduled for 20 April 2016 (among other conditions), be distributed in-specie to IMX shareholders on an approximate 1 for 94 basis at or around the Company issuing Securities pursuant to the Offers.

The Company's corporate structure at listing will be as follows:

Sections 2.1 and 2.2


Other than as disclosed in this Prospectus, the Company has not undertaken any activities since incorporation.

What are the Company's projects?

Upon completion of the Acquisition Agreement and listing on ASX, the Company (through its wholly owned subsidiary Ngwena Tanzania Limited) will own a 100% interest in six Prospecting Licences in south-east Tanzania, including the Prospecting Licence on which the flagship Chilalo Graphite Project is located.

Details of the Prospecting Licences are set out in the table below:

Project area Licence no.

Chilalo PL 6073/2009

PL 6158/2009

PL 9929/2014

PL 9946/2014

Noli PL 8628/2012

PL 5447/2008

The Project has an existing Indicated and Inferred Mineral Resource Estimate of 25.1Mt at 6% TGC for 1,507Kt of contained graphite.

IMX recently completed a pre-feasibility study (PFS) on the Chilalo Graphite Project, which confirmed the emergence of the Project as a technically sound project, with low capital intensity and attractive returns. The Board believes the results of the PFS strongly support the Company's strategy of focusing its efforts on advancing Chilalo as a near-term development opportunity.

Sections 2.3, 3 and 6

What is the Company's financial position?

The Company was incorporated in January 2016 and has not traded, therefore the Company has not earned any revenue or incurred any expenses from its activities (other than the expenses of the Offers).

Section 8 contains historical financial

Section 8


information for the Company.

The Board is satisfied that upon completion of the Offers, the Company will have sufficient working capital to meet its stated objectives.

What is the proposed capital structure of the Company?

Following completion of the Offers under this Prospectus and completion of the Acquisition Agreement, the proposed capital structure of the Company is as set out in Section 1.6.

Section 1.6

What is the proposed use of funds raised under the Offers?

Graphex proposes to use the funds raised from the Offers to purchase the Chilalo Project from IMX, conduct marketing activities targeted to reaching agreements for offtake and project financing (the completion of which is expected to allow for commencement of a definitive feasibility study on a Minimum Subscription basis), to cover the costs of the Offers, and for administration and general working capital.


What is the Company's strategy?

Following completion of the Offers under this Prospectus and completion of the Acquisition Agreement, the Company's immediate priority is to further advance the development of the Chilalo Graphite Project by obtaining a mining licence, securing binding offtake agreements, completing a definitive feasibility study, progressing project financing negotiations and eventually constructing the Project.

Section 2.4

Summary of key risks

Prospective investors should be aware that subscribing for Shares in the Company involves a number of risks. The risk factors set out in Section 5, and other general risks applicable to all investments in listed securities, may affect the value of the Shares in the future. Accordingly, an investment in the Company should be considered highly speculative. This Section summarises the key risks which apply to an investment in the Company and investors should refer to Section 5 for a more detailed summary of the risks.

Future capital requirements

The Company has no operating revenue and is unlikely to generate any operating revenue unless and until the Chilalo Graphite Project is successfully developed and production commences. Exploration and development costs and pursuit of its business plan will reduce the Company's current cash reserves and the amount raised under the Offers. Therefore, in order to successfully develop the Chilalo Graphite Project and for production to commence, the Company will require further financing

Section 5.1(a)


in the future, in addition to amounts raised pursuant to the Offers (particularly if only the Minimum Subscription is met).

Any additional equity financing may be dilutive to Shareholders, may be undertaken at lower prices than the Offer Price or may involve restrictive covenants which limit the Company's operations and business strategy. Debt financing, if available, may involve restrictions on financing and operating activities.

Although the Directors believe that additional capital can be obtained, no assurances can be made that appropriate capital or funding, if and when needed, will be available on terms favourable to the Company or at all. If the Company is unable to obtain additional financing as needed, it may be required to reduce the scope of its activities and this could have a material adverse effect on the Company's activities and could affect the Company's ability to continue as a going concern.

The Company may undertake additional offerings of Shares and of securities convertible into Shares in the future. The increase in the number of Shares issued and outstanding and the possibility of sales of such shares may have a depressive effect on the price of Shares. In addition, as a result of such additional Shares, the voting power of the Company's existing shareholders will be diluted.

Conditionality of Offers

The obligation of the Company to issue the Shares under the Offers is conditional on certain matters, as set out in Section 1.5. If the Conditions are not satisfied, the Company will not proceed with the Offers. Failure to complete the Offers may have a material adverse effect on the Company's financial position.

Section 5.1(b)

Potential for dilution

On completion of the Offers, assuming completion of the In-specie Distribution and the Maximum Subscription is reached, the number of Shares in the Company will increase from 20,000,000 to up to 55,000,000. This means the number of Shares on issue will increase by approximately 275% on completion of the Offers. On this basis, IMX Shareholders participating in the In-specie Distribution should note that if they do not participate in

Section 5.1(c)


the Offers (and even if they do), their holdings may be considerably diluted (as compared to their holdings and number of Shares on issue as at the date of this Prospectus).

Key personnel Recruiting and retaining qualified personnel are important to the Company's success. The number of persons skilled in the exploration and development of mining properties is limited and competition for such persons is strong. There can be no assurance given that there will be no detrimental impact on the Company if one or more key employees leave the Company.

Section 5.1(d)

Emerging markets The Company's main assets will be located in Tanzania. When conducting operations on foreign assets in emerging markets such as Tanzania, ASX listed entities may face a number of additional risks that companies with operations wholly within Australia may not face. For example, the ability to implement effective internal control and risk management systems and good corporate governance principles, having regard to the separation of executive management and the board from the location of the projects and the need to rely on consultants and professional advisors in those jurisdictions.

Section 5.1(e)

Joint venture parties, agents and contractors

The Directors are unable to predict the risk of financial failure or default by a participant in any joint venture to which the Company is or may become a party. Further, the Company is unable to predict the risk of insolvency or managerial failure by any of the contractors used by the Company in any of its activities or the insolvency or other managerial failure by any of the other service providers used by the Company for any activity. The effects of such failures may have an adverse effect on the Company's activities.

Section 5.1(f)

Termite administration

As announced by IMX to ASX on 21 September 2015, IMX received a letter of demand from the liquidators of Termite Resources NL (In liquidation) (Termite), which provided notice of a potential claim against directors and officers of Termite (some of whom are also IMX directors and officers), as well as against IMX itself.

Termite was wholly owned by an

Section 5.1(g)


incorporated joint venture entity in which IMX held a 51% interest. Termite held the joint venture's interests in the Cairn Hill iron ore mine in South Australia. On 19 June 2014, IMX announced the appointment of voluntary administrators to Termite. In September 2014, Termite's creditors voted to place it in liquidation.

IMX has previously announced the quantum of the potential claim is put in the alternative as the amount of the unsatisfied liabilities to unsecured creditors at the date of administration (mostly made up of damages claims from long term logistics creditors for early termination of their contracts on appointment of the administrators) said to be estimated at $75 million, alternatively about $46 million plus interest (being the amount repaid to the joint venture entity).

As at the date of this Prospectus the Termite liquidator has neither commenced proceedings against, nor given notice under the standstill agreement (see IMX announcement of 19 January 2016) of an intention to commence proceedings against IMX. IMX maintains that the potential claim by the liquidators is unlikely to succeed, and has determined to proceed with the entry into the Acquisition Agreement. Based on disclosures made by IMX and separate due diligence undertaken by the Company in relation to this matter, the Company has also determined to proceed with the entry into the Acquisition Agreement and the lodgement of this Prospectus.

The Company notes that as at the date of this Prospectus, there is no current or threatened civil litigation, arbitration proceedings or administrative appeals, or criminal or governmental prosecutions of a material nature in which the Company or its subsidiaries is directly or indirectly concerned which is likely to have a material adverse effect on the business or financial position of the Company or its subsidiaries.

Insurance risks The Company intends to put in place an insurance program aligned to the scale of its activities and in accordance with industry practice. However, there is no guarantee that such insurance or any future necessary coverage will be available to the Company at economically viable premiums (if at all)

Sections 5.1(h) and 5.1(i)


or that, in the event of a claim, the level of insurance carried by the Company now or in the future will be adequate, or that a liability or other claim would not materially and adversely affect the Company's business. Further, the occurrence of an event that is not covered or fully covered by insurance could have a material adverse effect on the business, financial condition and results of the Company.

Litigation risk The Company is subject to litigation risks. All industries, including the minerals exploration industry, are subject to legal claims, with and without merit. Defence and settlement costs of legal claims can be substantial, even with respect to claims that have no merit.

Due to the inherent uncertainty of the litigation process, the resolution of any particular legal proceeding to which the Company is or may become subject could have a material effect on its financial position, results of operations or the Company's activities.

Section 5.1(k)

Liquidity risk There can be no guarantee that there will be an active market for Shares or that the price of Shares will increase. There may be relatively few buyers or sellers of Shares on ASX at any given time. This may affect the volatility of the market price of Shares. It may also affect the prevailing market price at which Shareholders are able to sell their Shares. This may result in Shareholders receiving a market price for their Shares that is less or more than the price paid under the Offers.

Section 5.1(j)

Country risk The Prospecting Licences are for prospects located in Tanzania and the Company will be subject to the various political, economic and other risks and uncertainties associated with operating in that country. There are risks attached to exploration and mining operations in a developing country like Tanzania which are not necessarily present in a developed country like Australia, including: economic, social or political instability or change, hyperinflation, currency non-convertibility or instability and changes of law affecting government participation, taxation, working conditions, rates of exchange, exchange control, exploration licensing, export duties,

Section 5.2(a)


environmental protection, mine safety, labour relations as well as government control over mineral properties or government regulations that require the employment of local staff or contractors or require other benefits to be provided to local residents.

Logistics and infrastructure

The Chilalo Graphite Project in Tanzania is subject to logistical risk of a long supply line should there be a requirement to import materials and equipment from outside the continent of Africa. The Project is located in a remote area of south-eastern Tanzania where there are some infrastructure deficiencies.

While the Company intends to have access to the Mtwara port, which is 220km by road from Chilalo and the nearby Nachingwea airport is suitable for the transport of people and consumables, the Company will need to establish reliable road transport and sources of power and water in order for mining operations to be viable, none of which can be assured.

Owing to a shortage of skilled local personnel, the Company will engage expatriate workers to perform certain functions in Tanzania. In order to develop the Project, the Company will need to establish the facilities and material necessary to support operations in the remote location in which it is situated. The remoteness of the properties will also affect the potential viability of mining operations, as the Company will also need to establish more significant sources of power, water, physical plant and transport infrastructure in the area. The lack of availability of such sources may adversely affect mining feasibility and may, in any event, require the Company to arrange financing, locate adequate supplies and obtain necessary approvals from national and regional governments, none of which can be assured.

Section 5.2(b)

Tenement title Rights in relation to mining rights in Tanzania are governed by Tanzanian legislation. They are evidenced by the granting of licences. Each licence is for a specific term and carries with it annual expenditure and reporting commitments, as well as other conditions requiring compliance. Consequently, the Company,

Section 5.2(c)


through its subsidiary Ngwena Tanzania Limited, could lose title to or its interest in tenements if the licence conditions are not met or if insufficient funds are available to meet expenditure commitments as and when they arise, in line with the Tanzanian Mining legislation.

Tenements to be held by the Company or its subsidiaries are subject to periodic renewal. Renewal, although straightforward, is not automatic, and is subject to approval, which approval can be denied where a default notice has been issued. If any of the Prospecting Licences are not renewed, the Company may suffer significant damage through loss of the opportunity to develop any mineral resources on that licence.

Occupier's consent The title to mineral rights to be held by the Company may also be affected by the provisions of law which provide for the protection of lawful occupiers of the area. Where a mineral right granted to an applicant is over an area of land inhabited by lawful occupiers then the Company as holder of such a mineral right is required to obtain the lawful occupier's written consent, following necessary consultation, prior to exercising any of the rights conferred under its mineral right. Failure to obtain the lawful occupier's prior written consent would not invalidate the licence holder's mineral right but the lawful occupier may make a claim against the licence holder.

Section 5.2(d)

Environment and other regulatory risks

Environmental laws in Tanzania are strict. Every activity from exploration through to development and mining require compliance with the regulations for environmental protections by virtue of section 81 of the Environmental Management Act, 2004. Under section 81 an Environmental Impact Assessment Report is a mandatory requirement and the outcome of the assessment may be negative. It is expected that the Company's activities will have an impact on the environment, particularly at the time of advanced exploration and any mine development.

Environmental laws are dynamic and can change over time. The Company is unable to predict the effect of additional environmental laws and regulations that may be adopted in the future. Additional

Section 5.2(e)


laws or regulations may materially increase the Company's cost of doing business or affect its operations. The cost and complexity of complying with any additional environmental laws and regulations may prevent the Company from being able to develop potentially economically viable mineral deposits.

The Company and/or its subsidiaries will require other various governmental approvals and permits in Tanzania from time to time in connection with various aspects of its activities. To the extent such approvals or permits are required and not obtained, or are delayed, the Company may experience delays affecting its scheduled project development.

Exploration, development, mining and processing risks

The Chilalo Graphite Project is at the development stage, with a PFS completed in November 2015. The prospects of Graphex should be considered in light of the risks, expenses and difficulties frequently encountered by companies at this stage of development, particularly in the African region.

The business of mineral exploration, project development and production, by its nature, contains elements of significant risk with no guarantee of success. Ultimate and continuous success of these activities is dependent on many factors.

Despite the level of Mineral Resources currently estimated for the Project and the PFS providing the Company with confidence as to the potential of the Project, there can be no assurance that the Project will be brought into commercial production or that any additional exploration of the Prospecting Licences will result in the discovery of an economic mineral deposit. Even if a mineral deposit is identified, there is no certainty that it can be economically exploited. If exploration is successful, there will be additional costs and processes involved in transitioning to the development phase.

In the event that exploration development and exploration programmes prove to be unsuccessful, this could lead to a diminution in the value of the licences, a reduction in the base reserves of the Company and possible relinquishment of the licences.

Section 5.3(a)


Commodity price volatility and exchange rate risk

If the Company achieves success leading to mineral production, the revenue it will derive through the sale of product exposes the potential income of the Company to commodity prices and exchange rate risks. Commodity prices fluctuate and are affected by many factors beyond the control of the Company. Such factors include supply and demand for minerals, technological advancements, forward selling activities and other macro-economic factors.

In addition, unlike the majority of base and precious metals, there is no internationally recognised market for graphite nor is graphite an exchange traded commodity. As a result, there is a lack of market transparency associated with the price of graphite and there can be no assurance that the pricing included in the PFS represents a true market price.

Furthermore, prices of various commodities and services may be denominated in United States dollars or Tanzanian shillings, whereas the income and expenditure of the Company are and will be taken into account in Australian currency, exposing the Company to the fluctuations and volatility of the rate of exchange between the United States dollar and the Australian dollar and the Tanzanian shilling and the Australian dollar as determined in international markets.

Section 5.3(b)

Estimation of Mineral Resources and Ore Reserves

There is a degree of uncertainty to the estimation of Mineral Resources and Ore Reserves and corresponding grades being mined or dedicated to future production. Until Mineral Resources or Ore Reserves are actually mined and processed, the quantity of Mineral Resources and Ore Reserves must be considered as estimates only. In addition, the grade of Mineral Resources and Ore Reserves may vary depending on, among other things, graphite prices. Any material change in quantity and grades of Mineral Resources, Ore Reserves, or stripping ratio may affect the economic viability of the properties. There can be no assurance that metal recoveries in small-scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production.

Fluctuation in the price of graphite, results

Section 5.3(d)


of drilling, metallurgical testing and the evaluation of mine plans subsequent to the date of any mineral resource estimate may require revision of such estimate. Any material reductions in estimates of Mineral Resources and/or Ore Reserves, could have a material adverse effect on the Company's financial condition.

Directors, Related Party Interest and Substantial Holders

Who are the Directors?

The Directors are:

(a) Philip Hoskins – Director (and proposed Managing Director upon Listing);

(b) Stephen Dennis – Non-Executive Director and Chairman; and

(c) Grant Davey – Non-Executive Director.

"Corporate Directory" and Section 10.1

What experience do the Directors have?

Phil Hoskins is presently IMX's managing director, having been appointed to that role in October 2015 after a period of time serving as IMX's chief executive officer. Mr Hoskins will step down as IMX's managing director prior to the Company's admission to the official list of ASX. He is a senior executive with 14 years of broad finance and commercial experience across resources exploration, project development and production as well as large-scale property developments requiring debt and equity financing.

Stephen Dennis has been actively involved in the mining industry for over 30 years. He has held senior management positions at MIM Holdings Limited, Minara Resources Limited and Brambles Australia Limited. Until recently, Mr Dennis was the chief executive officer and managing director of CBH Resources Limited, the Australian subsidiary of Toho Zinc Co., Ltd of Japan.

Grant Davey holds a BSc Mining Engineering degree and has over 20 years of senior management and operational experience in the construction and operation of gold, platinum and coal mines in Africa, Australia, South America and Russia. More recently he has been involved in venture capital investments in several Canadian and

Section 10.2


Australian listed exploration and mining projects. He was the managing director of Cradle Resources Limited and founder and managing director of the Panda Hill niobium project in Tanzania which is expected to go into construction during 2016.

What benefits are being paid to the Directors?

Mr Hoskins has entered into an executive services agreement with the Company (which commences upon Listing) pursuant to which he will be paid a base salary of $260,000 per annum plus superannuation. In addition, Mr Hoskins will be issued with various Options linked to short and long term performance measures.

Mr Dennis has entered into a director services agreement with the Company pursuant to which he will receive remuneration of $60,000 per annum (plus superannuation). Payment commences upon Listing. In addition, Mr Dennis will be issued with 1,000,000 options to acquire Shares.

Mr Davey has entered into a director services agreement with the Company pursuant to which he will receive remuneration of $40,000 per annum (plus superannuation). Payment commences upon Listing. In addition, Mr Davey will be issued with 1,000,000 options to acquire Shares.

Sections 10.7, 11.6(a) and 11.7

What interests do Directors have in the securities of the Company?

No Director holds any securities in the Company as at the date of this Prospectus.

Based on the intentions of the Directors at the date of this Prospectus, the Directors and their related entities will have the following interests in Shares and Options upon Listing:

Director Shares Options

Philip Hoskins

368,221 1,585,000

Stephen Dennis

250,000 1,000,000

Grant Davey

250,000 1,000,000

Section 10.6

What important contracts with related parties is the Company a party to?

The Company has entered into the following related party transactions on arms' length terms:

(a) letters of appointment with each of its Directors on standard terms (refer

Sections 10.8, 11.2, 11.611.7 and 11.8


Section 11.7 for details);

(b) deeds of indemnity, insurance and access with each of its Directors on standard terms (refer Section 11.8 for details);

(c) the Acquisition Agreement (refer Section 11.2 for details).

Who are the additional key management personnel?

The key management personnel are:

(a) Stuart McKenzie – Commercial Manager and Company Secretary;

(b) Nicholas Corlis – General Manager Technical; and

(c) Christopher Knee – Chief Financial Officer.


Who will be the substantial holders of the Company?

As at the date of this Prospectus the Company is a wholly-owned subsidiary of IMX.

Based on the information known as at the date of this Prospectus, and assuming the Minimum Subscription is achieved, on Admission only MMG Exploration Holdings Limited will have an interest in 5% or more of the Shares on issue, with a holding of approximately 8.60%.

Investors should note the details above do not include any IMX Shareholder who participates in the IMX Offer.

Section 12.7

What are the Offers?

What are the Offers?

This Prospectus is for a conditional initial public offering of a minimum of 21,250,000 and up to a maximum of 35,000,000 fully paid ordinary shares in the Company.

The offers comprise a public General Offer, which also incorporates the IMX Offer to Eligible IMX Shareholders (together, Offers).

Loyalty Options with an exercise price of $0.25 each and an expiry date 3 years from the Issue Date will be issued free attaching on a 1 for 3 basis to every person issued Shares under the General Offer.

The Shares being offered will represent approximately 51.5% of the issued capital of the Company at Admission on a Minimum Subscription basis and approximately 64% of the issued capital of the Company at Admission on a Maximum Subscription basis.

Sections 1.1, 1.2 and 1.6


What is the Offer Price?

$0.20 per Share. Section 1.1

Will the Shares be quoted?

The Company will apply to the ASX for its admission to the Official List and quotation of Shares on the ASX (expected to be under the code "GPX") within seven days of the date of this Prospectus.

"Important Information"

What is the Minimum Subscription amount under the Offers?

The Offer is conditional on the Company raising at least $4,250,000. If the Company fails to raise the Minimum Subscription within three months after the date of this Prospectus, the Company will either repay the Application Monies (without interest) to applicants or issue a supplementary prospectus or replacement prospectus and allow applicants one month to withdraw their Applications and have their Application Monies refunded to them (without interest).

The maximum amount to be raised is $7,000,000.

Section 1.3

What are the conditions of the Offers?

The Offers remain conditional upon the following events occurring:

(a) IMX obtaining shareholder approval for the In-specie Distribution;

(b) the Acquisition Agreement becoming unconditional;

(c) the Company raising the Minimum Subscription, being $4,250,000, under the Offers; and

(d) ASX granting in-principle approval to admit the Company to the Official List on conditions which the Directors are confident can be satisfied.

If these conditions are not satisfied then the Offer will not proceed and the Company will repay all Application Monies received under the Offers in accordance with the Corporations Act.

Section 1.5

Why are the Offers being conducted?

The purposes of the Offers are to:

(a) raise up to $7,000,000 pursuant to the Offers (before associated costs);

(b) assist the Company to meet the requirements of ASX and satisfy Chapters 1 and 2 of the Listing Rules, as part of the Company's application for Admission to the Official List;

Section 1.4


(c) provide funding for the purposes outlined in Section 1.7;

(d) provide the Company with access to equity capital markets for future funding needs; and

(e) enhance the public and financial profile of the Company.

Are there any escrow arrangements?

Yes, there are compulsory escrow arrangements under the ASX Listing Rules.

No securities issued under the General Offer or IMX Offer will be subject to escrow.

The Company has applied for a waiver from ASX that the Shares to be issued to IMX under the Acquisition Agreement and distributed in-specie to unrelated parties will not be subject to escrow.

As at the date of this Prospectus the Company expects approximately:

(a) 3,546,000 Shares issued to MMG to be subject to 12 months' escrow;

(b) 316,601 Shares acquired by IMX directors pursuant to the In-specie Distribution to be subject to 24 months' escrow; and

(c) 3,585,000 Options issued to Directors to be subject to 24 months' escrow.

Section 1.13

What is the Offer period?

An indicative timetable for the Offers is set out on page 8 of this Prospectus.

"Indicative Timetable"

Are the Offers underwritten?

No, but Palladion Partners Pty Ltd and RM Corporate Finance Pty Ltd have been appointed as the Joint Lead Managers.


Additional information

Will the Company be adequately funded after completion of the Offers?

The Directors are satisfied that on completion of the Offers, the Company will have sufficient working capital to carry out its stated objectives.

Section 1.7

What rights and liabilities attach to the Shares on issue?

All Shares issued under the Offers will rank equally in all respects with existing Shares on issue. The rights and liabilities attaching to the Shares are described in Section 12.1.

The rights and liabilities attaching to the Loyalty Options are described in Section 12.2.



What are the tax implications of investing in Securities under the Offers?

The tax consequences of any investment in Securities under the Offers will depend upon your particular circumstances.

Prospective investors should obtain their own tax advice before deciding to invest.

Section 1.18

Who is eligible to participate in the Offers?

The General Offer is open to all investors with a registered address in Australia and certain qualifying investors in Hong Kong, Mauritius, Singapore and the UK to whom such an offer can be lawfully made.

The IMX Offer is open to IMX Shareholders registered on a record date of 8 April 2016.


How do I apply for Shares under the Offers?

Applications for Shares under the Offers must be made by completing the relevant Application Form in accordance with the instructions.

Applicants for Shares under the General Offers may pay by cheque only and payments must be in Australian dollars for the full amount of the Application, being the number of Shares applied for multiplied by $0.20 per Share.

Applicants for Shares under the IMX Offer may pay by BPAY® or by cheque and payments must be in Australian dollars for the full amount of the Application, being the number of Shares applied for multiplied by $0.20 per Share.

Investors are not required to take any action to receive Loyalty Options.

Section 1.10

What is the allocation policy?

Whilst priority will be given to Eligible IMX Shareholders, the Directors will allocate Shares at their sole discretion with a view to ensuring an appropriate Shareholder base for the Company going forward.

There is no assurance that any applicant will be allocated any Shares, or the number of Shares for which it has applied.

Section 1.11

When will I receive confirmation that my Application has been successful?

It is expected that holding statements will be sent to successful applicants by post on or about 13 May 2016.

"Indicative Timetable"

What is the Company's dividend policy?

The Company does not expect to pay dividends in the near future as its focus will primarily be on using cash reserves to develop the Chilalo Project.

Section 2.4


Any future determination as to the payment of dividends by the Company will be at the discretion of the Directors and will depend upon matters such as the availability of distributable earnings, the operating results and financial condition of the Company, future capital requirements, general business and other factors considered relevant by the Directors. No assurances are given in relation to the payment of dividends, or that any dividends may attach franking credits.

How can I find out more about the Prospectus or the Offers?

Questions relating to the Offers and Applications for Shares can be directed to the Company on +61 8 9200 4960.

Section 1.19

1. Details of the Offers

1.1 General Offer and IMX Offer

This Prospectus invites potential investors to apply for up to 35,000,000 Shares at an issue price of $0.20 each to raise up to $7,000,000 (before associated costs).

The Offers comprise a public General Offer, which also incorporates the IMX Offer to Eligible IMX Shareholders (together, Offers).

The Company is offering Eligible IMX Shareholders the opportunity to subscribe for Graphex Shares through a priority offer (IMX Offer). Whilst priority will be given to Eligible IMX Shareholders, the Directors will allocate Shares at their sole discretion with a view to ensuring an appropriate Shareholder base for the Company going forward. While it is intended that as many Eligible IMX Shareholders as possible receive at least the minimum allocation of 10,000 Shares ($2,000) under the IMX Offer, there is no guarantee that all Eligible IMX Shareholders will have their Applications accepted in full. Eligible IMX Shareholders are encouraged to submit an IMX Offer Application Form as soon as possible.

Applications from Eligible IMX Shareholders which are not accepted by the Company by the IMX Offer Closing Date will be issued to applicants under the General Offer. The IMX Offer closes five days before the General Offer closes, to facilitate this process.

The Shares to be issued pursuant to the Offers are of the same class and will rank equally in all respects with the existing Shares in the Company. The rights and liabilities attaching to the Shares are further described in Section 12.1 of the Prospectus.

Applications for Shares under the General Offer must be made on the General Offer Application Form accompanying this Prospectus and received by the Company on or before the General Offer Closing Date. Persons wishing to apply for Shares under the General Offer should refer to Section 1.10(a) for further details and instructions.

Applications for Shares under the IMX Offer must be made on the IMX Offer Application Form accompanying this Prospectus and received by the Company on or before the IMX Offer Closing Date. Persons wishing to apply for Shares under the IMX Offer should refer to Section 1.10(b) for further details and instructions.

1.2 Loyalty Options

The Company is issuing 1 free Loyalty Option for every 3 Shares issued pursuant to this Prospectus. For the avoidance of doubt IMX Shareholders who will receive Shares pursuant to the In-specie Distribution will not and are not entitled to receive Loyalty Options.

Fractional entitlements will be rounded down to the nearest whole number.

The issue of Loyalty Options will be made to those investors who are issued Shares pursuant to the Offers. Those investors are not required to take any action to receive Loyalty Options. The Loyalty Options will be issued to those investors on the Issue Date.

The Loyalty Options are subject to a vesting condition that the Loyalty Option holder hold Shares on the 'Vesting Date' (being the date that is 3 months following the

commencement of trading of Graphex's Shares on ASX), with the number vesting equal to the lesser of:

(a) the number of Loyalty Options held on the Vesting Date; and

(b) the number of Shares held on the Vesting Date divided by 3,

(Vesting Condition).

Unvested Loyalty Options will lapse on the Vesting Date.

An illustration of how the Vesting Condition operates with various examples of transactions undertaken by Loyalty Option holders prior to the Vesting Date is set out below:

No. Shares held on Issue Date

90,000 90,000 90,000 90,000 90,000

No. Loyalty Options issued

30,000 30,000 30,000 30,000 30,000

Transactions completing before Vesting Date

No transactions

Shareholder purchases

10,000 Shares before

Vesting Date

Shareholder sells 30,000

Shares before the

Vesting Date

Shareholder sells 45,000 Shares then purchases


Vesting Date

Shareholder sells 40,000 Shares then purchases


Vesting Date

No. Shares held on Vesting Date

90,000 100,000 60,000 90,000 60,000

No. of Loyalty Options that vest

30,000 30,000 20,000 30,000 20,000

No. Loyalty Options that lapse

Nil Nil 10,000 Nil 10,000

Reason Same number of Shares held therefore all Loyalty Options vest.

Shareholders who purchase additional Shares such that their shareholding at the Vesting Date is greater than their holding at the Issue Date are not entitled to

Number of Shares held divided by 3 is now less than number of Loyalty Options on Vesting Date.

Same number of Shares held therefore all Loyalty Options vest.

Number of Shares held divided by 3 is now less than number of Loyalty Options on Vesting Date.

additional Loyalty Options.

Up to the Vesting Date the Loyalty Options are non-transferable. Following the Vesting Date the Loyalty Options will become transferable.

The rights and liabilities of the Loyalty Options issued under this Prospectus are set out in Section 12.2.

1.3 Minimum Subscription

The minimum level of subscription for the Offers is 21,250,000 Shares to raise $4,250,000 (before costs) (Minimum Subscription).

None of the Shares offered under this Prospectus will be issued if Applications are not received for the Minimum Subscription. Should Applications for the Minimum Subscription not be received within three months from the date of this Prospectus, the Company will either repay the Application Monies (without interest) to applicants or issue a supplementary prospectus or replacement prospectus and allow applicants one month to withdraw their Applications and have their Application Monies refunded to them (without interest).

1.4 Purpose of the Offers

This Prospectus has been issued for the purposes of:

(a) raising up to $7,000,000 pursuant to the Offers (before associated costs);

(b) assisting the Company to meet the requirements of ASX and satisfy Chapters 1 and 2 of the Listing Rules, as part of the Company's application for Admission to the Official List;

(c) providing funding for the purposes outlined in Section 1.7;

(d) providing the Company with access to equity capital markets for future funding needs; and

(e) enhancing the public and financial profile of the Company.

1.5 Conditional

The Offers under this Prospectus are conditional upon the following events occurring:

(a) IMX obtaining shareholder approval for the In-specie Distribution;

(b) the Acquisition Agreement becoming unconditional;

(c) the Company raising the Minimum Subscription, being $4,250,000, under the Offers (refer to Section 1.3); and

(d) ASX granting in-principle approval to admit the Company to the Official List on conditions which the Directors are confident can be satisfied.

If these conditions are not satisfied then the Offers will not proceed and the Company will repay all Application Monies received under the Offers in accordance with the Corporations Act.

1.6 Capital structure

The proposed pro forma capital structure of the Company following completion of the Offers is as follows:

No. of Shares (Minimum

Subscription)

% of Shares

No. of Shares (Maximum

Subscription)

% of Shares

Shares issued to IMX Shareholders pursuant to the In-Specie Distribution

16,454,000 39.9% 16,454,000 30.0%

Shares issued to MMG* 3,546,000 8.6% 3,546,000 6.0%

Shares to be issued pursuant to the Offers

21,250,000 51.5% 35,000,000 64.0%

Total Shares on issue at the listing date

41,250,000 100% 55,000,000 100%

* MMG is a party to a joint venture agreement with IMX, pursuant to which it holds a 14.12% interest in the Company’s tenement holdings (including the Prospecting Licences, which are the subject of the Acquisition Agreement) on the Nachingwea Property in Tanzania. MMG currently holds its interest in such tenement holdings, through its shareholding in a UK incorporated joint venture company (UK JV Co). On completion of the Offers and Acquisition Agreement, MMG will no longer hold its interest in the Prospecting Licences through UK JV Co, but will hold its interest through a shareholding in Graphex of 3,546,000 Shares. In accordance with the Listing Rules, the Shares issued to MMG will be subject to a 12 month escrow period. See Sections 3.1(a) and 11.2 for further information.

No. of Options (Minimum

Subscription)

% of Options

No. of Options

(Maximum Subscription)

% of Options

Options on issue as at the date of the Prospectus

Nil 0% Nil 0%

Loyalty Options to be issued pursuant to this Prospectus

7,083,333 39% 11,666,667 49%

Adviser Options to be issued1

4,440,921 25% 5,927,359 25%

Director and Employee Options to be issued2

6,437,957 36% 6,437,957 27%

Total Options on issue at the listing date

17,962,211 100% 24,031,983 100%

Notes:

1. Unquoted options exercisable at $0.25 each and expiring 3 years from the date of issue to be issued to the Joint Lead Managers and the Corporate Advisor. See Section 12.3 for the terms of issue of the Advisor Options.

2. Unquoted options to be issued to Directors and employees as follows:

(i) 1,000,000 options exercisable at $0.20 each and expiring 3 years from the date the Company is admitted to the Official List, to be issued to director Stephen Dennis;

(ii) 1,000,000 options exercisable at $0.20 each and expiring 3 years from the date the Company is admitted to the Official List, to be issued to director Grant Davey;

(iii) 350,000 options exercisable at $0.20 each and expiring 3 years from the date the Company is admitted to the Official List, to be issued to director Phil Hoskins;

(iv) 650,000 options exercisable at $0.20 each and expiring 3 years from the date the Company is admitted to the Official List, to be issued to executives and employees;

(v) 520,000 options with a nil exercise price, expiring 3 years from the date the Company is admitted to the Official List and vesting on 1 July 2017, subject to performance against KPIs relating to health and safety, securing of offtake and financing agreements, delivery of a DFS in accordance with board approved budget and timeline, completion of Project permitting and ensuring the Company is sufficiently funded to deliver on its strategy, to be issued to director Phil Hoskins as short term incentives for the period to 30 June 2017;

(vi) 594,319 options with a nil exercise price, expiring 3 years from the date the Company is admitted to the Official List and vesting on 1 July 2017, subject to performance against KPIs relating to health and safety, securing of offtake and financing agreements, delivery of a DFS in accordance with board approved budget and timeline, completion of Project permitting and ensuring the Company is sufficiently funded to deliver on its strategy, to be issued to executives and employees as short term incentives for the period to 30 June 2017;

(vii) 715,000 options with a nil exercise price, expiring 5 years from the date the Company is admitted to the Official List, with one third vesting on each of 1 July 2017, 1 July 2018 and 1 July 2019, subject to achievement of key project milestones including execution of binding offtake and project financing agreements, commencement of commercial production and share price performance, to be issued as long term incentives to director Phil Hoskins; and

(viii) 1,608,638 options with a nil exercise price, expiring 5 years from the date on which the Company is admitted to the Official List, with one third vesting on each of 1 July 2017, 1 July 2018 and 1 July 2019, subject to achievement of key project milestones including execution of binding offtake and project financing agreements, commencement of commercial production and share price

performance, to be issued as long term incentives to executives and employees.

1.7 Proposed use of funds

Following the Offers, it is anticipated that the following funds will be available to the Company:

Source of funds Minimum Subscription

$ million

Maximum Subscription

$ million

Existing cash as at the date of this Prospectus - -

Proceeds from Offers 4.25 7.00

Total funds available 4.25 7.00

The Company intends to apply the funds raised from the Offers as follows:

Use of funds Minimum Subscription

$ million


$ million

Cash purchase price payment to IMX 1.00 1.00

Transaction costs1 0.56 0.74

Corporate and administration costs 0.97 0.97

Tenement costs 0.05 0.05

Feasibility costs 1.08 3.30

Offtake marketing costs 0.30 0.40

Working capital 0.29 0.54

TOTAL 4.25 7.00

Notes:

1. Expenses paid or payable by the Company in relation to the Offers are set out in Section 12.11.

The above table is a statement of current intentions as at the date of this Prospectus. Investors should note that, as with any budget, the allocation of funds set out in the above table may change depending on a number of factors, including the outcome of offtake marketing and development activities, studies, regulatory developments and market and general economic conditions. In light of this, the Board reserves the right to alter the way the funds are applied.

The Board is satisfied that upon completion of the Offers, the Company will have sufficient working capital to meet its stated objectives. The Minimum Subscription is based on the Company's minimum working capital requirements in order to execute its planned strategy for the next 12 months, which includes securing binding offtake

agreements and the commencement of a definitive feasibility study (DFS). The use of funds is based on known actual salary costs and administration costs, a high-level third party-prepared estimate of DFS costs, exploration plans and known transaction and broker costs based on executed mandates.

The variance in the use of funds is due to the following factors:

(a) the Minimum Subscription is based on the Company's minimum working capital requirements in order to execute its planned strategy for the next 12 months, however if the Maximum Subscription is raised this is expected to exceed 12 months; and

(b) under the Maximum Subscription the Company is funded to complete a DFS, however the Company does not expect to commence a DFS in either the Minimum Subscription or Maximum Subscription scenario unless and until offtake and financing agreements for the development of the Chilalo Project are in place. Should such offtake and/or financing agreements include provision for third party funding of a DFS, the Company may not be required to use funds from the Maximum Subscription for the DFS, with those additional funds likely to be directed to working capital or eventually towards Project construction.

The use of further equity funding may be considered by the Board where it is appropriate to accelerate a specific project or strategy.

In the event the Company raises between the Minimum and Maximum Subscription, funds will be apportioned on a pro-rata basis.

1.8 Underwriting

The Offers are not underwritten.

1.9 Joint Lead Managers

Palladion Partners Pty Ltd and RM Corporate Finance Pty Ltd have been appointed as Joint Lead Managers to the Offers on the terms and conditions summarised in Section 11.3 of this Prospectus.

1.10 Applications

(a) General Offer

(i) Payment by cheque

Applications for Shares under the General Offer can be made using the General Offer Application Form accompanying this Prospectus. The General Offer Application Form must be completed in accordance with the instructions set out on the form.

Applications under the General Offer must be for a minimum of 10,000 Shares ($2,000) and then in increments of 2,500 Shares ($500). No brokerage, stamp duty or other costs are payable by applicants. Cheques must be made payable to "Graphex Mining Limited – Application Account" and should be crossed "Not Negotiable". All Application Monies will be paid into a trust account.

Completed General Offer Application Forms and accompanying cheques must be received by the Share Registry before 5.00pm WST on the General Offer Closing Date by post to the following address:

By post Computershare Investor Services Pty Limited GPO BOX 52 Melbourne Victoria 3001 Australia

Applicants are urged to lodge their General Offer Application Forms as soon as possible as the General Offer may close early without notice.

An original, completed and lodged General Offer Application Form together with a cheque for the Application Monies, constitutes a binding and irrevocable offer to subscribe for the number of Shares specified in the General Offer Application Form. The General Offer Application Form does not need to be signed to be valid. If the General Offer Application Form is not completed correctly or if the accompanying payment is for the wrong amount, it may be treated by the Company as valid. The Directors' decision as to whether to treat such an Application as valid and how to construe amend or complete the General Offer Application Form is final; however an applicant will not be treated as having applied for more Shares than is indicated by the amount of the cheque for the Application Monies.

It is the responsibility of applicants outside Australia to obtain all necessary approvals for the allotment and issue of Shares pursuant to this Prospectus. The return of a completed General Offer Application Form will be taken by the Company to constitute a representation and warranty by the applicant that all relevant approvals have been obtained.

(b) IMX Offer

Applications for Shares under the IMX Offer can only be made using the IMX Offer Application Form, which will be mailed to the IMX Shareholders who are registered as an IMX Shareholder on the IMX Offer Record Date, and therefore eligible to participate in the IMX Offer. The IMX Offer is not renounceable and it cannot be transferred.

The IMX Offer is not a rights issue or entitlement offer. IMX Shareholders on the Record Date may apply for as many Graphex Shares as they wish, noting the minimum application amount of $2,000 and that final allocations will be subject to Board discretion.

Whilst priority will be given to Eligible IMX Shareholders, the Directors will allocate Shares at their sole discretion with a view to ensuring an appropriate Shareholder base for the Company going forward. While it is intended that as many Eligible IMX Shareholders as possible receive at least the minimum allocation of 10,000 Shares ($2,000) under the IMX Offer, there is no guarantee that all Eligible IMX Shareholders will have their Applications

accepted in full. Eligible IMX Shareholders are encouraged to submit an IMX Offer Application Form as soon as possible.

Any Shares which are not applied for by Eligible IMX Shareholders by the IMX Offer Closing Date and accepted by the Company, will be issued to applicants under the General Offer. The IMX Offer closes five days before the General Offer closes, to facilitate this process.

The IMX Offer Application Form must be completed in accordance with the instructions set out on the form.

IMX Offer Application Forms must not be circulated to prospective investors unless accompanied by a copy of this Prospectus.

Applications under the IMX Offer must be for a minimum of 10,000 Shares ($2,000) and then in increments of 2,500 Shares ($500). No brokerage, stamp duty or other costs are payable by applicants.

Eligible IMX Shareholders may pay by BPAY® or cheques. Eligible IMX Shareholders are encouraged to pay by BPAY®.

(i) Payment by BPAY®

Eligible IMX Shareholders who elect to pay by BPAY® must follow the instructions for BPAY® described in the IMX Offer Application Form (which includes the biller code and your unique customer reference number). Please note that should you choose to pay by BPAY® payment:

(A) you do not need to submit the personalised IMX Offer Application Form but are taken to make the statements and declarations on that form; and

(B) you are deemed to have applied for such whole number of Shares which is covered in full by your application money.

When completing your BPAY® payment, please make sure to use the specific Biller Code and unique reference number provided on your personalised IMX Offer Application Form.

You should be aware that your own financial institution may implement earlier cut-off times with regard to electronic payment, and you should therefore take this into consideration when making payment. It is your responsibility to ensure that funds submitted through BPAY® are received by 5.00pm WST on the IMX Offer Closing Date.

(ii) Payment by cheque

Cheques must be made payable to "Graphex Mining Limited – Application Account" and should be crossed "Not Negotiable". All Application Monies will be paid into a trust account.

Completed IMX Offer Application Forms and accompanying cheques must be received by the Share Registry before 5.00pm WST on the IMX Offer Closing Date by being posted to the following address:

By post

Computershare Investor Services Pty Limited GPO BOX 52 Melbourne Victoria 3001 Australia

Applicants are urged to make their BPAY payment or lodge their IMX Offer Application Forms as soon as possible as the IMX Offer may close early without notice.

A BPAY payment or an original, completed and lodged IMX Offer Application Form together with a cheque for the Application Monies, constitutes a binding and irrevocable offer to subscribe for the number of Shares specified in the IMX Offer Application Form. The IMX Offer Application Form does not need to be signed to be valid. If the IMX Offer Application Form is not completed correctly or if the accompanying payment is for the wrong amount, it may be treated by the Company as valid. The Directors' decision as to whether to treat such an Application as valid and how to construe amend or complete the IMX Offer Application Form is final; however an applicant will not be treated as having applied for more Shares than is indicated by the amount of the cheque for the Application Monies.

It is the responsibility of applicants outside Australia to obtain all necessary approvals for the issue of Shares pursuant to this Prospectus. The return of a completed IMX Offer Application Form will be taken by the Company to constitute a representation and warranty by the applicant that all relevant approvals have been obtained.

1.11 Allocation and issue of Shares

Whilst priority will be given to Eligible IMX Shareholders, the Directors will allocate Shares at their sole discretion with a view to ensuring an appropriate Shareholder base for the Company going forward. There is no assurance that any Applicant will be allocated any Shares, or the number of Shares for which it has applied.

The Directors reserve the right to reject any Application or to issue a lesser number of Shares than that applied for. If the number of Shares allocated is less than that applied for, or no allotment is made, any surplus Application Monies will be promptly refunded without interest.

Subject to ASX granting approval for quotation of the Shares, the issue of Shares will occur as soon as practicable after the Offers close and after completion of the In-specie Distribution. Holding statements will be despatched as required by ASX. It is the responsibility of applicants to determine their allocation prior to trading in the Shares.

Applicants who sell the Shares before they receive their holding statement will do so at their own risk.

1.12 Application Monies to be held in trust

Application Monies will be held in a separate bank account on behalf of applicants until the Shares are issued. If the Shares to be issued under this Prospectus are not admitted to quotation within a period of three months from the date of this Prospectus, the Company will either repay the Application Monies (without interest) to Applicants or issue a supplementary prospectus or replacement prospectus and allow Applicants one month to withdraw their Applications and have their Application Monies refunded to them (without interest).

1.13 Escrow arrangements

ASX will classify certain existing Shares on issue in the Company (as opposed to those to be issued under this Prospectus) as being subject to the restricted securities provisions of the Listing Rules. Classified Shares would be required to be held in escrow for up to 24 months and would not be able to be sold, mortgaged, pledged, assigned or transferred for that period without the prior approval of ASX. During the period in which these Shares are prohibited from being transferred, trading in Shares may be less liquid which may impact on the ability of a Shareholder to dispose of their Shares in a timely manner.

The Securities offered under the General Offer and IMX Offer will not be subject to any escrow restrictions.

Prior to the Company's Shares being admitted to quotation on the ASX, the Company will enter into escrow agreements with the recipients of the restricted securities in accordance with Chapter 9 of the Listing Rules, and the Company will announce to ASX full details (quantity and duration) of the Shares required to be held in escrow.

The Company has applied for a waiver from ASX that the Consideration Shares being distributed to unrelated parties of IMX will not be subject to escrow.

As at the date of this Prospectus the Company expects approximately:

(a) 3,546,000 Shares to be subject to a 12 month escrow (being Shares issued to MMG);

(b) 333,998 Shares to be subject to a 24 months escrow (being Shares acquired by IMX directors pursuant to the In-specie Distribution); and

(c) 3,585,000 Options to be issued to Directors to be subject to 24 months escrow.

1.14 CHESS and issuer sponsorship

The Company will apply to participate in CHESS. All trading on the ASX will be settled through CHESS. ASX Settlement, a wholly-owned subsidiary of the ASX, operates CHESS in accordance with the Listing Rules and the ASX Settlement Operating Rules. On behalf of the Company, the Share Registry will operate an electronic issuer sponsored sub-register and an electronic CHESS sub-register. The two sub-registers together make up the Company's principal register of securities.

Under CHESS, the Company will not issue certificates to Shareholders. Rather, holding statements (similar to bank statements) will be sent to Shareholders as soon as practicable after allotment. Holding statements will be sent either by CHESS (for Shareholders who elect to hold Shares on the CHESS sub-register) or by the Company's Share Registry (for Shareholders who elect to hold their Shares on the issuer sponsored sub-register). The statements will set out the number of existing

Shares (where applicable) and the number of new Shares allotted under this Prospectus and provide details of a Shareholder's holder identification number (for Shareholders who elect to hold Shares on the CHESS sub-register) or Shareholder reference number (for Shareholders who elect to hold their Shares on the issuer sponsored sub-register). Updated holding statements will also be sent to each Shareholder at the end of each month in which there is a transaction on their holding, as required by the Listing Rules.

1.15 Risks

As with any share investment, there are risks associated with investing in the Company. The principal risks that could affect the financial and market performance of the Company are detailed in Section 5 of this Prospectus. The Shares on offer under this Prospectus should be considered highly speculative. Accordingly, before deciding to invest in the Company, applicants should read this Prospectus in its entirety and should consider all factors in light of their individual circumstances and seek appropriate professional advice.

1.16 Overseas investors

An offer made pursuant to this Prospectus is not made to persons or in places which would not be lawful to make the offer. No action has been taken to register the Offers under this Prospectus in any jurisdiction outside Australia.

The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law in those jurisdictions and therefore persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Failure to comply with such restrictions may constitute a violation of applicable securities laws.

Applicants who are resident in countries other than Australia should consult their professional advisers as to whether any governmental or other consents are required or whether any other formalities need to be considered and followed in respect of the Offers, except to the extent permitted below.

(a) Hong Kong

WARNING: This document has not been, and will not be, registered as a prospectus under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong, nor has it been authorised by the Securities and Futures Commission in Hong Kong pursuant to the Securities and Futures Ordinance (Cap. 571) of the Laws of Hong Kong (SFO). No action has been taken in Hong Kong to authorise or register this document or to permit the distribution of this document or any documents issued in connection with it. Accordingly, the Shares have not been and will not be offered or sold in Hong Kong other than to "professional investors" (as defined in the SFO).

No advertisement, invitation or document relating to the Shares has been or will be issued, or has been or will be in the possession of any person for the purpose of issue, in Hong Kong or elsewhere that is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Shares that are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors (as defined in the SFO and any rules made under that ordinance). No person allotted Shares may sell, or offer to sell, such securities in circumstances

that amount to an offer to the public in Hong Kong within six months following the date of issue of such securities.

The contents of this document have not been reviewed by any Hong Kong regulatory authority. You are advised to exercise caution in relation to the offer. If you are in doubt about any contents of this document, you should obtain independent professional advice.

(b) Mauritius

In accordance with The Securities Act 2005 of Mauritius, no offer of the Shares may be made to the public in Mauritius without the prior approval of the Mauritius Financial Services Commission. Accordingly this offer is being made on a private placement basis only and does not constitute a public offering. As such, this document has not been approved or registered by the Mauritius Financial Services Commission and is for the exclusive use of the person to whom it is addressed. The document is confidential and should not be disclosed or distributed in any way without the express written permission of the Company.

(c) Singapore

This document and any other materials relating to the Shares have not been, and will not be, lodged or registered as a prospectus in Singapore with the Monetary Authority of Singapore. Accordingly, this document and any other document or materials in connection with the offer or sale, or invitation for subscription or purchase, of Shares, may not be issued, circulated or distributed, nor may the Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore except pursuant to and in accordance with exemptions in Subdivision (4) Division 1, Part XIII of the Securities and Futures Act, Chapter 289 of Singapore (SFA), or as otherwise pursuant to, and in accordance with the conditions of any other applicable provisions of the SFA.

This document has been given to you on the basis that you are (i) an existing holder of the Company's shares, (ii) an "institutional investor" (as defined in the SFA) or (iii) a "relevant person" (as defined in section 275(2) of the SFA). In the event that you are not an investor falling within any of the categories set out above, please return this document immediately. You may not forward or circulate this document to any other person in Singapore.

Any offer is not made to you with a view to the Shares being subsequently offered for sale to any other party. There are on-sale restrictions in Singapore that may be applicable to investors who acquire Shares. As such, investors are advised to acquaint themselves with the SFA provisions relating to resale restrictions in Singapore and comply accordingly.

(d) United Kingdom

Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Conduct Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (FSMA)) has been published or is intended to be published in respect of the Shares. This document is issued on a confidential basis to "qualified investors" (within the meaning of section 86(7) of the FSMA) in the United Kingdom, and the Shares may not be offered or sold in the United Kingdom by means of this

document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) of the FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.

Any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received in connection with the issue or sale of the Shares has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of the FSMA does not apply to the Company.

In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (FPO), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together "relevant persons"). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

1.17 Privacy disclosure

Persons who apply for Shares pursuant to this Prospectus are asked to provide personal information to the Company, either directly or through the Share Registry. The Company and the Share Registry collect, hold and use that personal information to assess Applications for Shares, to provide facilities and services to Shareholders, and to carry out various administrative functions. Access to the information collected may be provided to the Company's agents and service providers and to ASX, ASIC and other regulatory bodies on the basis that they deal with such information in accordance with the relevant privacy laws. If the information requested is not supplied, Applications for Shares will not be processed. In accordance with privacy laws, information collected in relation to specific Shareholders can be obtained by that Shareholder through contacting the Company or the Share Registry.

1.18 Taxation

It is the responsibility of all persons to satisfy themselves of the particular taxation treatment that applies to them in relation to the Offers, by consulting their own professional tax advisers. Neither the Company nor any of its Directors or officers accepts any liability or responsibility in respect of the taxation consequences of the matters referred to above.

1.19 Enquiries

This is an important document and should be read in its entirety. Investors should consult with their professional advisers before deciding whether to apply for Shares under this Prospectus. Any investment in the Company under this Prospectus should be considered highly speculative.

Questions relating to the Offers and the completion of an Application Form can be directed to the Company on +61 8 9200 4960.

2. Overview of the Company

2.1 Company history

The Company was incorporated on 21 January 2016 and, other than as disclosed in this Prospectus, has not undertaken any activities since incorporation. As at the date of this Prospectus the Company is a wholly-owned subsidiary of IMX.

On 15 March 2016 the Company (and its subsidiaries) entered into an agreement with IMX (and various of its subsidiaries) to acquire 100% beneficial ownership of five Prospecting Licences in Tanzania, including PL 6073/2009 on which the Chilalo Graphite Project is located. The effect of the Acquisition Agreement is that Graphex acquires the Chilalo Graphite Project tenements and various minor assets and employees for 20,000,000 Shares at a deemed issue price of $0.20 per Share and $1,000,000 cash. At or around completion of the Acquisition Agreement, IMX will transfer to MMG (under an existing joint venture agreement with IMX) approximately 3,546,000 Shares, leaving IMX with approximately 16,454,000 Shares (Consideration Shares). See Section 11.2 for further information on the Acquisition Agreement.

At a shareholder meeting to be held on 20 April 2016, IMX is seeking shareholder approval (among other things) to undertake an in-specie distribution of the Consideration Shares (on an approximate ratio of 1 Graphex Share for every 94 IMX shares held) to eligible IMX Shareholders on IMX's register on the record date for the In-Specie Distribution. Subject to (among other things) IMX shareholder approval of the In-specie Distribution, the Company will be demerged from IMX following completion of the Acquisition Agreement and the In-specie Distribution.

The Company's Board is comprised by:

(a) Mr Stephen Dennis, Non-Executive Chairman;

(b) Mr Phil Hoskins, Director (and proposed Managing Director upon listing); and

(c) Mr Grant Davey, Non-Executive Director.

The Company Secretary is Mr Stuart McKenzie.

Further information on the Board is set out in Section 10.2.

2.2 Corporate structure

Upon listing the Company's corporate structure will be as set out in the following diagram:

2.3 Summary of the Chilalo Graphite Project and Noli Prospect

Following completion of the Offers and completion of the Acquisition Agreement, the Company (through its wholly owned subsidiary Ngwena Tanzania Limited) will control the Chilalo Graphite Project and a tenement package comprised of additional Prospecting Licences that are considered by the Company to be prospective for graphite.

Details of the Prospecting Licences are set out in the table below:

Table 1. Prospecting Licences

Project area Licence no.

Chilalo PL 6073/2009

PL 6158/2009

PL 9929/2014

PL 9946/2014

Noli PL 8628/2012

PL 5447/2008

The current Mineral Resource estimate for the Chilalo Graphite Project, all of which lies within the Shimba Deposit, is set out below.

Table 2. Shimba Deposit Mineral Resource

Domain Classification Tonnes (Mt)

TGC% Contained Graphite

(Kt)

High-grade zone Indicated 5.1 11.9 614

High-grade zone Inferred 4.1 9.1 370

Total high-grade resource

Indicated and Inferred 9.2 10.7 984

Low-grade zone Inferred 15.9 3.3 523

Total resource Indicated and Inferred 25.1 6.0 1,507

* Note: The Shimba Deposit Mineral Resource was estimated within constraining wireframe solids using a core high-grade domain defined above a nominal 5% TGC cut-off within a surrounding low-grade zone defined above a nominal 2% TGC cut-off. The resource is quoted from all classified blocks within these wireframe solids. Differences may occur due to rounding.

See Section 6 for disclosures required by the JORC Code 2012, and Section 3 for an overview of the Chilalo Graphite Project.

The information contained in this Prospectus that relates to Mineral Resources and referred to in the Independent Technical Assessment is based on, and fairly represents, information compiled by Mr Grant Louw under the direction and supervision of Dr Andrew Scogings, who are both full-time employees of CSA. Dr Scogings takes overall responsibility for the information. Dr Scogings is a member of both the Australian Institute of Geoscientists and the Australasian Institute of Mining and Metallurgy and is a Competent Person as defined in the JORC Code having sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking. Dr Scogings consents to this statement and to references in this Prospectus to him in the form and context in which they appear. Dr Scogings has not withdrawn his consent before lodgement of this Prospectus with ASIC.

IMX recently completed a pre-feasibility study (PFS) on the Chilalo Graphite Project, which confirmed the emergence of the Project as a technically sound project, with low capital intensity and attractive returns. The Board believes the results of the PFS strongly support the Company's strategy of focusing its efforts on advancing Chilalo as a near-term development opportunity.

Further details relating to the Company's Chilalo Graphite Project and the PFS are set out in Section 3.

In addition to the Chilalo Graphite Project, the Company will also acquire the Noli Prospect. The Noli Prospect has not been mapped or drilled by IMX, however a review of VTEM data detected highly conductive responses over a strike length of approximately 20 km. Results to date by IMX concluded that VTEM data observed over Noli is comparable with that observed over the Chilalo Graphite Project.

2.4 Business strategy / objectives

The Company's strategy is to advance the development of a flake graphite mining operation in Tanzania. The Company's immediate priority is to further advance the Chilalo Graphite Project. The steps involved in achieving this strategy include:

(a) obtaining a mining licence;

(b) assigning the China Gold Investment and CN Docking MOU then secure binding offtake agreements for product from the Chilalo Graphite Project;

(c) based on the desired product specifications of the end user and the contracted quantity of offtake, completion of a DFS;

(d) progression of project financing negotiations (noting the Company is targeting that binding offtake agreements are conditional upon provision of some form of project financing (debt and / or project equity)); and

(e) subject to a positive DFS and completion of the steps outlined above, construction of the Project.

As highlighted above, the Company anticipates that the scale of the Project will be determined by the demand from the eventual offtaker. The Company believes however that a smaller project of the scale proposed in the PFS has many advantages including:

(a) quicker to complete feasibility studies and construction enabling first mover advantage;

(b) easier to finance;

(c) more capable of being absorbed by graphite market; and

(d) lower execution risk in ramp-up.

While the Company’s efforts will be focused on advancing the Chilalo Graphite Project, should it be appropriate, the Noli Prospect represents potential to expand the overall graphite resource. Initial activities at Noli would comprise reconnaissance mapping and rock chip sampling, delineation of priority targets and then follow up ground electromagnetics over these targets to accurately define their location.

2.5 Dividend policy

The Company does not expect to pay dividends in the near future as its focus will primarily be on developing the Chilalo Graphite Project.

Any future determination as to the payment of dividends by the Company will be at the discretion of the Directors and will depend upon matters such as the availability of distributable earnings, the operating results and financial condition of the Company, future capital requirements, general business and other factors considered relevant by the Directors. No assurances are given in relation to the payment of dividends.

3. Overview of the Chilalo Graphite Project

A comprehensive summary of regional and local geology, geophysical exploration, drilling, metallurgy, mining approach and the financial model pertaining to the Chilalo Graphite Project is contained in the Independent Technical Assessment in Section 6. A comprehensive summary of the tenement status can be found in the Independent Solicitor's Report in Section 7.

3.1 Introduction

Following completion of the Offers and completion of the Acquisition Agreement, the Company will control the Chilalo Graphite Project and a tenement package comprised of additional tenements that are considered by the Company to be prospective for graphite as set out in Table 3 below.

Table 3: Graphite tenement package

Title Area km2 Grant Date Expiry Date

PL 6073/2009 49.47 31-Dec-09 30-Dec-17

PL 6158/2009 48.00 31-Dec-09 30-Dec-17

PL 9929/2014 48.36 08-Jul-14 07-Jul-18

PL 9946/2014 99.49 08-Jul-14 07-Jul-18

PL 8628/2012 49.87 24-Dec-12 24-Dec-16

PL 5447/2008 43.21 31-Dec-08 31-Dec-16

All the Prospecting Licences are renewable following their expiry (see Section 7 for further information).

The Chilalo Graphite Project is located in south-east Tanzania, as shown in Figure 1.

The Chilalo Project is located on one tenement, Prospecting Licence PL 6073/2009, covering an area of 49.5 km². IMX has held PL 6073/2009 since December 2009, with discovery of the Project occurring in July 2014.

In December 2015, in accordance with the Tanzanian Mining Act, IMX relinquished 50% of PL 6073/2009 (Relinquished Area) (see Section 7 for further information). The Company intends to reapply for the Relinquished Area in early May 2016. While the Relinquished Area includes ground considered to be prospective for graphite and which forms part of the Chilalo exploration target, the Shimba Mineral Resource (which is the basis of the Chilalo Graphite Project), and the area designated for project development under the PFS is located within the existing area of PL 6073/2009 shown in the above table.

Figure 1: Map of Tanzania showing the location of the tenements to be held by Graphex

The location of the graphite tenement package, including the Chilalo Graphite Project and proposed transport route to port is shown in the topographic map in Figure 2.

Figure 2: Regional topographic map showing the location of the tenements to be held by Graphex

(a) Ownership

As at the date of this Prospectus, pursuant to a joint venture agreement between IMX (and various of its subsidiaries) and MMG (MMG JV Agreement), ownership of the Prospecting Licences is held by IMX as to 86% and MMG as to 14%.

Pursuant to the MMG JV Agreement, IMX has the ability to transfer assets and restructure the joint venture and accordingly has entered into the Acquisition Agreement. Under the Acquisition Agreement, at completion MMG will receive approximately 3,546,000 Shares, the effect of which is to convert its project level interest into a corporate level interest, leaving Graphex with 100% ownership of the Prospecting Licences. This is expected to simplify negotiations with China Gold.

3.2 Geology and Exploration

The Shimba graphite discovery, in the Chilalo Project, lies within the late Proterozoic Mozambique Belt in south-eastern Tanzania.

The Shimba Deposit is a series of intercalated graphitic horizons that has been folded into a complex fold pattern. There does not appear to be any significant impact on mineralisation by the deformation.

During the December quarter of 2014, IMX completed a drilling program at the Chilalo Graphite Project that comprised 3,810 metres of reverse circulation drilling and 544 metres of diamond drilling. The drilling program was focused on testing a number of targets determined from a review of previous rock chip sampling and Versatile Time Domain Electromagnetic (VTEM) data.

While all drill holes intersected graphite, one target stood out with significant widths of near surface, high-grade mineralisation, which became the focus of the drilling program. This target was subsequently named Shimba.

An initial Inferred Mineral Resource estimate for the Shimba Deposit at Chilalo was estimated by CSA Global (CSA) and announced by IMX in April 2015.

In mid-2015 a second drill program was carried out to convert a substantial portion of the Inferred Resource to the Indicated category. A 1,461 metre diamond drilling program that was designed to underpin the PFS was completed in the June Quarter of 2015, resulting in a significant proportion of the Inferred Mineral Resource estimate being upgraded in October 2015 to Indicated status.

In October 2015 IMX announced an upgraded Mineral Resource estimate for the Project. The Mineral Resource estimate, prepared by CSA, is set out in Table 4 below:

Table 4. Shimba Deposit Mineral Resource

Domain Classification Tonnes (Mt)

TGC% Contained Graphite

(Kt)

High-grade zone Indicated 5.1 11.9 614

High-grade zone Inferred 4.1 9.1 370

Total high-grade resource

Indicated and Inferred 9.2 10.7 984

Low-grade zone Inferred 15.9 3.3 523

Total resource Indicated and Inferred 25.1 6.0 1,507

* Note: The Shimba Deposit Mineral Resource was estimated within constraining wireframe solids using a core high-grade domain defined above a nominal 5% TGC cut-off within a surrounding low-grade zone defined above a nominal 2% TGC cut-off. The resource is quoted from all classified blocks within these wireframe solids. Differences may occur due to rounding.

See Section 6 for disclosures required by the JORC Code 2012.

The Chilalo Graphite Project area remains highly prospective, with several near mine, high conductance targets, which, subject to successful drill testing, have the

potential to increase the size of the existing high-grade Mineral Resource. Given that the targets have stronger conductivity than the existing Mineral Resource, there is also potential for thicker or higher grade deposits to provide for a mine life extension in the future.

There is also 34km of untested high-conductance electromagnetic targets with similarities to the existing Mineral Resource. Based on the results of electromagnetic surveys at Chilalo, IMX has calculated an exploration target of approximately 100–350 million tonnes grading approximately 3-11% TGC. The exploration target is in addition to the existing Mineral Resource at the Shimba Deposit and excludes the Noli Prospect.

This exploration target is conceptual in nature. There has been insufficient exploration to estimate a Mineral Resource and it is uncertain if further exploration will result in the estimation of a Mineral Resource. Full details of the assumptions used to estimate the exploration target are set out in section 7.2 of the Independent Technical Assessment in Section 6.

In addition, there is potential for substantially more graphite occurrences on the Noli prospect where there are over two to three substantial stratigraphic horizons reaching over 20km in strike length.

3.3 Pre-feasibility Study

(a) Background

In November 2015 IMX released the results of a PFS undertaken on the Project.

The PFS was completed by BatteryLimits Pty Ltd. The purpose of the PFS was to assess the viability of an operation producing a high quality flake graphite product with a particular focus on low capital and operating costs and ease of execution. The approximate accuracy of the PFS is ±25%.

Graphex engaged CSA Global to review the PFS as part of the Independent Technical Assessment in Section 6 of this Prospectus. CSA Global believe the current accuracy of work completed is appropriate to the level of study (see the 'Executive Summary' section of the Independent Technical Assessment) and CSA Global are of the opinion that the principles and assumptions applied in the PFS are reasonable (see section 11 of the PFS in Section 6 of this Prospectus).

CSA Global note that an Ore Reserve is yet to be declared for the Chilalo Graphite Project, however note that assumptions in the PFS that relate to hanging wall geotechnical characterisation, acid rock drainage (ARD), and the metallurgical performance of oxide material, require confirmation to support Ore Reserves. CSA Global conclude that these latter aspects, while important to address in the proposed DFS, are sufficiently de-risked by the assumptions applied in the PFS, and provide a reasonable basis to support the financial model. The Company plans on addressing these matters, and the other recommendations made by CSA Global set out in the 'Executive Summary' section of the Independent Technical Assessment, as part of the works proposed to be undertaken in preparing the proposed DFS.

The PFS proposes a high-grade open-pit operation utilising conventional mining methods and a plant that applies simple flotation processing, producing a base case of approximately 69,000 tonnes per year. The production target referred to above is underpinned by Indicated Resources

(as to 69%) and Inferred Resources (as to 31%). Investors should note there is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources or that the production target will be realised.

For a comprehensive review of the PFS see sections 8 to 11 of the Independent Technical Assessment at Section 6 of this Prospectus.

Since completing the PFS, further progress has been made in a number of areas by IMX that are considered to have contributed to a de-risking of Project development and provided the Company with additional assurance regarding the viability of the Chilalo Project. This has included the following:

(i) The results of testwork on the downstream applications of Chilalo graphite (announced by IMX to ASX on 22 March 2016), which have confirmed an expansion ratio of 1,500x (times). The expansion rate represents the volume growth of the graphite once it is mixed with acid and other reagents and then heated, and high expandability is more valuable. The testwork demonstrates the suitability of Chilalo graphite to the expandable graphite market.

(ii) IMX has entered into a memorandum of understanding (MOU) with China Gold Group Investment Co Ltd (China Gold Investment) and CN Docking Joint Investment and Development Co. Ltd (CN Docking), a subsidiary of China National Building Material Group Corporation. China Gold Investment has formed a strategic partnership with CN Docking to jointly develop graphite opportunities. The MOU provides for an exclusive negotiation and due diligence period with respect to the Chilalo Project, ceasing on 31 July 2016. Representatives of China Gold Investment are scheduled to conduct a site visit in Tanzania during April 2016. The Company is presently in negotiations with China Gold Investment and CN Docking focussed on project equity, financing, EPC (engineering, procurement and construction) and offtake.

(iii) Based on IMX's discussions with end users in China that were undertaken prior to entering into the MOU, the Company considers the expandable graphite market to be a significant existing market with potential for strong growth due to the use of expandable graphite in products such as graphite foil, graphite paper and flame-retardant building products. China dominates the expandable graphite market producing 95% of the world’s expandable graphite (source: Benchmark Mineral Intelligence 2015). Given China’s diminished reserves of coarse flake graphite, there is a substantial shortage of coarse flake graphite capable of producing the quantity of expandable graphite required to meet China’s demand, which the Company believes represents an important opportunity for it.

(iv) The Chilalo Graphite Project has been issued with an Environmental Certificate by the National Environment Management Council of Tanzania. This certificate is a pre-requisite for the granting of a mining licence.

The Company notes that the PFS also assessed an alternative case producing approximately 51,000 tonnes per year. Graphex requested that CSA Global's

review focussed only on the base case as recent discussions by IMX with end users have indicated end users will purchase -75 micron material whilst the alternative case contemplated a scenario where the -75 micron material would not be sold.

(b) Mining

The PFS proposes the Chilalo open pit mine is planned as a conventional truck and shovel operation. Early stages of the open pit are proposed to be free-dig, with the remainder to be mined using standard drill and blast techniques. Should mining commence, the PFS anticipates mining operations will be undertaken on an owner operator basis, supported by a fleet of ancillary equipment.

The Chilalo Project mining costs and production parameters are based on budget estimates and a database of relevant industry costs (see Table 10 of the Independent Technical Assessment in Section 6 of this Prospectus). These inputs were used to generate a series of nested pit shells based on varying basket prices. The optimised pit shell is limited by the Mineral Resource extent rather than by the economics of the Project. CSA Global's opinion is that the inputs are in line with industry benchmarks and the basket price used is viewed as reasonable.

The proportion of Inferred Mineral Resources the PFS proposes be mined within this pit shell (31%) is a combination of high grade (>5% TGC) and lower grade (2-5% TGC). The Inferred material within the pit shell is mainly scheduled to be mined as part of the extraction of Indicated Mineral Resources within the pit, and within a cutback scheduled for the third year of the project life. The remainder of the Inferred material is scheduled to be mined towards the end of the current mine plan in subsequent cutbacks. CSA Global notes in section 8.13 of the Independent Technical Assessment (see Section 6 of this Prospectus) that it is anticipated that refinement of metallurgical parameters as the project progresses will allow conversion of the majority of Inferred material to higher confidence material. Sensitivity modelling completed as part of the PFS indicated that the economic viability of the Project was not sensitive to the inclusion of the Inferred Mineral Resource within the pit (i.e. the Inferred Resource does not determine the economic viability of the Project).

(c) Metallurgy

A metallurgical testwork program was carried out by Perth-based processing engineering consultancy group BatteryLimits Pty Ltd. Initial optimisation testwork has demonstrated high graphite recovery and a high grade coarse flake concentrate can be achieved using separate coarse and fine flotation streams. Testwork has confirmed that the ore is quite consistent in metallurgical performance and thus the process design and engineering in the PFS is considered appropriate for the entire orebody.

Overall, the testwork program demonstrated that the ore is amenable to the production of high-grade graphite concentrates, at coarse flake sizes, using simple flotation processes (Table 5). Further testwork will occur in the event the Company undertakes a DFS.

Table 5 Chilalo product specifications

Flake Size Sieve Size PFS

Microns Mesh Mass (%)1 TGC (%)

Super Jumbo > 500 +35 1.9 94-97

Jumbo 300 – 500 +50 24.0 94-97

Large 180 – 300 +80, -50 22.5 94-97

Medium 150 – 180 +100, -80 6.0 94-97

Small 75 – 150 +200-100 20.6 94-97

Fines – 75 -200 25.0 90 1. Mass based on % of total graphite concentrate produced

(d) Process Plant

The processing plant design includes a two stage crushing circuit, with product conveyed to a crushed ore stockpile. Ore is then proposed to be reclaimed from the stockpile by front-end loader and delivered to a single stage rod mill in closed circuit with a double deck vibrating screen. The rod mill screen undersize would then be pumped to the flotation conditioning tank where reagents are proposed to be added and the slurry is then proposed to be pumped to the flotation circuit to recover the graphite using a circuit comprising rougher, scavenger and primary and secondary cleaner flotation stages.

Graphite concentrate is proposed to be filtered and dried and then discharged on to a line-up of five vibrating screens to separate the graphite in to multiple-sized products and discharged into 1 tonne capacity bags.

(e) Tailings

ATC Williams was commissioned to carry out a Pre-Feasibility Study report for a tailings storage facility (TSF). Although the TSF design was for the first 2 years of operation only, the LOM storage has been modelled to correctly place the starter embankment and to consider long-term storage optimisation. Further information is set out in section 8.10 of the Independent Technical Assessment.

(f) Power

The PFS proposes the Project utilise diesel generated power from a 4 MW power station comprising four 1 MW diesel gensets. One of the four gensets is additional to the power generation requirements, for operation during maintenance / standby.

(g) Water

A borefield is proposed to supply process water. Previous exploration drilling campaigns in lower lying areas have encountered water at shallow depths, indicating availability of ground water for the borefield is considered likely. CSA Global agree the risk associated with available ground water is low (see section 9.1 of the Independent Technical Assessment).

(h) Transport

The PFS proposes road transport from Chilalo to the Mtwara Port, where bagged product will be stored in a storage facility prior to shipping. The

route from Chilalo to the Mtwara Port is 220 kilometres by road, the majority of which is a sealed main road.

The access road to the site is proposed to be upgraded, with most of the work relating to the 5 kilometre section immediately adjacent to the Chilalo site. An allowance for this work has been included in the PFS and is based on the costs of other road upgrade projects that have been completed in the area.

An existing airport at Nachingwea, located approximately 47 kilometres from Chilalo allows for the ready transport of people and consumables to and from Dar es Salaam, Tanzania's major city.

(i) Port

The Mtwara Port is a deep water port with sufficient capacity to accommodate the export of proposed Chilalo product. The Mtwara Port is capable of handling 400,000 metric tonnes of imports and exports per year and is currently handling volumes well short of that capacity.

At the Mtwara Port, graphite concentrate is planned to be housed in a storage facility until loading onto a ship. The PFS assumed that the Company will lease the concentrate storage facility.

(j) Capital Cost Estimate

Capital costs in the PFS are estimated to be US$73.8 million as shown in Table 6.

Table 6 Breakdown of initial capital expenditure

Capital item (US$m)

Mining equipment 7.0

Process plant 32.7

Infrastructure 11.9

Pre-development works 6.9

EPC 3.3

Owner's cost 6.9

Contingency 5.1

Total 73.8

The nameplate capacity of the processing plant is 670,000 tonnes per year estimated to be utilised at 630,000 tonnes per year and provides capacity for expansion. Average annual sustaining capital expenditure over the LOM is estimated at US$0.8 million.

(k) Operating Cost Estimate

The Directors' view is that the PFS confirms that the Chilalo Project is a low-cost operation, with PFS cash operating costs of approximately US$490 per tonne of graphite concentrate produced FOB from the Mtwara Port over the

proposed LOM. A summary breakdown of the operating costs is shown in Table 7.

Table 7 Breakdown of operating costs

Operating cost item PFS

US$/t feed US$/t conc.

Mining 13.49 122.85

Labour 11.42 104.05

Product logistics (FOB) 8.22 74.94

Power 8.20 74.73

Reagents, consumables and water

5.97 54.45

Miscellaneous and G&A 4.91 44.77

Maintenance 1.52 13.86

Total 53.72 489.65

CSA Global has noted the appropriate capital and sustaining expenditure has been accounted for in the PFS financial model.

(l) Pricing

The Company believes that the significant portion of large, jumbo and super jumbo size flake with high expansion rates and high TGC grades at Chilalo provide a significant advantage as a shortage of this high quality product currently exists in the market.

The weighted average basket price for Chilalo product used in the PFS is US$1,217 per tonne of concentrate, which is based on the value of each flake size as shown in Table 8. Based on recent discussions by IMX with end users who have indicated they will consume -75 micron material, the PFS assumes sale of all of the fractions produced, including the -75 micron material. CSA Global is of the opinion that the forecast basket price of US$1,217/t is reasonable, however noted this is the most sensitive factor in the PFS financial model and recommends the assumption that all product is saleable continues to be refined.

Table 8 Weighted average basket price assumptions used in PFS

Flake Size Microns Mesh Mass Dist. %

Grade TGC %

Price (US$/t)1

Basket Sales Price

(US$/t)

Super Jumbo

> 500 +35 1.9

94-97 2,500 48

Jumbo 300 – 500 +50 24.0 94-97 2,200 528

Large 180 – 300 +80 22.5 94-97 1,400 315

Medium 150 – 180 +100 6.0 94-97 950 57

Flake Size Microns Mesh Mass Dist. %

Grade TGC %

Price (US$/t)1

Basket Sales Price

(US$/t)

Small 75 – 150 +200 20.6 94-97 700 144

Fines <75 -200 25.0 90 500 125

Weighted Basket Sales Price (Mass Dist. % x Price) 1,217

1. Source: Benchmark Mineral Intelligence and market sources

2. Unlike most base and precious metals, graphite is not an exchange traded commodity and as a result, information on the price of graphite is not definitive. IMX sourced the pricing information in the above table from industry leading consultant Benchmark Mineral Intelligence, from its discussions with end users of graphite in China and from information published by other companies seeking to develop graphite projects.

(m) Financial Analysis

Based on the assumptions disclosed above and in further detail in the Independent Technical Assessment, the PFS reveals a strong cash flow and short payback period underpinned by low capital intensity, a high quality product and highly competitive operating costs, summarised below in Table 9:

Table 9 Operating and Financial Metrics

Items PFS

Life of Mine Yrs 10

Average annual production (LOM) tpa 69,123

Plant feed rate tpa 630,000

Average head grade (LOM) % TGC 10.85

Average recovery % 94

Average concentrate grade % TGC 94

LOM Revenue US$m 838

LOM Pre-tax Net Cashflow US$m 391

Average annual EBITDA US$m 47

Basket sales price US$/t 1,217

Operating cost per tonne of concentrate US$/t 490

Operating margin US$/t 727

Pre-production capital cost US$m 74

Pre-tax payback period Yrs 1 year 7 months

Pre-tax NPV (10% discount rate) US$m 200

Pre-tax IRR % 62

(n) Sensitivity Analysis

Analysis of the sensitivity of the Project NPV to changes in key assumptions or estimates used in the financial model shows that the NPV is most sensitive

to a movement in the basket sales price (for further information see section 10.6 of the Independent Technical Assessment).

The driving factor of the basket sales price is the flake size distribution of the Chilalo product and the prevailing market price of each of the size categories produced by the Project. As a result, the Project is sensitive to changes to either of these underlying factors.

The Company expects that further metallurgical optimisation of the product specifications currently under way by IMX (and to be continued by Graphex post-completion) will accordingly make improvements to the Project's economics.

(o) Environment, Social, Community and Permitting

Tanzanian prospecting and mining licenses are governed by the Mining Act of 1998 and revised in 2010. These are issued and administered by the Ministry of Mines.

The state is entitled to a 3% royalty based on the gross revenue of the product produced relating to the extraction of industrial minerals including graphite.

Any resettlement of people or destruction of crops as a result of development of a Special Mining Lease (SML) or Mining Lease (ML) would require compensation to be paid. These amounts are nominal by Western standards.

A Resettlement Action Plan (RAP) for the project has been prepared. The RAP has identified 428 persons who will be impacted by the Project, comprising 93 asset owners and 335 household members. The estimated budget required for the development of RAP and implementation is approximately 1.76 billion TZS (US$800,000 at exchange rate of 2,200 TZS/US$).

3.4 Development Program and Funding

As a PFS has already been completed for the Project, the next step is for Graphex to secure offtake and financing agreements for the development of the Chilalo Project, following which Graphex would look to complete a Definitive Feasibility Study.

Graphex proposes to use the funds raised from the Offers to purchase the Chilalo Project from IMX, conduct marketing activities targeted to reaching agreements for offtake and project financing (the completion of which is expected to allow for commencement of a DFS on a Minimum Subscription basis), to cover the costs of the Offer, and for administration (see Section 1.7).

The purpose of a DFS will be to make a comprehensive technical and economic study of the selected development option for the Project. This will include a detailed assessment of the Modifying Factors (as that term is defined in the JORC Code 2012), together with operational factors and detailed financial analysis to enable the declaration of an Ore Reserve and demonstrate that extraction is reasonably justified (i.e. economically mineable).

Completion of a DFS is planned to take six months from commencement. The DFS is also anticipated to address the technical risks and recommendations outlined by CSA Global in the Independent Technical Assessment at section 11, such as:

(a) conversion of Inferred Resources to Indicated Resources;

(b) further metallurgical testwork;

(c) refinement of sensitivity analysis with respect to basket price, mining rates, processing cost, recovery and concentrate grade and flake size;

(d) production ramp-up; and

(e) further market analysis.

The results of the DFS are anticipated to serve as the basis for a final decision by Graphex to proceed with the development of the Chilalo Graphite Project.

3.5 The Noli Prospect

The Noli Prospect is located approximately 60 kilometres south-west of Chilalo. The Noli Prospect has not been mapped or drilled by IMX, however a review of VTEM data detected highly conductive responses over a strike length of approximately 20 km (see section 4.5 of the Independent Technical Assessment in Section 6 for further information).

Planned activities at Noli would initially comprise reconnaissance mapping and rock chip sampling, delineation of priority targets and then follow up ground electromagnetics over these targets to accurately define their location. These would then be drill ready targets.

3.6 Commitment to Health, Safety and the Environment (HSE)

Graphex will develop a HSE Management Plan. The objective of this plan will be to:

(a) detail the Project's HSE policy and objectives and targets;

(b) describe the HSE management system to be applied to the Project;

(c) align this management system and demonstrate compliance with the Company's Health, Safety and Environmental management system requirements;

(d) reference the procedures and documents to be used during the Project to effectively manage HSE;

(e) describe the arrangements in place to ensure the site activities are conducted in a safe and controlled manner to prevent harm to people, the environment or assets; and

(f) identify the legislative, regulatory and other requirements governing HSE matters on the Project.

This HSE Management Plan shall, by stating systematic principles and responsibilities, and referencing procedures and requirements, ensure that all activities are organised and managed in a consistent manner and in accordance with project requirements and the HSE Policy.

This Plan is a 'live' document that will require updating during all stages of the DFS and other phases of the Project. The key information contained within this Plan includes:

(a) HSE Responsibilities;

(b) Induction and Training Arrangements;

(c) Hazards / Aspects associated with the PFS and its activities and the control measures to be applied;

(d) In-field Procedures / Rules;

(e) Incident Reporting and Management Process; and

(f) Emergency Response Arrangements.

4. Overview of Tanzania

4.1 Country information

Following independence from Britain in the early 1960s, Tanganyika and Zanzibar merged to form the nation of the United Republic of Tanzania in 1964. It is located in East Africa and is bordered by Kenya, Uganda, Rwanda, Burundi, the Democratic Republic of the Congo, Zambia, Malawi and Mozambique. To the east its boundary is the Indian Ocean. Tanzania has an area of approximately 947,300km2 and it is the 31st largest country by land mass in the world.

Tanzania has a population of almost 50 million. Its President John Magufuli was elected on 25 October 2015. Elections are held every five years and the next election is scheduled to be held in 2020. The legal system is sourced from English common law, statutes, case law, and customary law.

4.2 Tanzania's economy

Tanzania is one of the world's poorest economies in terms of per capita income however it has achieved high growth based on gold production and tourism. The economy depends on agriculture, which accounts for more than one-quarter of gross domestic product (GDP), provides 85% of exports and employs about 80% of the work force. The World Bank, the International Monetary Fund and bilateral donors have provided funds to rehabilitate Tanzania's aging economic infrastructure, including rail and port infrastructure that are important trade links for inland countries. GDP growth from 2009 to 2013 was 6–7% per year mainly due to high gold prices and increased production. In 2014, GDP was at US$48.06 billion. The currency is the Tanzanian shilling.

In recent years, Tanzania, in particular, south-east Tanzania, has become renowned for its coarse flake graphite. Other ASX listed companies including Magnis Resources Limited, Mozambi Resources Limited, Walkabout Resources Limited and Kibaran Resources Limited have discovered graphite mineralisation that is coarse flake in nature.

The Chilalo Graphite Project itself and the surrounding area appears to be a precinct that is host to graphite which is among the coarsest flake in the world.

4.3 Summary of laws relevant to exploration

(a) General

The information set out in this Section is only a high level summary of relevant laws. It is not purported to be a comprehensive review of all laws affecting the Company's proposed activities in Tanzania.

The rights for prospecting for minerals are licenced under the Mining Act. The Minister has the power to grant, renew, suspend or cancel any licence. The powers of the Minister (or where the law specifies, the Commissioner) are exercisable in accordance with the powers conferred to them under the Mining Act.

A holder of a mineral right is obliged to seek the prior consent of lawful occupiers before the holder can exercise its rights under the Mining Act. All licences issued under the Mining Act are referred to as "mineral rights" herein.

(b) Types of mineral rights

The types of rights which may be granted under the Mining Act include a prospecting licence, retention licence, mining licence, special mining licence, gemstone mining licence and a primary mining licence. Primary mining licences are restricted to Tanzanian citizens or corporate entities whose memberships are composed exclusively of Tanzanian citizens.

(c) Prospecting licences

Under section 32(1) of the Mining Act, the initial period of prospecting licences is four (4) years, followed by a first renewal period of three (3) years and a second renewal period of two (2) years. The maximum life span of a prospecting licence is nine (9) years. Where the holder is not in default and at the end of the second renewal period, a further period is required to complete a feasibility study already commenced, the prospecting licence may be renewed for such further periods but not exceeding two (2) years as required for that purpose.

The holder of a prospecting licence has prima facie an indisputable right of access to the licence area, and does not require any other administrative authorisation or prior application to carry out prospecting activities for the minerals to which the licence applies (section 35 of the Mining Act).

(d) Mining licences

Mining licences or special mining licences may be applied for by a prospecting licence holder who has established the existence of minerals in commercial quantities. Such applicant is referred to in the Mining Act as an 'Entitled Applicant'. Mining licences are normally granted for a period not exceeding 10 years, and in the case of special mining licences for the estimated life of the ore body, as indicated in the feasibility study report or as the applicant may request, whichever is shorter.

Mining licences may be renewed for a further period not exceeding 10 years and in the case of special mining licences for another period not exceeding the estimated life of the remaining ore body, unless:

(i) the applicant is in default;

(ii) the development has not proceeded with reasonable speed;

(iii) minerals in reasonable quantities do not remain to be produced;

(iv) the intended mining operations do not ensure the proper development of the mineral resources; or

(v) the applicant has not included the relevant environmental certificate under the Environmental Management Act.

An application for a mining licence or a special mining licence must be in the prescribed form and must identify the relevant prospecting licence; describe the area and the mineral deposits therein. A feasibility study must be submitted setting out the proposed program for mining operations, the estimated recovery rate of ore and proposals for its treatment and the applicant's estimated quantity of minerals to be produced for sale annually. Details of employment and training of Tanzanian citizens and a succession plan of expatriates must also be disclosed. Finally, there must be a

statement on financial and technical resources and a procurement plan with respect to goods and services available in Tanzania.

(e) Suspension and cancellation of a mineral right

Where the holder of a mineral right, amongst other things, fails in a material respect to comply with any requirement of the Mining Act or the Regulations, the conditions of the licence, with a direction lawfully given under the Mining Act or Regulations then the licensing authority may by notice suspend or cancel the licence, if the holder has failed to remedy the breach within thirty (30) days of receiving notice.

(f) Annual rent, minimum expenditure and royalties

Details of the annual rent, minimum expenditure and royalties payable with respect to mineral rights are set out in the Independent Solicitor's Report in Section 7.

(g) Claims of lawful occupiers in respect to mineral rights

According to section 95(1)(b) of the Mining Act, no holder of a mineral right may exercise any of its rights conferred by the licence over an area of land which is the site of, or which is within 200 meters of any inhabited, occupied or temporarily unoccupied house or building without consultation with the relevant Local Government Authority, including the Village Council and thereafter the written consent of the lawful occupier. Therefore, where a mineral right granted to an applicant is over an area of land inhabited by lawful occupiers then the holder of such a mineral right is required to obtain the lawful occupiers' written consent, following necessary consultations, prior to exercising any of the rights conferred under the mineral right. Failure to obtain the lawful occupiers' prior written consent would not invalidate the licence holder's mineral right but the lawful occupier may make a claim against the licence holder.

The holder of the mineral right has the right of access and construction on the licensed area, but will require the consent of any lawful land occupier, if activities may disturb habitation, cultivations, trees or buildings. The mineral right holder must also consult with local authorities with respect to the activities. The Mining Act provides that the Minister may intervene if consent is unreasonably withheld.

In terms of compensation, if activities result in damage to crops, buildings, works etc., the holder of the mineral right is liable to pay the lawful occupier fair and reasonable compensation in respect of the disturbance or damage. Any compensation, relocation and resettlement of lawful occupiers must be in accordance with the Land Act Cap. 113. If there is a dispute regarding the amount of compensation, either party may refer the dispute to the Commissioner under the Mining Act who, subject to the Mining Act, shall determine and rule on the matter.

5. Risk Factors

As with any share investment, there are risks involved. This Section identifies the major areas of risk associated with an investment in the Company, but should not be taken as an exhaustive list of the risk factors to which the Company and its Shareholders are exposed. Potential investors should read the entire Prospectus and consult their professional advisers before deciding whether to apply for Shares.

Any investment in the Company under this Prospectus should be considered highly speculative.

5.1 Risks specific to the Company

(a) Future capital requirements

The Company has no operating revenue and is unlikely to generate any operating revenue unless and until the Chilalo Graphite Project is successfully developed and production commences. Exploration and development costs and pursuit of its business plan will reduce the Company's current cash reserves and the amount raised under the Offers. Therefore, in order to successfully develop the Chilalo Graphite Project and for production to commence, the Company will require further financing in the future, in addition to amounts raised pursuant to the Offers. Any additional equity financing may be dilutive to Shareholders, may be undertaken at lower prices than the then market price (or Offer Price) or may involve restrictive covenants which limit the Company's operations and business strategy. Debt financing, if available, may involve restrictions on financing and operating activities.

Although the Directors believe that additional capital can be obtained, no assurances can be made that appropriate capital or funding, if and when needed, will be available on terms favourable to the Company or at all. If the Company is unable to obtain additional financing as needed, it may be required to reduce the scope of its activities and this could have a material adverse effect on the Company's activities and could affect the Company's ability to continue as a going concern.

The Company may undertake additional offerings of Shares and of securities convertible into Shares in the future. The increase in the number of Shares issued and outstanding and the possibility of sales of such shares may have a depressive effect on the price of Shares. In addition, as a result of such additional Shares, the voting power of the Company's existing shareholders will be diluted.

(b) Conditionality of Offers

The obligation of the Company to issue the Shares under the Offers is conditional on certain matters, as set out in Section 1.5. If the Conditions are not satisfied, the Company will not proceed with the Offers. Failure to complete the Offers may have a material adverse effect on the Company's financial position.

(c) Potential for dilution

On completion of the Offers, assuming completion of the In-specie Distribution and the Maximum Subscription is reached, the number of Shares in the Company will increase from 20,000,000 to up to 55,000,000. This

means the number of Shares on issue will increase by approximately 275% on completion of the Offers. On this basis, IMX Shareholders participating in the In-specie Distribution should note that if they do not participate in the Offers (and even if they do), their holdings may be considerably diluted.

(d) Key personnel

Recruiting and retaining qualified personnel are important to the Company's success. The number of persons skilled in the exploration and development of mining properties is limited and competition for such persons is strong. There can be no assurance given that there will be no detrimental impact on the Company if one or more key employees leave the Company.

(e) Emerging markets

The Company's main assets will be located in Tanzania. When conducting operations on foreign assets in emerging markets such as Tanzania, ASX listed entities may face a number of additional risks that companies with operations wholly within Australia may not face. For example, the ability to implement effective internal control and risk management systems and good corporate governance principles, having regard to the separation of executive management and the board from the location of the projects and the need to rely on consultants and professional advisors in those jurisdictions.

(f) Joint venture parties, agents and contractors

The Directors are unable to predict the risk of financial failure or default by a participant in any joint venture to which the Company is or may become a party. Further, the Company is unable to predict the risk of insolvency or managerial failure by any of the contractors used by the Company in any of its activities or the insolvency or other managerial failure by any of the other service providers used by the Company for any activity. The effects of such failures may have an adverse effect on the Company's activities.

(g) Termite administration

As announced by IMX to ASX on 21 September 2015, IMX received a letter of demand from the liquidators of Termite Resources NL (In liquidation) (Termite), which provided notice of a potential claim against directors and officers of Termite (some of whom are also IMX directors and officers), as well as against IMX itself.

Termite was wholly owned by an incorporated joint venture entity in which IMX held a 51% interest. Termite held the joint venture's interests in the Cairn Hill iron ore mine in South Australia. On 19 June 2014, IMX announced the appointment of voluntary administrators to Termite. In September 2014, Termite's creditors voted to place it in liquidation.

IMX has previously announced the quantum of the potential claim is put in the alternative as the amount of the unsatisfied liabilities to unsecured creditors at the date of administration (mostly made up of damages claims from long term logistics creditors for early termination of their contracts on appointment of the administrators) said to be estimated at $75 million, alternatively about $46 million plus interest (being the amount repaid to the joint venture entity).

As at the date of this Prospectus the Termite liquidator has neither commenced proceedings against, nor given notice under the standstill agreement (see IMX announcement of 18 January 2016) of an intention to commence proceedings against IMX. IMX maintains that the potential claim by the liquidators is unlikely to succeed, and has determined to proceed with the entry into the Acquisition Agreement. Based on disclosures made by IMX and separate due diligence undertaken by the Company in relation to this matter, the Company has also determined to proceed with the entry into the Acquisition Agreement and the lodgement of this Prospectus.

The Company notes that as at the date of this Prospectus, there is no current or threatened civil litigation, arbitration proceedings or administrative appeals, or criminal or governmental prosecutions of a material nature in which the Company or its subsidiaries is directly or indirectly concerned which is likely to have a material adverse effect on the business or financial position of the Company or its subsidiaries.

(h) Uninsurable risks

The Company's business is subject to a number of risks and hazards generally, including without limitation, adverse environmental conditions, industrial accidents, labour disputes, civil unrest and political instability, unusual or unexpected geological conditions, changes in the regulatory environment and natural phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result in damage to mineral properties or facilities, personal injury or death, environmental damage to the Company's properties or the properties of others, delays in development, monetary losses and possible legal liability.

The Company will maintain insurance coverage that is substantially consistent with mining industry practice. However, there is no guarantee that such insurance or any future necessary coverage will be available to the Company at economically viable premiums (if at all) or that, in the event of a claim, the level of insurance carried by the Company now or in the future will be adequate, or that a liability or other claim would not materially and adversely affect the Company's business.

(i) Insurance risk

The Company intends to put in place an insurance program aligned to the scale of its activities and in accordance with industry practice. The occurrence of an event that is not covered or fully covered by insurance could have a material adverse effect on the business, financial condition and results of the Company.

(j) Liquidity risk

There can be no guarantee that there will be an active market for Shares or that the price of Shares will increase. There may be relatively few buyers or sellers of Shares on ASX at any given time. This may affect the volatility of the market price of Shares. It may also affect the prevailing market price at which Shareholders are able to sell their Shares. This may result in Shareholders receiving a market price for their Shares that is less or more than the price paid under the Offers.

(k) Litigation risk

The Company is subject to litigation risks. All industries, including the minerals exploration industry, are subject to legal claims, with and without merit. Defence and settlement costs of legal claims can be substantial, even with respect to claims that have no merit.

Due to the inherent uncertainty of the litigation process, the resolution of any particular legal proceeding to which the Company is or may become subject could have a material effect on its financial position, results of operations or the Company's activities.

See Section 5.1(g) for further details in relation to Termite Resources NL liquidation.

5.2 Risks specific to Tanzania

(a) Country risks

The Prospecting Licences are for prospects located in Tanzania and the Company will be subject to the various political, economic and other risks and uncertainties associated with operating in that country. There are risks attached to exploration and mining operations in a developing country like Tanzania which are not necessarily present in a developed country like Australia. These risks and uncertainties vary from country to country and include, but are not limited to, economic, social or political instability or change, hyperinflation, currency non-convertibility or instability and changes of law affecting government participation, taxation, working conditions, rates of exchange, exchange control, exploration licensing, export duties, environmental protection, mine safety, labour relations as well as government control over mineral properties or government regulations that require the employment of local staff or contractors or require other benefits to be provided to local residents. The Company may also be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity.

Any future material adverse changes in government policies or legislation in Tanzania that affect foreign ownership, mineral exploration, development or mining activities, may affect the viability and profitability of the Company. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on exploration, development, mining production, price controls, export controls, currency remittance, income taxes, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use, local economic empowerment or similar policies, employment, contractor selection and mine safety. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure, could result in loss, reduction or expropriation of entitlements. The occurrence of these various factors adds uncertainties that cannot be accurately predicted and could have an adverse effect on the Company's operations or profitability.

The legal systems operating in Tanzania may be less developed than in more established countries, which may result in risk such as: political difficulties in obtaining effective legal redress in the courts whether in respect of a breach of law or regulation, or in an ownership dispute, a higher degree of discretion on the part of governmental agencies, the lack of political or administrative guidance on implementing applicable rules and regulations

including, in particular, as regards local taxation and property rights, inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions, or relative inexperience of the judiciary and courts in such matters.

The commitment by local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating particular concerns with respect to licences and agreements for business. These may be susceptible to revision or cancellation and legal redress may be uncertain or delayed. There can be no assurance that joint ventures, licences, licence applications or other legal arrangements will not be adversely affected by the actions of the government authorities or others and the effectiveness and enforcement of such arrangements cannot be assured.

There can be no guarantee that the Company will be able to generate a positive return for its shareholders if an event occurs in Tanzania which materially adversely affects the value of the Company, its assets and/or its business.

(b) Logistics and infrastructure

The Chilalo Graphite Project in Tanzania is subject to logistical risk of a long supply line should there be a requirement to import materials and equipment from outside the continent of Africa. The Project is located in a remote area of south-eastern Tanzania where there are some infrastructure deficiencies.

While the Company intends to have access to the Mtwara port, which is 220km by road from Chilalo, and the nearby Nachingwea airport is suitable for the transport of people and consumables, the Company will need to establish reliable road transport and sources of power and water in order for mining operations to be viable, none of which can be assured.

Owing to a shortage of skilled local personnel, the Company will engage expatriate workers to perform certain functions in Tanzania. In order to develop the Chilalo Project, the Company will need to establish the facilities and material necessary to support operations in the remote location in which it is situated.

(c) Tenement title

Rights in relation to mining rights in Tanzania are governed by Tanzanian legislation. They are evidenced by the granting of licences. Each licence is for a specific term and carries with it annual expenditure and reporting commitments, as well as other conditions requiring compliance. Consequently, the Company, through its subsidiary Ngwena Tanzania Limited, could lose title to or its interest in tenements if the licence conditions are not met or if insufficient funds are available to meet expenditure commitments as and when they arise, in line with the Tanzanian Mining legislation.

Tenements to be held by the Company or its subsidiaries are subject to periodic renewal. Renewal, although straightforward, is not automatic, and is subject to approval, which approval can be denied where a default notice has been issued. Renewal may include additional or varied expenditure or work commitments or compulsory relinquishment of the areas comprising projects. The imposition of new conditions or the inability to meet those

conditions may adversely affect the operations, financial position and/or performance of the Company.

The Minister is obliged to renew a mining licence unless the holder is in default (which remains unrectified following service of notice), has not developed the mining area with reasonable diligence, minerals in workable quantities do not remain to be produced or the application has failed to conduct mining operations in the area in strict compliance with the application regulations relating to safety and environmental management.

If any of the Prospecting Licences are not renewed, the Company may suffer significant damage through loss of the opportunity to develop any mineral resources on that licence.

(d) Occupier's consent

The title to mineral rights to be held by the Company may also be affected by the provisions of law which provide for the protection of lawful occupiers of the area. According to section 95(1)(b) of the Mining Act, no holder of a mineral right shall exercise any of its rights conferred by its licence over an area of land which is the site of, or which is within 200 metres of any inhabited, occupied or temporarily unoccupied house or building without prior consultation with the relevant local Government authority, including the village council and thereafter the written consent of the lawful occupier.

Therefore, where a mineral right granted to an applicant is over an area of land inhabited by lawful occupiers then the Company as holder of such a mineral right is required to obtain the lawful occupier's written consent, following necessary consultation, prior to exercising any of the rights conferred under its mineral right. Failure to obtain the lawful occupier's prior written consent would not invalidate the licence holder's mineral right but the lawful occupier may make a claim against the licence holder.

(e) Environmental and other regulatory risks

Environmental laws in Tanzania are strict. Every activity from exploration through to development and mining require compliance with the regulations for environmental protections by virtue of section 81 of the Environmental Management Act, 2004. Under section 81 an Environmental Impact Assessment Report is a mandatory requirement and the outcome of the assessment may be negative. It is expected that the Company's activities will have an impact on the environment, particularly at the time of advanced exploration and any mine development.

It is in the interest of the Company to conduct its activities to the highest standard of environmental obligation, including compliance with all environmental laws, in order to minimise damage to the environment and risk of liability which includes personal criminal liability under section 98 of the Environmental Management Act. In a normal situation it is expected that despite diligently observing in all material respects applicable environmental laws and regulations, there are certain risks inherent to the Company's activities, such as accidental spills, leakages or other unforeseen circumstances, which could subject the Company to environmental liability.

The Company and/or its subsidiaries will require other various governmental approvals and permits in Tanzania from time to time in connection with various aspects of its activities. To the extent such approvals or permits are

required and not obtained, or are delayed, the Company may experience delays affecting its scheduled project development.

Environmental laws are dynamic and can change over time. The Company is unable to predict the effect of additional environmental laws and regulations that may be adopted in the future. Additional laws or regulations may materially increase the Company's cost of doing business or affect its operations. The cost and complexity of complying with any additional environmental laws and regulations may prevent the Company from being able to develop potentially economically viable mineral deposits.

Further, environmental legislation is evolving in a manner which will likely require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There can be no assurance that future changes in environmental regulation in Tanzania, if any, will not materially and adversely affect the Company's business, prospects, financial condition and results of operations.

5.3 Risk specific to mining exploration

(a) Exploration, development, mining and processing risks

The Chilalo Graphite Project is at the development stage, with a PFS completed in November 2015. The prospects of Graphex should be considered in light of the risks, expenses and difficulties frequently encountered by companies at this stage of development, particularly in the African region.

In addition to the Prospecting Licence on which the Chilalo Graphite Project is located, the Company will hold other tenements, on which the Company may in the future carry out exploration, depending on its strategy.

The business of mineral exploration, project development and production, by its nature, contains elements of significant risk with no guarantee of success. Ultimate and continuous success of these activities is dependent on many factors such as:

(i) the discovery and/or acquisition of economically recoverable deposits;

(ii) access to adequate capital for project development;

(iii) design and construction of efficient development and production infrastructure within capital expenditure budgets;

(iv) securing and maintaining title to interests;

(v) obtaining consents and approvals necessary for the conduct of mineral exploration, development and production;

(vi) access to competent operational management and prudent financial administration, including the availability and reliability of appropriately skilled and experienced employees, contractors and consultants; and

(vii) limitations on activities due to seasonal weather patterns, unanticipated operational and technical difficulties, industrial and environmental accidents, tribal and traditional ownership processes, changing government regulations and many other factors beyond the control of the Company.

Despite the level of Mineral Resources currently estimated for the Project and the PFS providing the Company with confidence as to the potential of the Project, there can be no assurance that the Chilalo Graphite Project will be brought into commercial production. There can be no assurance that any additional exploration of the Prospecting Licences to be held by the Company will result in the discovery of an economic mineral deposit. Even if a mineral deposit is identified, there is no certainty that it can be economically exploited. If exploration is successful, there will be additional costs and processes involved in transitioning to the development phase.

In the event that exploration development and exploration programmes prove to be unsuccessful, this could lead to a diminution in the value of the licences, a reduction in the base reserves of the Company and possible relinquishment of the licences.

Each prospecting licence is for a specific term and carries with it annual expenditure and reporting commitments, as well as other conditions requiring compliance. Consequently, the Company could lose title to or its interest in these tenements if licence conditions are not met or insufficient funds are available to meet expenditure commitments.

(b) Commodity price volatility and exchange rate risk

If the Company achieves success leading to mineral production, the revenue it will derive through the sale of product exposes the potential income of the Company to commodity prices and exchange rate risks. Commodity prices fluctuate and are affected by many factors beyond the control of the Company. Such factors include supply and demand for minerals, technological advancements, forward selling activities and other macro-economic factors.

In addition, unlike the majority of base and precious metals, there is no internationally recognised market for graphite nor is graphite an exchange traded commodity. As a result, there is a lack of market transparency associated with the price of graphite.

Furthermore, prices of various commodities and services may be denominated in United States dollars or Tanzanian shillings, whereas the income and expenditure of the Company are and will be taken into account in Australian currency, exposing the Company to the fluctuations and volatility of the rate of exchange between the United States dollar and the Australian dollar and the Tanzanian shilling and the Australian dollar as determined in international markets.

(c) Metallurgical recoveries

The economic viability of graphite recovery depends on a number of factors such as the development of an economic process for the treatment of Chilalo ore. Further, changes in mineralogy may result in inconsistent recovery of graphite.

(d) Estimation of Mineral Resources and Ore Reserves

There is a degree of uncertainty to the estimation of Mineral Resources and Ore Reserves and corresponding grades being mined or dedicated to future production. Until Mineral Resources or Ore Reserves are actually mined and processed, the quantity of Mineral Resources and Ore Reserves must be considered as estimates only. In addition, the grade of Mineral Resources and Ore Reserves may vary depending on, among other things, graphite prices. Any material change in quantity and grades of Mineral Resources, Ore Reserves, or stripping ratio may affect the economic viability of the properties. In addition, there can be no assurance that metal recoveries in small-scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production.

Fluctuation in the price of graphite, results of drilling, metallurgical testing and the evaluation of mine plans subsequent to the date of any mineral resource estimate may require revision of such estimate. Any material reductions in estimates of Mineral Resources and/or Ore Reserves, could have a material adverse effect on the Company's financial condition.

(e) Competition risk

The industry in which the Company is involved is subject to domestic and global competition. Although the Company undertakes all reasonable due diligence in its business decisions and operations, the Company has no influence or control over the activities or actions of its competitors, which activities or actions may, positively or negatively, affect the operating and financial performance of the Company's projects and business.

(f) Occupational health and safety risk

Mining activities have inherent risks and hazards. The Company is committed to providing a safe and healthy workplace and environment for its personnel, contractors and visitors. The Company will provide appropriate instructions, equipment, preventative measures, first aid information, medical facilities and training to all stakeholders through its occupational health and safety management systems. While the Company's current parent company has a strong record in achieving high quality safety performance at its sites and the Company intends to implement the same systems, a serious site safety incident may expose the Company to significant penalties and the Company may be liable for compensation to the injured personnel. These liabilities may not be covered by the Company's insurance policies (when in place) or, if they are covered, may exceed the Company's policy limits or be subject to significant deductibles. Also, any claim under the Company's insurance policies (when in place) could increase the Company's future costs of insurance. Accordingly, any liabilities for workplace accidents could have a material adverse impact on the Company's liquidity and financial results.

It is not possible to anticipate the effect on the Company's business from any changes to workplace occupational health and safety legislation. Changes to this legislation may have an adverse impact on the financial performance and/or financial position of the Company.

5.4 General risk factors

(a) General economic climate

Factors such as inflation, currency fluctuations, interest rates, legislative changes, political decisions and industrial disruption have an impact on operating costs and on graphite prices.

The Company's future income, asset values and share price can be affected by these factors and, in particular, by the market price for graphite and exchange rate movements.

(b) Negative publicity may adversely affect the Share price

Any negative publicity or announcement relating to any of the Company's substantial Shareholders, key personnel or activities may adversely affect the stock performance of the Company, whether or not this is justifiable. Examples of such negative publicity or announcements may include involvement in legal or insolvency proceedings, failed attempts in takeovers, joint ventures or other business transactions.

(c) Stock market conditions

As with all stock market investments, there are risks associated with an investment in the Company. Share prices may rise or fall and the price of Shares might trade below or above the Offer Price.

General factors that may affect the market price of Shares include without limitation economic conditions in both Australia and internationally, investor sentiment, local and international share market conditions, changes in interest rates and the rate of inflation, variations in commodity prices, the global security situation and the possibility of terrorist disturbances, changes to government regulation, policy or legislation, changes which may occur to the taxation of companies as a result of changes in Australian and foreign taxation laws, changes to the system of dividend imputation in Australia, and changes in exchange rates.

5.5 Investment speculative

The above list of risk factors ought not to be taken as exhaustive of the risks faced by the Company or by prospective investors in the Company. The above factors, and others not specifically referred to above, may in the future materially affect the financial performance of the Company and the value of the Shares offered under this Prospectus.

Therefore, the Shares issued pursuant to the Offers carry no guarantee with respect to the payment of dividends, returns of capital or the market value of those Shares.

Potential investors should consider that the investment in the Company is highly speculative and should consult their professional advisers before deciding whether to apply for Shares.

6. Independent Technical Assessment

Independent Technical Assessment

Graphex Mining Ltd

Tanzanian Graphite Projects

Report Nº R113.2016

31st March 2016

www.csaglobal.com

GRAPHEX MINING LIMITED Tanzanian Graphite Projects

Report Nº R113.2016 I

Report prepared for

Client Name Graphex Mining Limited Project Name/Job Code IMXITA01

Contact Name Phil Hoskins Contact Title Director

Office Address c/- Suite 4, Level 1, 2 Richardson Street, West Perth, WA 6005

Report issued by

CSA Global Office Perth Division Corporate

Street Address Level 2, 3 Ord Street, West Perth, WA 6005 Postal Address P.O. Box 141, WA 6872

Phone 08 9355 1677 Email [email protected]

Report information

File name R113.2016 Graphex ITA Report.docx Last edited 4/04/2016 2:46:00 PM

Report Status Final

Author and Reviewer Signatures

Contributing Author:

Andrew Scogings PhD (Geology),

MAIG, MAusIMM, RP Geo (Industrial

Minerals)

Signature:


Laurynne Joyce BSc (Geol), GDip

(Mining) MAusIMM Signature:


Cameron Rees BEng (Mining), MAusIMM Signature:


Ivy Chen B AppSc, MAusIMM, GAICD Signature:

Principal Reviewer:

Ivy Chen B AppSc, MAusIMM, GAICD Signature:

CSA Global Authorisation:

Graham M. Jeffress BSC(Hons), FAIG,

RPGeo, FAusIMM, FSEG

Signature:

© Copyright 2016

mailto:[email protected]


Report Nº R113.2016 II

Disclaimers Purpose of this document This Report was prepared exclusively for Graphex Mining Limited (the Client) by CSA Global Pty Ltd (CSA Global). The quality of information, conclusions, and estimates contained in this Report are consistent with the level of the work carried out by CSA Global to date on the assignment, in accordance with the assignment specification agreed between CSA Global and the Client.

Notice to third parties CSA Global has prepared this Report having regard to the particular needs and interests of our client, and in accordance with their instructions. This Report is not designed for any other person’s particular needs or interests. Third party needs and interests may be distinctly different to the Client’s needs and interests, and the Report may not be sufficient nor fit or appropriate for the purpose of the third party. If a third party chooses to use or rely on all or part of this Report, then any loss or damage the third party may suffer in so doing is at the third party’s sole and exclusive risk.

CSA Global has created this Report using data and information provided by or on behalf of the Client (and the Clients’ agents and contractors). Unless specifically stated otherwise, CSA Global has not independently verified that all data and information is reliable or accurate. CSA Global accepts no liability for the accuracy or completeness of that data and information, even if that data and information has been incorporated into or relied upon in creating this Report.

Results are estimates and subject to change The interpretations and conclusions reached in this Report are based on current scientific understanding and the best evidence available to the authors at the time of writing. It is the nature of all scientific conclusions that they are founded on an assessment of probabilities and, however high these probabilities might be, they make no claim for absolute certainty.

The ability of any person to achieve forward-looking production and economic targets is dependent on numerous factors that are beyond CSA Global’s control and that CSA Global cannot anticipate. These factors include, but are not limited to, site-specific mining and geological conditions, management and personnel capabilities, availability of funding to properly operate and capitalize the operation, variations in cost elements and market conditions, developing and operating the mine in an efficient manner, unforeseen changes in legislation and new industry developments. Any of these factors may substantially alter the performance of any mining operation.


Report Nº R113.2016 III

Executive Summary

IMX Resources Ltd (IMX) is an Australian-based minerals exploration company, which discovered the Shimba Graphite Deposit within the Chilalo Graphite Project at its Nachingwea Property in southeastern Tanzania. Shimba is host to a high-grade Indicated and Inferred Mineral Resource1 of 9.2 million tonnes grading 10.7% Total Graphitic Carbon (TGC) and has demonstrated an ability to produce a premium graphite concentrate with a substantial portion of large and jumbo flake material.

IMX stated in December 2015 that it was committed to restructuring its Tanzanian asset portfolio to unlock value in the Chilalo Graphite Project, through the listing of a standalone graphite company on the Australian Securities Exchange (ASX) with a dedicated board and management team. The proposed transaction will see the flagship Chilalo Project become the primary asset and key focus of a new ASX listed company called Graphex Mining Limited (Graphex), while IMX would retain the existing gold and base metals assets at the Company’s Nachingwea Property in south-east Tanzania. Following completion, Graphex will be focused on advancing the development of the Project as quickly as possible as it aims to become a producer of high quality graphite. The scope of this report only relates to Graphex’s proposed graphite assets.

CSA Global Pty Ltd (CSA Global) was commissioned by Graphex to prepare an Independent Technical Assessment report (the Report) on the Chilalo Graphite Project (the Project) to be held by Graphex. The report was prepared by CSA Global in February 2016.

The Report was prepared for inclusion in the prospectus of Graphex and provides an Independent Technical Assessment of the Project. This report describes and summarises the Project and the Preliminary Feasibility Study (PFS) completed for IMX in November 2015, comments on the PFS, proposed development options and provides recommendations for further work.

The statements and opinions contained in this Report are given in good faith and in the belief that they are not false or misleading. CSA Global’s opinions are based on information provided by Graphex and public domain information. This information has been supplemented by independent enquiries. The conclusions are based on the reference date of 31st March 2016 and could alter over time depending on exploration results, mineral prices and other relevant market factors.

Opinions presented in this Report apply to the site conditions and features, as they existed at the time of CSA Global’s investigations, and those reasonably foreseeable. These opinions do not necessarily apply to conditions and features that may arise after the date of this Report, about which CSA Global had no prior knowledge nor had the opportunity to evaluate.

Shimba Mineral Resources

The October 2015 Shimba Mineral Resource estimate is provided in Table 1, with the model reported for all classified estimated blocks within the >5% TGC (“high grade zone”) and >2% TGC (“low grade zone”) domains under the guidelines of The JORC Code2.

1 Please see Section 6 for resource summary and breakdown of categories, reported in accordance with JORC 2012 criteria 2 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. The JORC Code, 2012 Edition. Prepared by: The Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (JORC).


Report Nº R113.2016 IV

Table 1: Shimba deposit Mineral Resource estimate combined zones

Domain JORC Classification Million Tonnes (Mt) TGC (%) Contained Graphite (Kt)

High Grade

Indicated 5.1 11.9 614 Inferred 4.1 9.1 370

Indicated + Inferred 9.2 10.7 984

Low Grade Inferred 15.9 3.3 523

Total Indicated + Inferred 25.1 6.0 1,507

*Note: The Mineral Resource was estimated within constraining wireframe solids using a core high grade domain defined above a nominal 5% TGC cut-off within a surrounding low-grade zone defined above a nominal 2% TGC cut-off. The resource is quoted from all classified blocks within these wireframe solids. Differences may occur due to rounding.

The information in this report that relates to in situ Mineral Resources for Chilalo is based on information compiled by Mr Grant Louw under the direction and supervision of Dr Andrew Scogings, who are both full-time employees of CSA Global Pty Ltd. Dr Scogings, takes overall responsibility for the report. Dr Scogings is a Member of both the Australian Institute of Geoscientists and Australasian Institute of Mining and Metallurgy and has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration, and to the activity he is undertaking, to qualify as a Competent Person in terms of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (JORC Code 2012 Edition).1 Dr Scogings consents to the inclusion of such information in this report in the form and context in which it appears.

The Shimba Mineral Resource estimation is classified based on wireframes reflecting the confidence in the interpreted mineralisation continuity, structural and weathering profile controls, data quality and quantity, and sufficient metallurgical data to provide sufficient confidence for recovery.

CSA Global considers the Mineral Resource has reasonable prospects for eventual economic extraction. Work completed to date allows a sufficient level of confidence to classify the majority of the high grade Mineral Resource as Indicated. The low-grade zones are currently all classified as Inferred. Further flotation testwork to evaluate production of graphite concentrates is needed to upgrade this classification.

Chilalo Exploration Targets

Based on electromagnetic (EM) survey data, there is potential for further graphite discoveries in the Chilalo area and IMX announced a maiden Exploration Target for the Chilalo Graphite Project in Tanzania on 2nd September 2015. The Exploration Target3 was in addition to the existing Shimba Mineral Resource as reported in April 2015 and was estimated to be 100–350 million tonnes grading 3–11% TGC. Note this exploration target is conceptual in nature; there has 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 information in this report that relates to the Exploration Target is based on data collected under the supervision of Mr Nick Corlis, in his capacity as Executive Director, Exploration for IMX. Mr Corlis, BSc (Hons) MSc, is a registered member of the Australian Institute of Geoscientists and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and the activity being undertaken to qualify as a Competent Person under the 2012 edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr. Corlis has verified

3 Please see Section 7.1 for comprehensive detail of the Exploration Targets and Section 7.2 for assumptions underlying the Exploration Targets


Report Nº R113.2016 V

the data underlying the information contained in this report and approves and consents to the inclusion of the data in the form and context in which it appears.

The fundamental assumption for estimating Exploration Targets at the Chilalo Project was the use of electromagnetic geophysical surveys; highlighting anomalous, high electromagnetic conductance trends, which could represent graphite mineralisation. It was this same approach that defined the Shimba Deposit in 2014, where geophysics surveys were used to generate targets, which were then successfully tested by drilling, to define the graphite mineralisation.

Metallurgy and extraction

A preliminary test work program demonstrated that the mineralisation is amenable to the production of high-grade graphite concentrates, at coarse flake sizes, using relatively simple flotation processes.

The initial test work was based on a sample composite from one borehole in the oxide zone and composites from four boreholes in the transitional and fresh zones. CSA Global have concluded that optimised cleaner flotation in the oxide zone should result in improved concentrate grade for oxidised mineralisation.

A series of batch tests of fresh and transition composites were undertaken to produce larger amounts of concentrate samples for marketing. Based on testwork using attrition grinding and flotation re-cleaning strategies, the estimated product flake size and grade distribution are shown in Table 2.

Table 2: Graphite flake size and grade distribution

Flake size (name)

Sieve size (µm)

Sieve size (mesh)

Purity (% C)

Retained Mass %

Super Jumbo >500 +35 94-97 1.9 Jumbo 300-500 +50, -35 94–97 23.1 Large 180-300 +80, -50 94–97 22.0

Medium 150-180 +100, -80 94–97 7.0 Small 75-150 +200, -100 94-97 21 Fine <75 -200 90 25.0

Total 100

Mine Engineering

The mining approach applied in the Chilalo PFS is conventional open pit mining. The regular shape of the outcropping orebody is well suited to this approach. The surrounding terrain is generally flat with a few gullies and ridges. Conventional mining equipment, sized to suit the operation will be used. The ore will be trucked from the mine to a run-of-mine stockpile adjacent to the plant. Waste rock will be trucked to a waste dump.

The Chilalo project mining costs and production parameters are based on budget estimates and a database of relevant industry costs. These inputs were used to generate a series of nested pit shells based on varying basket prices. The optimisation highlighted that the optimised pit shell is limited by the extent of the Mineral Resource rather than the economics of the project.

Mining of the Chilalo pit is proposed to be undertaken over a 10-year period with processing continuing into the eleventh year. A total of 6.57 Mt of ore is processed during this time resulting in 703,705 t concentrate being produced over the life of mine. Mining cost for the project totals US$95.5m at an average cost of US$2.84/t of material mined (cost includes both ore and waste, mill feed $54/t, concentrate $489/t).


Report Nº R113.2016 VI

A PFS was announced to the market by IMX on 23rd November 2015. CSA Global believes the current accuracy of work completed is appropriate to this level of study. CSA Global notes that an Ore Reserve has not yet been declared for the Chilalo Project. The PFS details a mine plan based on a pit shell, optimised around the Indicated and Inferred Mineral Resources using a 5% TGC cut-off to define a mining inventory for the purpose of the PFS. CSA Global has verified that the 5% TGC cut-off can be validated against lithological and geological controls. Assumptions in the PFS that relate to hangingwall geotechnical characterisation, ARD, and the metallurgical performance of oxide material, require confirmation to support the Ore Reserves. In CSA Global’s opinion, the Modifying Factors would be addressed in greater detail as part of a Feasibility Study (FS), including formal declaration of Ore Reserves.

The first two years of scheduled production from the mine plan is based on extraction of predominantly Indicated Mineral Resources.

The proportion of Inferred Resources mined within this pit shell (31%) is a combination of high-grade (>5% TGC) and lower grade (2-5% TGC). The Inferred material within the pit shell is mainly scheduled to be mined as part of the extraction of the Indicated Mineral Resource within the pit, and within a cutback scheduled for the third year of the project life. The remainder of the Inferred material is scheduled to be mined towards the end of the current mine plan in subsequent cutbacks. It is anticipated that refinement of metallurgical parameters as the project progresses will allow conversion the majority of the Inferred material to higher confidence material.

Sensitivity modelling completed as part of the PFS indicated that the economic viability of the project was not sensitive to the inclusion of the Inferred Mineral Resource within the pit.

CSA Global notes that the current mine plan achieves full production in the space of the first year, assuming a minimal ramp-up period. CSA Global believes the current level of detail is appropriate for PFS level and is of the opinion that further refinement of the mining sequence, including assessment of the ramp-up period, should be undertaken prior to mining, as part of a FS.

CSA Global is in overall agreement with the methods and process undertaken as part of the Mine Engineering inputs into the Chilalo PFS. However, a key recommendation to improve the robustness of the project will be the declaration of an Ore Reserve, and further sensitivity analysis around graphite basket price, mining rates, processing cost, recovery, concentrate grade and flake size. This work will highlight any direct impacts on reserve size as a result of fluctuations in the stated inputs.

Financial Model

A financial model was built for analysing the cash flows generated by the Project. The model was used to evaluate the cash flow effects of the mining schedule, process plant design and the relative sensitivities of major cash flow components. The financial analysis was based upon a mining schedule with a nominal 69,000 t/yr concentrate production.

Mine operating costs are generated in a thorough and transparent first-principle spreadsheet. Mine capital costs, including a 10% contingency, are based upon budget price quotations for major equipment, BatteryLimits in-house data and industry standard estimating factors for equipment and installation costs. These costs have an accuracy of ±25%.

The forecast basket price used in the PFS was US$1,217/t, is between 3% and 11% higher than the range of basket prices estimated from Industrial Minerals Data.

Given that only 2% of the possible product split is +500 µm (Super Jumbo), reasonable price movements for this high-priced fraction are unlikely to materially affect the forecast basket price.


Report Nº R113.2016 VII

CSA Global is of the opinion that the forecast basket price of US$1,217/t used in the Chilalo Graphite Project PFS financial model is reasonable. However, it is noted that the graphite basket price is probably the most sensitive factor in the PFS financial model. CSA Global recommends that the assumption that all product is saleable continues to be refined.

Conclusions and recommendations

In CSA Global’s opinion, the Chilalo Project fundamentals are sound, and there is a reasonable basis to expect that the work scheduled to be completed in the FS will increase project robustness. The proposed FS schedule of work is appropriate for the proposed use of funds that will be raised, and will address these technical risks.

CSA Global believes the current accuracy of work completed is appropriate for a PFS. The Modifying Factors should be addressed in greater detail as part of a FS, including formal declaration of Ore Reserves. Assumptions in the PFS that relate to hangingwall geotechnical characterisation, ARD, and the metallurgical performance of oxide material, require confirmation to support the Ore Reserves. CSA Global conclude that these latter aspects, while important to address in the FS, are sufficiently de-risked by the assumptions applied in the PFS, and provide a reasonable basis to support the financial model.

CSA Global makes the following recommendations to advance the project: • Additional petrographic work should also be undertaken to refine the interpretation of the

weathering profile. • Metallurgical work to be undertaken on the lower grade material to further investigate the viability

of this material as a product source. • Metallurgical work to be undertaken on the oxide zone of the high-grade material to improve the

understanding of the process routes for this material. • Sensitivity analysis around Graphite basket price, mining rates, processing cost, recovery and

concentrate grade and flake size. • Mining cut back refinement in order to smooth production profile by maintaining a constant strip

ratio where feasible. • In addition to cutback refinement, ramp crest location may be reconsidered in relation to distance

from the waste dump. Ramp placement to be reviewed further as part of a larger haulage study. • It is recommended that a number of geotechnical drill holes are placed in regions of the pit that

currently require further analysis to confirm the final pit wall parameters. • Cost benefit analysis of waste movement, to compare the cost of long haul dumping against short

haul dumping and future rehandle related to risk of sterilising a future mining target below the dump site.

• Complete acid rock drainage investigation. • Complete final rehabilitated waste dump designs. • Detailed maintenance schedules and costs for mining equipment, as part of detailed production

scheduling.


Report Nº R113.2016 VIII

Contents Report prepared for ................................................................................................................................................... I Report issued by ......................................................................................................................................................... I Report information .................................................................................................................................................... I Author and Reviewer Signatures ............................................................................................................................... I

DISCLAIMERS ........................................................................................................................................................ II

Purpose of this document ......................................................................................................................................... II Notice to third parties ............................................................................................................................................... II Results are estimates and subject to change ............................................................................................................ II

EXECUTIVE SUMMARY ......................................................................................................................................... III

Shimba Mineral Resources ....................................................................................................................................... III Chilalo Exploration Targets ...................................................................................................................................... IV Metallurgy and extraction ......................................................................................................................................... V Mine Engineering ...................................................................................................................................................... V Financial Model ........................................................................................................................................................ VI Conclusions and recommendations ........................................................................................................................ VII

1 INTRODUCTION ............................................................................................................................................. 2

1.1 Context, Scope and Terms of Reference ....................................................................................................... 2 1.2 Compliance with the VALMIN and JORC Codes ............................................................................................ 2 1.3 Principal Sources of Information ................................................................................................................... 3 1.4 Authors of the Report – Qualifications, Experience and Competence ......................................................... 3

2 GRAPHITE BASICS .......................................................................................................................................... 4

2.1 Nature and Occurrence ................................................................................................................................. 4 2.2 Reserves and Resources ................................................................................................................................ 4 2.3 Global Production ......................................................................................................................................... 5 2.4 Exploration and Test Methods ...................................................................................................................... 6 2.5 Mining and processing .................................................................................................................................. 7 2.6 Specifications ................................................................................................................................................ 7 2.7 Markets ......................................................................................................................................................... 8 2.8 Prices ............................................................................................................................................................. 8

3 PROPERTY LOCATION, ACCESS AND INFRASTRUCTURE.................................................................................. 9

3.1 Location of Property ...................................................................................................................................... 9 3.2 Accessibility ................................................................................................................................................. 11 3.3 Climate and Physiography ........................................................................................................................... 11

4 GEOLOGICAL SETTING AND EXPLORATION TO DATE ..................................................................................... 13

4.1 Regional geology ......................................................................................................................................... 13 4.2 Shimba graphite deposit geology ................................................................................................................ 13 4.3 Geophysical exploration .............................................................................................................................. 13 4.4 Drilling ......................................................................................................................................................... 16 4.5 Noli Prospect ............................................................................................................................................... 16

5 EXTRACTIVE METALLURGY ........................................................................................................................... 17

5.1 Background ................................................................................................................................................. 17 5.2 Petrographic examination ........................................................................................................................... 17 5.3 Metallurgy ................................................................................................................................................... 18

5.3.1 Head grades ................................................................................................................................................. 18 5.3.2 Assay by size ................................................................................................................................................ 20 5.3.3 Flotation test work ...................................................................................................................................... 20


Report Nº R113.2016 IX

6 MINERAL RESOURCE ..................................................................................................................................... 23

6.1 Data ............................................................................................................................................................. 23 6.2 Density ........................................................................................................................................................ 23 6.3 Mineralisation Modelling ............................................................................................................................ 23 6.4 Model Validation ......................................................................................................................................... 24 6.5 Model Classification .................................................................................................................................... 25 6.6 CSA Global Overall Conclusion and Recommendations .............................................................................. 25

7 EXPLORATION POTENTIAL ............................................................................................................................ 26

7.1 Introduction ................................................................................................................................................ 26 7.2 Assumptions used to estimate Chilalo Exploration Targets ........................................................................ 27 7.3 Validating the concept ................................................................................................................................ 27 7.4 Exploration targets away from the Shimba deposit .................................................................................... 27

8 MINING ........................................................................................................................................................ 29

8.1 Introduction ................................................................................................................................................ 29 8.2 Operational and production inputs ............................................................................................................. 29 8.3 Mining method ............................................................................................................................................ 30 8.4 Cut-off grade ............................................................................................................................................... 30 8.5 Mine Schedule ............................................................................................................................................. 31 8.6 Geotechnical engineering ........................................................................................................................... 32 8.7 ROM stockpiles ............................................................................................................................................ 34 8.8 Waste dumps .............................................................................................................................................. 34 8.9 Environmental ............................................................................................................................................. 35 8.10 Tailings dam ................................................................................................................................................ 35

8.10.1 Assumptions ................................................................................................................................................ 36 8.10.2 Tailings Storage Facility ................................................................................................................................ 37 8.10.3 Water Balance ............................................................................................................................................. 39 8.10.4 Containment Embankment Design and Schedule of Quantities .................................................................. 40

8.11 Mine infrastructure ..................................................................................................................................... 40 8.12 Mining cost estimates (CAPEX and OPEX) ................................................................................................... 41 8.13 Conclusions and Recommendations ........................................................................................................... 42

9 PRODUCTION ................................................................................................................................................ 44

9.1 Water Supply ............................................................................................................................................... 44 9.2 Processing ................................................................................................................................................... 44 9.3 Roads ........................................................................................................................................................... 46 9.4 Shipping ....................................................................................................................................................... 46 9.5 Supply Chain and Product Transport........................................................................................................... 46 9.6 Transportation of Product ........................................................................................................................... 47 9.7 Buildings and Operations Village................................................................................................................. 47 9.8 Accommodation Village and Management Service .................................................................................... 47

10 FINANCIAL MODEL ................................................................................................................................... 49

10.1 Overview ..................................................................................................................................................... 49 10.2 Mining and Processing ................................................................................................................................ 49 10.3 Capital and Operating Costs ........................................................................................................................ 51 10.4 Basket price ................................................................................................................................................. 52 10.5 Operation Summary .................................................................................................................................... 53 10.6 Sensitivity Analysis ...................................................................................................................................... 55 10.7 Comments on the Financial Model ............................................................................................................. 56

11 TECHNICAL RISKS ..................................................................................................................................... 57

11.1.1 Conversion of Inferred Resources to Indicated ........................................................................................... 57 11.1.2 Metallurgical testwork ................................................................................................................................. 57


Report Nº R113.2016 X

11.1.3 Basket prices ................................................................................................................................................ 57 11.1.4 Production ramp-up .................................................................................................................................... 57 11.1.5 Market analysis ............................................................................................................................................ 57

12 PLANNED WORK ...................................................................................................................................... 58

12.1 Overview ..................................................................................................................................................... 58 12.2 Feasibility Study .......................................................................................................................................... 58

13 REFERENCES ............................................................................................................................................ 60

14 GLOSSARY ................................................................................................................................................ 61

15 ABBREVIATIONS AND UNITS OF MEASUREMENT ..................................................................................... 64

Figures Figure 1: Global natural graphite production 1900 to 2014 (tonnes x 1,000). Source: USGS ............................ 6 Figure 2: Location of the Chilalo Project and the Noli Prospect in southern Tanzania ...................................... 9 Figure 3: Chilalo tenement locations plotted on VTEM map ............................................................................ 10 Figure 4: Tenement detail at the Chilalo Graphite Project, overlain on VTEM image ...................................... 11 Figure 5: Tenement detail at the Noli Graphite Prospect, overlain on VTEM image ....................................... 12 Figure 6: Local geology map based on field mapping, VTEM, airborne magnetics and radiometric surveys... 14 Figure 7: VTEM map showing drill collars and high-grade Shimba resource outline (grey hatch) ................... 15 Figure 8: Plan view of FLEM conductor plates projected to ground surface. ................................................... 15 Figure 9: Fresh and transition zone composite sample drill collar locations .................................................... 19 Figure 10: Oxide zone composite sample drill collar location ............................................................................ 19 Figure 11: Block model visual validation on Section 471,895 m E ...................................................................... 24 Figure 12: Graphite exploration targets (grey trend lines) overlain on VTEM image ......................................... 28 Figure 13: Pit design with ore > 5% TGC ............................................................................................................. 29 Figure 14: Tonnes by Confidence ....................................................................................................................... 32 Figure 15: Plan view of classified resource estimate within pit .......................................................................... 33 Figure 16: Chilalo project geology showing location of proposed TSF ............................................................... 37 Figure 17: Proposed layout of the Chilalo TSF .................................................................................................... 38 Figure 18: Chilalo Water balance volume. .......................................................................................................... 39 Figure 19: Chilalo Project annual pre-tax cash flows. ......................................................................................... 49 Figure 20: Chilalo Mining Schedule .................................................................................................................... 50 Figure 21: Chilalo graphite concentrate production ........................................................................................... 50 Figure 22: Chilalo unit operating costs per tonne of graphite concentrate. ...................................................... 51 Figure 23: Development capital cost vs operating costs per tonne of concentrate. .......................................... 52 Figure 24: Chilalo financial model sensitivity tornado. ....................................................................................... 55 Figure 25: Chilalo financial model basket price sensitivity graph. ...................................................................... 55

Tables Table 1: Shimba deposit Mineral Resource estimate combined zones ............................................................ IV Table 2: Graphite flake size and grade distribution........................................................................................... V Table 3: Graphite flake size and market terminology ....................................................................................... 8 Table 4: Natural graphite prices in terms of flake size and purity (January 2016) ............................................ 8 Table 5: Graphex Prospecting Licence descriptions ........................................................................................ 10 Table 6: Composite head grades determined by ALS and SGS ........................................................................ 20 Table 7: Bulk marketing samples: final concentrate grades for the Chilalo Project ........................................ 21 Table 8: Graphite product size and grade ....................................................................................................... 22 Table 9: Chilalo exploration target based on the April 2015 Shimba (Chilalo) Mineral Resource .................. 26 Table 10: Operational & Production Inputs....................................................................................................... 30 Table 11: Mining Schedule Input Parameters ................................................................................................... 31 Table 12: Overall wall angles by azimuth from OHMS Geotechnical Report .................................................... 32


Report Nº R113.2016 XI

Table 13: Waste dump design parameters and volumes .................................................................................. 34 Table 14: ATCW TSF study assumptions ............................................................................................................ 36 Table 15: ATCW TSF beach slope assumptions ................................................................................................. 37 Table 16: Water balance model assumptions ................................................................................................... 39 Table 17: Mining infrastructure requirements and surface area ...................................................................... 40 Table 18: Process Design Criteria ...................................................................................................................... 45 Table 19: Chilalo primary financial metrics. ...................................................................................................... 49 Table 20: Assumed flake graphite prices for the Shimba deposit ..................................................................... 53 Table 21: Chilalo annual operation summary .................................................................................................... 54 Table 22: Proposed use of funds ....................................................................................................................... 58 Table 23: FS schedule summary ........................................................................................................................ 59

Photographs Photo 1: Example of flake graphite ore from an underground mine (20 to 25% graphite content) .................. 5 Photo 2: Example of flake graphite ore from an opencast mine (5 to 10% graphite content) .......................... 5 Photo 3: High-grade flake graphite mineralisation in drill core from Graphex’s Shimba deposit ..................... 7 Photo 4: Thin graphite flakes interlayered with kaolin. NRD14-067 16.2 m .................................................... 18 Photo 5: Thin graphite flakes in low-grade mineralisation. NRD14-067 22.3 m .............................................. 18 Photo 6: Thick graphite flakes in high-grade mineralisation. NRD14-067 30.1 m ........................................... 18 Photo 7: Fine graphite flakes in K-spar porphyroblast. NRD14-067 35.2 m..................................................... 18

Appendices Appendix 1: JORC Table 1 for Chilalo Mineral Resource Estimate ......................................................................... 65


Report Nº R113.2016 2

1 Introduction 1.1 Context, Scope and Terms of Reference

CSA Global was requested by Graphex Mining Limited (Graphex) to prepare an Independent Technical Assessment (ITA) report for use in a prospectus to support an initial public offering of shares in Graphex on the Australian Securities Exchange (ASX). The ITA is a Technical Assessment Report subject to the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports 2015 (“VALMIN4 Code”). In preparing this ITA, CSA Global:

• Adhered to the VALMIN Code as closely as practically possible.

• Relied on the accuracy and completeness of the data provided to it by Graphex, and that Graphex made CSA Global aware of all material information in relation to the projects.

• Relied on Graphex’s representation that it will hold adequate security of tenure for exploration and assessment of the projects to proceed.

• Required that Graphex provide an indemnity to the effect that Graphex would compensate CSA Global in respect of preparing the Report against any and all losses, claims, damages and liabilities to which CSA Global or its Associates may become subject under any applicable law or otherwise arising from the preparation of the Report to the extent that such loss, claim, damage or liability is a direct result of Graphex or any of its directors or officers knowingly providing CSA Global with any false or misleading information, or Graphex, or its directors or officers knowingly withholding material information.

• Required an indemnity that Graphex would compensate CSA Global for any liability relating to any consequential extension of workload through queries, questions, or public hearings arising from the reports.

1.2 Compliance with the VALMIN and JORC Codes

A field visit to the project was not required, given CSA Global’s past involvement with the project, and site visits by CSA representatives Rob Barnett and Karl Van Olden in the last 12 months.

As far as possible the Report has been prepared in accordance with the VALMIN Code, which is binding upon Members of the Australian Institute of Geoscientists (AIG) and the Australasian Institute of Mining and Metallurgy (AusIMM), the JORC5 Code and the rules and guidelines issued by such bodies as the Australian Securities and Investments Commission (ASIC) and ASX that pertain to IER.

4 Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports. The VALMIN Code, 2005 Edition. Prepared by the VALMIN Committee, a joint committee of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Mineral Industry Consultants Association with participation of the Australian Securities and Investments Commission, the Australian Stock Exchange Limited, the Minerals Council of Australia, the Securities Association of Australia and representatives from the Australian Finance Sector. 5 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. The JORC Code, 2012 Edition. Prepared by: The Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (JORC).



1.3 Principal Sources of Information

This Report has been based upon information available up to and including 31st March 2016. CSA Global has based its review on information provided by Graphex (via IMX), along with other relevant published and unpublished data.

CSA Global has endeavoured, by making all reasonable enquiries, to confirm the authenticity, accuracy, and completeness of the technical data upon which this report is based.

CSA Global completed site visits to the Chilalo Project area in 2014 and 2015 during the exploration of the Shimba deposit and during preparation of the PFS report. As part of the site visits CSA Global completed a review of the technical aspects of the project, including previous work, geology, and planned exploration.

The statements and opinions contained in this report are given in good faith and in the belief that they are not false or misleading. The conclusions are based on the reference date of 31st March 2016 and could alter over time depending on exploration results, mineral prices and other relevant market factors.

1.4 Authors of the Report – Qualifications, Experience and Competence

This assignment was led by Graham Jeffress. The work was undertaken by Graham, Andrew Scogings, Laurynne Joyce, and Ivy Chen.

Graham Jeffress is a geologist with over 25 years' experience in exploration geology and management in Australia, PNG, and Indonesia. He is Principal Geologist with CSA Global in Perth and manages the Exploration and Evaluation Division. Graham has worked in exploration, project evaluation and mining in a variety of geological terrains, commodities and mineralisation styles within Australia and internationally. Graham has completed numerous Independent Geologist Reports, Competent Person Reports, and Independent Valuation Reports. Graham was a Federal Councillor of the Australian Institute of Geoscientists for 11 years and joined the Joint Ore Reserves Committee in 2014.

Dr Andrew Scogings is a Principal Consultant with CSA Global. He has over 25 years’ experience in industrial minerals exploration, mining and processing, product development, market applications and commercialisation processes. Andrew is a regular contributor to Industrial Minerals Magazine and has published several papers on the requirements of the JORC Code 2012 with reference to Clause 49. He has also written articles ranking global graphite exploration projects and was recently senior author of the Natural Graphite Report – strategic outlook to 2020 published recently by Industrial Minerals Research (UK). Andrew is a Registered Professional Geoscientist (RP Geo. Industrial Minerals) with the Australian Institute of Geoscientists.

Laurynne Joyce is a Senior Mine Planning Engineer with over 10 years’ experience in the mining industry both locally and internationally. She is a geologist and mining engineer. Her experience includes multi-pit mining, providing advanced technical knowledge for Life of Mine planning, project evaluation and project optimisation.

Ivy Chen is a corporate governance specialist, with 28 years’ experience in mining and resource estimation. She served as the national geology and mining adviser for the Australian Securities and Investments Commission (ASIC) from 2009–2015. Ivy’s experience in the mining industry in Australia and China, as an operations and consulting geologist includes open pit and underground mines for gold, manganese, and chromite, and as a consulting geologist. She has conducted mineral project evaluation, strategy development and implementation, through to senior corporate management roles. Ivy was invited to join the VALMIN committee in 2015.



2 Graphite basics 2.1 Nature and Occurrence

Graphite is a type of carbon that occurs in sheet form. It is light, soft, and easily cleaved; with a lustrous texture and colours ranging from black to grey. Graphite is soft, being between 1 and 2 on Moh’s hardness scale and has a specific gravity of 2.1–2.2 t/m3.

It is flexible and malleable and exhibits both metallic and non-metallic properties, making it suitable for diverse industrial applications. The metallic properties include thermal and electrical conductivity, whereas non-metallic properties include chemical inertness, high thermal resistance, and lubricity. It is an excellent conductor of heat and electricity and is highly refractory.

Natural graphite occurs in three discrete commercial forms, described as amorphous, flake and vein (Scogings et al., 2015). Graphite may also be synthetically manufactured from carbon-bearing raw materials such as petroleum coke and tar pitch.

Flake graphite is generally formed during regional or contact metamorphism of carbonaceous sedimentary rocks (flake graphite) with the name referring to graphite that occurs as thin disseminated flakes in metamorphic rocks (Photo 1 and Photo 2). Flake graphite deposits are typically hosted in metamorphic rocks such as gneiss and schist. Most flake graphite deposits being mined, or of potential economic interest typically contain between 5% and 30% graphite within moderate to steeply dipping layers or lenses, perhaps up to 100 m in thickness.

Amorphous graphite is massive and microcrystalline, generally derived from thermally metamorphosed coal seams or carbonaceous sedimentary rocks depending on heat and pressure conditions.

Lump graphite forms in veins as coarse, platy, or needle-like crystals from carbon dioxide (CO2) rich solutions related to magmatic intrusions, mainly in Precambrian igneous and metamorphic rocks.

Natural graphite products generally contain associated mineral impurities, which are referred to as ash. These impurities may include silicate and sulphide minerals such as quartz, feldspar, mica, pyrite, or pyrrhotite in the case of flake graphite. Amorphous graphite may contain sedimentary rock impurities such as shale, sandstone, quartzite, or limestone.

2.2 Reserves and Resources

While no strictly reliable information is available with regard to the total world reserves of graphite ore, the United States Geological Survey (USGS) estimates 110 Mt of reserves exists of which Brazil, China, India, Madagascar, Mexico and Russia are claimed to account for the majority (Olson, 2015).

In terms of public reporting according to international codes such as JORC and NI 43-101, it is cautioned that the ‘reserves’ reported by USGS are unlikely to meet current criteria as either resources or reserves with regard to exploration methodology, geological continuity, or economic viability.

The past few years have seen considerable exploration for graphite by publicly listed companies, especially those listed on the Canadian and Australian stock exchanges. Most exploration has been aimed at flake graphite deposits, with the main ‘hotpots’ being in Australia, Canada, Mozambique, and Tanzania. Other target countries have included Brazil, Madagascar, Sweden, and the US.



Photo 1: Example of flake graphite ore from an underground mine (20 to 25% graphite content)

Photo 2: Example of flake graphite ore from an opencast mine (5 to 10% graphite content)

2.3 Global Production

Global graphite production has risen tenfold from about 0.1 Mt/yr in the early 1900s to an estimated 1.2 Mt in 2014 (Figure 1), at a compound annual growth rate (CAGR) of approximately 2.3%. Whereas production remained relatively flat until the mid-20th century, production increased markedly from about 1950 to achieve an annual CAGR of approximately 3% to 2014.



Figure 1: Global natural graphite production 1900 to 2014 (tonnes x 1,000). Source: USGS

Three countries were estimated to have contributed close to 1 Mt of natural graphite (nearly 90%) of the world’s estimated total supply of approximately 1.2 Mt in 2014 (USGS). China was by far the biggest source (67%) followed by India (15%) and Brazil (7%). Canada, North Korea, and Turkey were estimated to contribute collectively 8% of supply.

Flake graphite is the dominant type of natural graphite produced and accounts for about 70% of total natural graphite production. Amorphous graphite made up the remaining approximately 30% and vein graphite was less than 0.5% of global production.

2.4 Exploration and Test Methods

Graphite exploration generally follows a similar path to many other industrial minerals, usually after the discovery of an outcrop or a geophysical anomaly. The discovery may be further explored by field mapping, trenching, geophysics, drilling, assaying, petrography, and metallurgical testing.

There are two main methods of drilling for graphite. These are reverse circulation (RC) or diamond core drilling (DD), each of which has its own advantages and disadvantages. Auger drilling may occasionally be used to explore highly weathered clayey mineralisation. DD is the preferred method of exploration drilling for graphite, as the graphite flakes and host rock are relatively undisturbed when retrieved as core (Photo 3) and can be used for extractive metallurgical tests.

A graphite Mineral Resource should, at the minimum, be defined by the geometry, tonnage, and graphite content of a deposit. Furthermore, graphite mineral resources should be reported in terms of product specifications. For example, the JORC Code requires that, “For minerals that are defined by a specification, the mineral resource or ore reserve estimation must be reported in terms of the mineral or minerals on which the project is to be based and must include the specification of those minerals.”



Photo 3: High-grade flake graphite mineralisation in drill core from Graphex’s Shimba deposit

2.5 Mining and processing

Flake graphite deposits generally have fairly simple tabular or lens-like geometry and may be mined opencast, whereas vein deposits have complex geometry and are selectively mined underground. Amorphous graphite is mined underground and usually extracted using selective room and pillar mining methods, similar to coal mining.

Deeply weathered flake graphite deposits may offer mining and processing benefits over unweathered deposits, due to ease of mining (soft rock) and ease of processing (easy size reduction, naturally liberated flakes). However, fine-grained clays in weathered ore may present processing problems.

Graphite is hydrophobic and readily floated in water. Therefore, most flake graphite is extracted by crushing, flotation, drying and screening to produce correctly sized product, retain large flakes, and remove impurities. Remaining impurities may need to be removed using additional milling or polishing, heat treatment or acid leaching methods.

2.6 Specifications

Graphite is typically graded according to carbon content and particle size; there are no set industry specifications although in countries such as China the government has established national standards.

Refractories are the main flake graphite consuming market and flake size distribution and purity vary according to application. For example, magnesia carbon bricks typically use graphite with 90–95% carbon content and a broad flake distribution from minus 100 to plus 50 mesh. Graphite for refractory bricks needs to be easily workable and have well balanced grading (from small to large flake), have good oxidation resistance, and low volatile, sulphur and alkaline content.

Generally, as with other industrial minerals there are key quality aspects important for different graphite end-users, for example ash chemistry and carbonates (refractories), and exfoliation or expandability (electrical applications, fire retardants and foil). Chinese producers of spherical graphite use minus 100 mesh (94% carbon) small flake for making spherical graphite (for battery applications).

Amorphous graphite products generally have lower carbon content than flake graphite products; this is chiefly a function of the geological origin of amorphous graphite, which is not as amenable to upgrading to flake graphite.



2.7 Markets

Graphite is used for its properties of high refractoriness, high electrical and thermal conductivity, chemical inertness, and stability. Graphite has the highest thermal and electrical conductivity of all non-metals.

The principal uses of natural graphite are in refractories and steelmaking (~60% of global consumption), batteries (~10%) lubricants (~10%), gaskets, friction linings and components (~10%) and other markets (~10%). Although refractory and steelmaking markets are in decline, others such as batteries and expandable graphite are growing.

2.8 Prices

Natural graphite prices are determined essentially according to flake size distribution and carbon content (Table 3 and Table 4). As a rule of thumb, the larger and purer the flake, the higher the price. So-called ‘Jumbo’ flake which has a size greater than 48 mesh (300 µm) and for which trade is relatively limited, is estimated to command around US$2,000/t.

Flake graphite prices remained relatively steady until about 2005, after which they climbed gradually until 2008 in tandem with increased Chinese steel production. Prices declined in 2009 following the Global Financial Crisis, before resuming an upward trend and spiking during 2011/2012. Prices have since declined to pre-2008 levels, due to excess production versus market demand.

Flake graphite may be further processed into products such as spherical graphite for lithium ion battery anodes, a group of products for which prices are not widely publicised. Uncoated spherical graphite reportedly sells for around US$3,000 per tonne, having decreased slightly during 2015. Spherical graphite is more expensive than flake graphite, due in part to low yield (<50%) and production costs.

Table 3: Graphite flake size and market terminology Sizing Market terminology

>300 µm (+48 Mesh) Extra-Large or ‘Jumbo' Flake >180 µm (-48 to +80 Mesh) Large Flake

>150 µm (-80 to +100 Mesh) Medium Flake >75 µm (-100 to +200 Mesh) Small Flake

<75 µm (-200 Mesh) 80-85%C Fine Flake *Approximately 50–60% of the Shimba resource is anticipated to comprise medium, large, and extra-large graphite flakes, which generally command a price premium compared with finer flakes

Table 4: Natural graphite prices in terms of flake size and purity (January 2016) Graphite

type Purity Size Description Pricing Method Low price High price

(% Carbon) (Mesh) (Flake size) US$ / t USS / t Flake 94-97 >80 Large FCL, CIF European port 1,050 1,150 Flake 94-97 >100 <80 Medium FCL, CIF European port 900 1,000 Flake 94-97 <100 Small FCL, CIF European port 750 800 Flake 90-94 >80 Large CIF, European port 750 850 Flake 90-94 >100 <80 Medium FCL, CIF European port 700 800 Flake 90-94 <100 Small FCL, CIF European port 600 650 Flake 85-87 >100 <80 Medium FCL, CIF European port 550 600

Amorphous 80-85 <200 Amorphous FCL China, CIF Europe 400 430 Source: Industrial Minerals Magazine www.indmin.com

http://www.indmin.com/



3 Property location, access and infrastructure

3.1 Location of Property

The Project is located in Tanzania approximately 200 km west of the coastal port city of Mtwara on the Indian Ocean shoreline and roughly 400 km south of Dar es Salaam, Tanzania’s largest city (Figure 2).

The Chilalo Project and Noli Prospect are located within six Prospecting Licenses covering an area of approximately 338.4 km2 in southeastern Tanzania (Table 5). The four northern Chilalo Project licences include the Shimba Mineral Resource as shown in Figure 3 and the two southern licences cover the Noli Graphite Prospect (Figure 3, Figure 4 and Figure 5).

The Shimba Mineral Resource is situated in Prospecting Licence PL 6073/2009, which was issued on 31 December 2009 and expires on 31 December 2017.

Figure 2: Location of the Chilalo Project and the Noli Prospect in southern Tanzania



Table 5: Graphex Prospecting Licence descriptions Title Area (km2) Grant Date Expiry Date

PL 5447/2008 43.21 31-Dec-08 31-Dec-16 PL 6073/2009 49.47 31-Dec-09 30-Dec-17 PL 6158/2009 48 31-Dec-09 30-Dec-17 PL 8628/2012 49.87 24-Dec-12 24-Dec-16 PL 9929/2014 48.36 8-Jul-14 7-Jul-18 PL 9946/2014 99.49 8-Jul-14 7-Jul-18

Figure 3: Chilalo tenement locations plotted on VTEM map



Figure 4: Tenement detail at the Chilalo Graphite Project, overlain on VTEM image

3.2 Accessibility

The Project can be accessed via a 250 km road network west from the port city of Mtwara. The road network comprises a 150 km sealed highway extending west from Mtwara, which then transitions to an all-weather dirt road from the town of Nanganga, west to Nachingwea, and ultimately to the Mnero village/mission. From there poorly maintained tracks, passable with four-wheel drive vehicles, extend to the Project area. During the rainy season, portions of these roads may be temporarily cut off due to rising rivers and road washouts.

3.3 Climate and Physiography

The Project area has a dry to sub-humid climate as a result of prevailing southeasterly winds, which bring rainfall to the southern highlands of Tanzania during the rainy season. Annual rainfall ranges from 750 mm to 1,200 mm, occurring mainly between mid-November and mid-May. This is followed by six months of generally cooler and very dry weather from June to October. Annual minimum and maximum temperatures range between 17°C and 30°C, but may rise higher.

Elevations on the property range from 180 MASL to 915 MASL. The main exploration activity at the Project has been centred near the 200 m elevation and overall the property is quite flat, with the occasional high hill rising abruptly from planar areas. General outcrop exposure is poor and often obscured after the rainy



season by thick grasses. Relative exposure improves as the seasonal fires of the dry season remove the vegetation cover.

Figure 5: Tenement detail at the Noli Graphite Prospect, overlain on VTEM image

The Project area is essentially woodland characterised by dry deciduous forest, scrub forest, thicket, and secondary grasslands. It is generally considered to have poor agricultural potential. The area is generally underlain by weathered residual soils with a thin oxidised clay veneer. The weathering profile, as intersected in drilling at the Project area, has been observed to extend to depths between 20 m and 40 m. Most of the river and creek systems are ephemeral, and thus remain dry in the dry season for about six months and become charged during the rainy season and immediately thereafter until residual pools finally evaporate.

The dominant natural vegetation type consists of deciduous Miombo woodland. The dominant species are Brachystegia spiciformis and Muyombo B. boehmii with Julbernardia globiflora, Bloodwood Pterocarpus angolensis, Blackwood Dalbergia melanoxylon, and Isoberlinia spp. with a shrub layer of Diplorhyncus condylocarpus and a species of Leadwood Combretum. Other vegetation types include areas of rocky acacia-clad hills, and ground water forests characterised by wild date palm, associated with seasonally flooded sand rivers and small swamps.

In protected areas of the region, there remains a moderate richness of species with respect to vertebrates, particularly for mammals (up to 160 mammals and 87 reptile species) as well as avian populations of up to 400 species.



4 Geological setting and exploration to date

4.1 Regional geology

The Chilalo Project and Noli Prospect are situated within the late Proterozoic Mozambique Belt (MB) in southeastern Tanzania.

The MB is a dominantly north-south trending orogenic domain of highly deformed and metamorphosed rocks that formed during oblique collision of East and West Gondwana and are part of the Pan African orogenic system.

4.2 Shimba graphite deposit geology

The Shimba graphite deposit is a series of intercalated graphitic horizons within a package of felsic gneiss (aluminous rich sediments), amphibolite (mafic sourced material), and occasional marble horizons (Figure 6). The package has been folded into a complex fold pattern probably in three separate events with a final fourth brittle deformation event. During this deformation, the local geology was intruded by granitic stocks and dykes of variable composition, most likely exploiting existing structures from previous deformation events. There does not appear to have been any significant impact on mineralisation in this stage of deformation.

4.3 Geophysical exploration

Graphite is well known as an electrical conductor and can therefore be explored for using electromagnetic (EM) geophysical techniques. The Chilalo project was explored using a number of EM methods including versatile time domain electromagnetics (VTEM), downhole electromagnetic (DHEM) and fixed loop electromagnetics (FLEM) each which has different degrees of detail and EM responses.

It is important to note that EM methods are an indirect way of finding hidden graphite mineralisation, as there are other conductive minerals such as sulphides that contain metals such as iron, copper, zinc and lead (e.g. pyrite, chalcopyrite, sphalerite, and galena) that may also cause anomalies. Therefore, the presence of an EM anomaly does not necessarily indicate graphite mineralisation, just that a conductor has been identified.

A VTEM geophysical survey was completed over a large portion of the property, initially targeting nickel sulphides. The VTEM map (Figure 7) shows a number of elongate EM targets highlighted in red. Some were drilled in 2014, which led to the discovery of the Shimba deposit.

DHEM surveys were carried out on 18 of the reverse circulation (RC) drill holes completed in 2014 and nine DD holes completed in 2015. The objective was to detect known and off-hole EM responses associated with graphite mineralisation.

FLEM surveys were carried out during the 2015 field season to collect ground EM data over multiple linear conductive graphitic schist horizons identified in the existing VTEM survey data (Figure 8) with the aim of characterising and identifying higher-grade mineralisation.



Figure 6: Local geology map based on field mapping, VTEM, airborne magnetics and radiometric surveys



Figure 7: VTEM map showing drill collars and high-grade Shimba resource outline (grey hatch)

Figure 8: Plan view of FLEM conductor plates projected to ground surface.

The Shimba Mineral Resource outline is a black dashed polygon



CSA Global is of the opinion that detailed EM surveys using DHEM and FLEM methods indicates that the high grade Shimba graphite mineralisation continues along strike towards the southwest. However, DHEM data in the northeast suggest that the graphite mineralisation may pinch out, or is displaced by a structure such as a fault and/or fold.

Four of the six ‘very high conductance’ targets identified in the FLEM data correspond to the high-grade part of the Shimba deposit. Two ‘very high conductance’ targets to the southwest and northeast remain untested by drilling and it is considered likely that the mineralisation has been offset to the north by faulting and/or folding.

In CSA Global’s opinion, the geophysical surveys have given confidence in the continuity of the geology across the Shimba deposit and highlight further exploration potential (see section 7).

4.4 Drilling

A total of 50 RC holes for 3,809.8 m and 22 diamond holes for 2,031.35 m were drilled and assayed for graphite content across the Chilalo project. Of these, 19 diamond core drill holes and 20 RC drill holes intersected the interpreted mineralisation at Shimba. Drilling was completed on a nominal 200 m by 200 m grid, with infill drilling on roughly a 100 m by 50 m grid over the high-grade graphite zone. Six pairs of diamond core and RC twinned holes were included in the drilling totals.

4.5 Noli Prospect

The Noli Prospect has not been mapped or drilled by IMX; however, a review of VTEM data detected highly conductive responses over a strike length of approximately 20 km (Figure 5). The VTEM data suggested two parallel folded conductive horizons with interpreted steep southwestern dip, with larger and higher conductance zones located on fold hinges.

VTEM decay channel data showed certain parts of the conductive horizons were increasing with respect to time (anomalies have higher amplitudes in the late-time data compared to earlier times), indicating a high conductance. Several gaps in the conductive horizons along strike, particularly gaps located adjacent to late-time anomalies, may be related to zones of high conductance that are too conductive to be detected in the VTEM data. However, ground EM surveys using a very long recording time may be able to detect these conductors.

It was concluded that the amplitudes of the late time VTEM data observed over Noli are comparable with those observed over the Chilalo Graphite Project and are considered worthy of further exploration.



5 Extractive metallurgy 5.1 Background

For minerals that are defined by a specification, Clause 49 of The JORC Code 2012 requires industrial Mineral Resources to be reported “in terms of the mineral or minerals on which the project is to be based and must include the specification of those minerals”.

Clause 49 also states:

“When reporting information and estimates for industrial minerals, the key principles and purpose of the JORC Code apply and should be borne in mind. Assays may not always be relevant, and other quality criteria may be more applicable. If criteria such as deleterious elements or physical properties are of more relevance than the composition of the bulk mineral itself, then they should be reported accordingly.”

Although Mineral Resource tonnes and TGC are key metrics, the evaluation of graphite projects requires attributes such as product flake size distribution and purity to be evaluated (Scogings, 2014). As indicated in section 2.8, flake size distribution and carbon content are parameters that drive the value in a graphite project, with the larger and purer flakes typically being more valuable. Thin section petrography, which is a way of examining rock samples using an optical microscope, was used as a primary tool to domain the Shimba deposit and to guide the selection of composites for metallurgical testing. The petrographic and metallurgical tests are summarised below.

5.2 Petrographic examination

Thirty-two quarter-core samples from four boreholes from the Chilalo Project were selected for thin section examination by Townend Mineralogy, mainly to identify weathering zones and to assess graphite flake size and likely liberation characteristics.

The results are summarised below: • Iron sulphide and alumino-silicate minerals have been replaced by weathering products such as

jarosite, goethite, kaolinite, and opaline silica up to depths of approximately 20 m down-hole. This mineral assemblage was taken to define the oxide (weathered) zone within the Shimba deposit (Photo 4);

• A combination of kaolinised sillimanite together with fresh iron sulphides was interpreted as the transitional (partly weathered) zone within the Shimba deposit. This occurs between about 20 m and 50 m down-hole;

• Two graphite populations were defined in terms of general flake width: i) thin flakes generally less than about 100 µm width and up to about 1 mm in length, in rocks with between about 2% and 5% TGC (Photo 5) and ii) flakes up to 1mm thick and several mm in length in rocks with more than about 5% graphite (Photo 6);

• Graphite in the High Grade Zone (>5% graphite) consists of three populations: i) the main population of coarse millimetre-length flakes without much contamination; ii) a minor population fine (split) graphite complexly interlayered with kaolin and iii) a minor population occurring as fines in feldspar and quartz porphyroblasts (Photo 7);

• Kaolin frequently penetrates the graphite along cleavages, particularly in the oxidised zone.



Photo 4: Thin graphite flakes interlayered with

kaolin. NRD14-067 16.2 m

Photo 5: Thin graphite flakes in low-grade mineralisation. NRD14-067 22.3 m

Photo 6: Thick graphite flakes in high-grade mineralisation. NRD14-067 30.1 m

Photo 7: Fine graphite flakes in K-spar porphyroblast. NRD14-067 35.2 m

CSA Global concludes that the petrographic study was a useful tool for interpreting weathering and grade domains across the Shimba deposit. This information provided supporting data for the extractive metallurgy test work results.

5.3 Metallurgy

5.3.1 Head grades

Composites were prepared at SGS laboratory in Perth from Chilalo DD core to form representative fresh and transitional zone mineralisation samples. These were compiled from selected intervals in DD holes NRD14-067, 068, 069, 070 and NRC14-14D (Figure 9). An oxide zone sample was compiled from a single borehole in the east of the deposit (Figure 10).



Figure 9: Fresh and transition zone composite sample drill collar locations

within the April 2015 HG Zone (plan view)

Representative sub-samples from each of the metallurgical composite head samples were submitted to SGS Perth for total carbon (TC) analyses. Samples were also submitted to ALS Queensland for TGC analyses (Table 6). GC analyses were conducted using two techniques. For samples anticipated to be less than 75% TGC, the method includes a weak acid digest to liberate CO2. The residues are dried at 420°C to drive off any organic carbon and then analysed in a LECO total combustion furnace to determine TGC.

For samples expected to be more than 75% TGC the method used was loss on ignition (LOI) determination at 425°C and at 1,000°C, with the difference between the results giving a good estimate of TGC.

Figure 10: Oxide zone composite sample drill collar location

within the April 2015 HG Zone (plan view)



Table 6: Composite head grades determined by ALS and SGS

Sample ID TGC% (ALS) TC% (SGS) S% (tot) Fresh composite 7.65 10.5 17.6

Transition composite 10.7 12.4 16.1 Low grade oxide composite 4.69 4.9 0.86 High grade oxide composite 18.7 22.3 0.47

Source: Hearse and Pass (2015)

CSA Global concludes that the higher values reported for Total Carbon (TC) were due to the total combustion method used, which includes weight losses due to non-graphite components such as organic carbon, carbonate minerals, kaolin and mica. The TGC method is considered more reliable as it accounts for organic carbon and carbonate minerals.

5.3.2 Assay by size

Particle size distribution (PSD) and size fraction assays were conducted on 1 kg sub-samples of fresh, transition, low-grade oxide, and high-grade oxide composites crushed to –3.35 mm. The samples were wet-screened at 45 μm (fresh and transition composites) and 75 μm (oxide composites), and the screen oversize was dried, and then sieved. The results demonstrate that highest C (tot) grades are in the coarse size fractions greater than approximately 0.3 mm.

5.3.3 Flotation test work

Initial rougher flotation test work focussed on the recovery of liberated graphite from coarse primary grind sizes. This was followed by up to 5 cleaner stages including rod mill re-grind.

Fresh and transitional samples

As described by Hearse and Pass (2015) the fresh and transitional flotation cleaning test work demonstrated that: • Fresh zone and transitional zone composite cleaning results were generally comparable; • Good recovery and upgrade was achieved at coarse particle size with typical concentrate PSD in the

size range of P80 242 to 425 µm; • There was a general trend of increased overall concentrate grade with increased grind time (fineness)

and increased graphite liberation; • All the cleaner results exhibited an increase in grade with particle size; and • Tests using a split cleaning flowsheet comprising 1st cleaner stage followed by separate cleaning of

+300 μm fraction (in 1 stage) and –300 μm fraction (in 2 stages ) showed potential to increase grade at a coarser PSD compared to multiple regrind stages.

Oxide samples

As described by Hearse and Pass (2015), additional variability test work was completed on high and low grade oxide samples from drill hole NRD 14-068 which primarily focused on determining the flotation response using a standard flotation procedure.

Following initial reagent dosage trials the overall graphite recovery achieved ranged from 91.0% to 93.6%. The initial oxide test work also indicated that the low grade composite has a higher proportion of fine (–75 µm) graphite in the final concentrate. Hearse and Pass (2015) concluded that optimised cleaner flotation would result in improved concentrate grade for oxidised mineralisation.



Attrition test work

The cleaner test work results produced final concentrates at near target grade with the larger scale bulk sample runs producing >94% TGC (Hearse and Pass, 2015). However, although the target grade was achieved, additional work was undertaken with alternative attrition regrind strategies to investigate achieving adequate graphite particle liberation without over-grinding the graphite. The overall aim was to enhance the coarse graphite flake size distribution, while maintaining target concentrate grade.

A bulk rougher concentrate sample produced from the fresh composite was split and subject to alternative regrind and re-cleaning conditions including: • Separate coarse +300 µm and fine –300 µm regrind and cleaning streams • Varied grind times • The use of ceramic media ball milling for coarse concentrate regrind.

This test work demonstrated an increase in coarse flake size compared with previous cleaning results, while maintaining grades greater than 94% TGC for flakes >75 µm.

Bulk marketing samples

A series of 14 kg batch tests of fresh and transition composites were undertaken to produce larger amounts of concentrate samples for marketing (Hearse and Pass, 2015). The batch tests were ground to P95 710 µm, followed by rougher flotation and five stages of regrind and cleaning. As illustrated by Table 7, graphite concentrate grades of TGC >96% TGC were achieved for flakes >75 µm.

Table 7: Bulk marketing samples: final concentrate grades for the Chilalo Project

Flake Size Sieve Size (µm) Mesh

Fresh

Bulk sample Test GK 34

Mass (%) Assay TGC (%)

Jumbo 300 – 500 50 8.7 97.5 Large 180 – 300 +80 -50 26.5 97.8

Medium 150 – 180 +100 -80 12.5 96.5 Small 75 – 150 +200-100 27.2 96.1 Fines – 75 -200 25.0 92.5

Source: Hearse and Pass (2015)

Product characterisation

Hearse and Pass (2015) estimated product quality from the Shimba high-grade deposit based on attrition grinding and flotation re-cleaning results (Table 8). They concluded that 75% of total production was estimated to be coarser than 75 µm and >94% carbon content.



Table 8: Graphite product size and grade

Flake size (name)

Sieve size (µm)

Sieve size (mesh)

Purity (% C)

Retained Mass %

Super Jumbo >500 +35 94-97 1.9 Jumbo 300-500 +50, -35 94–97 23.1 Large 180-300 +80, -50 94–97 22.0

Medium 150-180 +100, -80 94–97 7.0 Small 75-150 +200, -100 94-97 21 Fine <75 -200 90 25.0

Total 100

These results represent the first round of test work, which has produced high-quality graphite product at high recoveries from the high-grade Shimba deposit. Opportunity remains to optimise these results with further test work aimed at coarsening the product size.

Cleaner flotation test work on fresh and transitional composites using five stages of cleaning, produced final graphite concentrates at grades >94% TGC and up to 95% graphite recovery, maintaining a favourable coarse PSD.

Preliminary test work on oxide composites using a standard flotation procedure has demonstrated good graphite recovery. CSA Global concurs with the findings that the optimized cleaner flotation is likely to result in an increase in concentrate grade, and that the higher proportion of fine graphite in the low-grade oxide sample is supported by petrographic studies.

The preliminary test work program demonstrated that the mineralisation is amenable to the production of high-grade graphite concentrates, at coarse flake sizes, using relatively simple flotation processes.

Additional metallurgical testwork on each mineralisation and weathering domain is required to verify and refine the initial findings. This applies in particular to the Oxide weathering domain.



6 Mineral Resource The maiden Shimba Mineral Resource estimate was completed by CSA Global in May 2015. The current Mineral Resource estimate was completed in October 2015, following recommendations from CSA Global for additional diamond drilling to improve density differentiation, weathering profile definition, and to provide samples for petrographic and extractive metallurgical studies. The Mineral Resource estimate is summarised below and the JORC Code Table 1 is provided in Appendix 1.

Table 4 Shimba deposit – Mineral Resource estimate results October 2015 Shimba Deposit Mineral Resource estimate combined zones

Domain Classification Million Tonnes (Mt) TGC (%) Contained Graphite (Kt)

High Grade Indicated 5.1 11.9 614 Inferred 4.1 9.1 370

Indicated + Inferred 9.2 10.7 984 Low Grade Inferred 15.9 3.3 523

Total Indicated + Inferred 25.1 6.0 1,507 *Note: The Mineral Resource was estimated within constraining wireframe solids using a core high grade domain defined above a nominal 5% TGC cut-off within a surrounding low-grade zone defined above a nominal 2% TGC cut-off. The resource is quoted from all classified blocks within these wireframe solids. Differences may occur due to rounding.

6.1 Data

A total of 50 RC holes for 3,809.8 m and 22 diamond holes for 2,031.35 m were drilled and assayed for graphite content at Shimba. Of these, 19 diamond core drill holes and 20 RC drill holes intersected the interpreted mineralisation. Drilling was completed on a nominal 200 m by 200 m grid, with infill drilling on roughly a 100 m by 50 m grid over the high graphite grade zone. Six pairs of diamond core and RC twinned holes were included in the drilling totals. Drilling was supervised by IMX. CSA Global’s site review of the drilling and sampling operating procedures indicated adherence to acceptable industry standards. CSA Global’s review of the collar and downhole surveying indicted adherence to acceptable industry standards.

The drillhole database was validated for missing co-ordinates, missing downhole surveys, missing intervals, overlapping intervals, intervals exceeding the maximum hole depth and excessive dip and azimuth changes indicating downhole survey errors. Assay quality assurance procedures were reviewed. No material issues were encountered and CSA Global considers the database to be of acceptable quality for use in Mineral Resource estimation.

6.2 Density

Bulk density measurements using water displacement (immersion) methods were completed on 1,145 core samples in mineralised and waste material. Comparisons using whole core tray methods and the calliper method density determinations validated the primary technique. CSA Global noted that the density sample interval captured in the database was stored against the complete assay sample interval from within which the density sample was taken and not the actual measured interval length and recommended that this should be rectified. In CSA Global’s opinion, the density data is reliable and suitable for use in Mineral Resource estimation.

6.3 Mineralisation Modelling

A “hard” boundary was applied, to separate estimation samples used in the high grade (HG) and low grade (LG) zone wireframes. These mineralisation wireframes were based on geological interpretation of logged



drillholes, surface mapping and down hole geophysics. The final mineralisation wireframes were defined with additional guidance using a nominal lower cut-off grade of 5% TGC for the higher-grade core zones, and a nominal 2% TGC lower cut-off grade for the lower grade surrounding zones.

Grades were estimated using ordinary kriging. 2 m composites were used for estimation. Grades were interpolated into 50 m (E) by 10 m (N) by 10 m (RL) parent cells sub-celled as necessary to refine volumetric definition. 1142 density values were used to calculate average densities for different weathering profiles within mineralised and waste zones, and assigned into the block model parent cells on the same basis.

Weathering profiles representing the base of complete oxidation and top of fresh rock were interpreted and used to control assignation of density values. A barren layer of overburden was interpreted from lithological logging data; and surface topography was generated from surveyed drill collar locations, surveyed track point spot heights and the surveyed spot height grid.

6.4 Model Validation

Model validation was carried out visually, graphically and statistically to ensure that the block model grade reasonably represents the drill hole data.

Cross sections, long sections and plan views were initially examined visually to ensure that the model TGC grades honour the local composite drill hole grade trends. These visual validations were carried out along and across each drill section. These visual checks confirm the model reflects the trends of grades in the drill holes, as demonstrated for a representative cross section in Figure 11

Figure 11: Block model visual validation on Section 471,895 m E

Statistical comparison of the naive and declustered composite grades with the block model grades showed similar mean grades, indicating no biases were introduced as a result of the estimation process. Subsequent validation using a secondary inverse distance squared estimate model was completed, the



resultant similarity in grades provided further confidence in the primary estimate. Model and input data distributions were compared using histograms and probability plots, and swath plots used to examine trends by comparing averaged model slices with input data at 200 m E, 50 m N and 10 m RL intervals for each ZONE separately. The model in all instances validated well.

6.5 Model Classification

A wireframed solid was generated to define the Indicated and Inferred zones in the model where data quality and density, and the confidence in the estimate was sufficient to assume grade continuity and have confidence in the geological framework interpretation. In the HG zones, sufficient testing was completed to demonstrate recovery and saleable product streams.

Indicated zones were interpreted where infill drilling was completed by DD to reasonable depths at a section spacing of 100 m, and approximately up 80% of the variability indicated by variographic study. Infill drilling between May and October 2015 resulted in only very minor changes to the volumes of the previous May 2015 model estimated in the Indicated zone. The updated mineralisation intersections were spatially very close to the initial interpretation based on broader spaced drilling and geophysical interpretations.

Blocks in the Indicated wireframe had a significant majority of blocks estimated in the first search pass, and the majority of the HG Mineral Resource is classified as Indicated.

CSA Global’s opinion is that work completed to date is appropriately reflected in the classified Mineral Resource.

6.6 CSA Global Overall Conclusion and Recommendations

Following completion of the October 2015 update of the Shimba Mineral Resource estimate, the following actions were recommended to further increase confidence in the Mineral Resource and improve understanding of controls on the mineralisation: • Additional thin section petrographic work is recommended to reliably domain the deposit prior to

metallurgical sample selection. This includes domaining by in situ flake size and possible liberation characteristics. Additional petrographic work should be considered to establish a better understanding and interpretation of the weathering profile.

• Metallurgical work should be undertaken on the lower grade material to test the viability of this material as a product source.

• Metallurgical work should be undertaken on the oxide zone of the high-grade material to test the process routes for this material.

• The drill hole database should store the actual measured sample length from density test work rather than the full assay interval.

• The logging of weathering state should be reviewed to resolve some mismatches observed between logged weathering state in twinned RC and diamond holes.

• A thorough review of the captured results from the spot height survey be undertaken to correct any errors.

CSA Global is of the opinion that these recommendations continue to be valid and endorses them. CSA Global considers the updated October 2015 Mineral Resource has reasonable prospects for eventual economic extraction. Work completed to date allows a sufficient level of confidence to classify the majority of the high grade Mineral Resource as Indicated, which potentially enables Ore Reserves to be reported through completion of mining studies.



7 Exploration Potential 7.1 Introduction

Listed graphite explorers have recently reported widely divergent Mineral Resource estimates ranging from 2 Mt (Lincoln Minerals) to 1,457 Mt (Triton Minerals), and from 1.7% TGC (Northern Graphite) to 24.4% TGC (Talga Resources). The Shimba HG zone contains 9.2 Mt @ 10.7% TGC while the combined HG and LG zones contain 25.1 Mt @ 6% TGC.

Based on EM survey data, there is potential for further graphite discoveries in the Chilalo area and IMX announced a maiden Exploration Target for the Chilalo Graphite Project in Tanzania on 2nd September 2015. The Exploration Target was in addition to the existing Shimba Mineral Resource as reported in April 2015 and was estimated to be 100–350 million tonnes grading 3–11% TGC (Table 9).

Table 9: Chilalo exploration target based on the April 2015 Shimba (Chilalo) Mineral Resource Shimba Graphite Resource (April 2015) 18.1 Mt at 6.2% TGC (validation of concept)

Total High Conductance Length (m) Thickness (m) Down-dip Extent (m) Graphite Exploration

Target (t)

1,200 10 140 4,200,000

1,200 30 140 12,600,000

FLEM Graphite Exploration Target


Target (t)

2,600 10 140 9,100,000

2,600 30 140 27,300,000

VTEM Graphite Exploration Target


Target (t)

30,700 10 140 107,450,000

30,700 30 140 322,350,000

Graphite Exploration Target Total approximately 116–350 Mt at approximately 3–11% TGC

Note: An Exploration Target is conceptual in nature. There has 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 information in this report that relates to the Exploration Target is based on data collected under the supervision of Mr Nick Corlis, in his capacity as Executive Director, Exploration for IMX. Mr Corlis, BSc (Hons) MSc, is a registered member of the Australian Institute of Geoscientists and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and the activity being undertaken to qualify as a Competent Person under the 2012 edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr. Corlis has verified the data underlying the information contained in this announcement and approves and consents to the inclusion of the data in the form and context in which it appears.



7.2 Assumptions used to estimate Chilalo Exploration Targets

The fundamental assumption for estimating Exploration Targets at the Chilalo project was that anomalous, high EM conductance trends identified in DHEM, FLEM and VTEM data represent graphite mineralisation (Figure 8, Figure 12).

EM conductors detected in late time decay channels are high conductance, and where drilled, were assumed to correlate with high graphite grades.

The high conductance targets identified by the ground FLEM surveys are of higher confidence than those defined by the VTEM data, due to the higher EM transmitter power and longer receiver recording time.

The axial trend of high conductance graphitic schist layers represents the up-dip edge of un-oxidised, higher-grade graphite mineralisation, and the axial trace can be used for estimating the length of the graphite target.

Many holes drilled prior to 2015 may have missed graphite mineralisation, and were not drilled targeting the high conductance targets. Off-hole DHEM anomalies in these drillholes confirm the high conductance targets were not intersected.

Estimation of the Exploration Target referred to several holes well outside of the Shimba area that indicate that high conductance EM targets define graphite mineralisation. These holes include NRC10-028 located 7 km west of Shimba, where 62 m of downhole graphite mineralisation was logged at an estimated 5–25% TGC. NRC12-111 was drilled 2 km to the south of the Shimba deposit and intercepted 40 m of graphitic mineralisation. NRD12-061 is 4 km east of Shimba and logging indicated graphite from 63.7 m to 91.3 m.

Two holes drilled to the south and not currently included in the Exploration Target are MBD08-008, which intersected over 150 m of graphitic metasediments from near surface to end of hole, and MBD08-009, which intersected over 150 m of graphitic metasediments from 25 m depth.

7.3 Validating the concept

The Exploration Target was generated using the Shimba April 2015 Mineral Resource estimate as a case example and as a way of validating the concept. At this stage, it was understood that the graphite mineralisation extends for approximately 1,200 m along strike to a vertical depth of at least 100 m, and dips at about 45°. It was assumed that the graphite mineralisation varies between 10 m and 30 m true thickness, has a density of 2.5 t/m³ and that the graphite grade varies between 3% and 11% TGC.

Using these parameters, an Exploration Target of 4.2–12.6 Mt @ 3–11% TGC was derived for the Shimba deposit (Table 9). This was conservative compared with the April 2015 Mineral Resource estimate (18.1 Mt at 6.2% TGC, including 7.4 Mt at 10.7% TGC). The assumptions however deemed realistic for estimating Exploration Targets away from the Shimba deposit.

7.4 Exploration targets away from the Shimba deposit

High EM conductance FLEM graphite targets in the immediate vicinity of the Shimba Mineral Resource were estimated to be 2,600 m in length. This equated to a graphite Exploration Target of 9–27 Mt at 3–11 % TGC.

Remaining high EM conductance VTEM graphite targets (Figure 12) were estimated to have a combined total length of 30,700 m. This equated to a graphite Exploration Target of 107–323 Mt at 3–11 % TGC.



Based on regional project geology, there is potential for other deposit styles and other commodities, for example nickel or gold, although these did not come within scope of this ITA report and were therefore not reviewed.

The total graphite Exploration Target at the Chilalo Project in September 2015 was 116–350 Mt at 3–11% TGC (excluding the April 2015 Shimba Mineral Resource). It is CSA Global’s opinion that the October 2015 Shimba Mineral Resource upgrade of approximately an additional 8 Mt has not materially influenced the quantum of this Exploration Target.

Figure 12: Graphite exploration targets (grey trend lines) overlain on VTEM image

Graphex propose a range of activities over the next year to assess the exploration targets discussed above. Proposed work includes mapping, ground EM surveys to refine drill targets and demonstrate along strike continuity, followed by RC percussion drilling and selected core holes.



8 Mining 8.1 Introduction

The mining approach applied in the Chilalo PFS is conventional open pit mining. The regular shape of the outcropping orebody is well suited to this approach. The surrounding terrain is generally flat with a few gullies and ridges. Conventional mining equipment, sized to suit the operation will be used. The ore will be trucked from the mine to a run-of-mine stockpile adjacent to the plant. Waste rock will be trucked to a waste dump.

8.2 Operational and production inputs

The Chilalo project mining costs and production parameters are based on budget estimates and a database of relevant industry costs (Table 10). These inputs were used to generate a series of nested pit shells based in varying basket price. The optimisation highlighted that the optimised pit shell is limited by the Mineral Resource (Figure 13) extent rather than by the economics of the project.

Figure 13: Pit design with ore > 5% TGC



Table 10: Operational & Production Inputs Whittle Input Parameters

Input Unit Value Financial

Currency $ USD Discount Rate % 10%

Graphite Basket Price/ tconc $ 1,217.00 Total Royalties’ @3% tconc $ 28.50

Selling Cost USD/tconc $ 75.00 Concentrate Grade % 94%

WHITTLE SELLING COST USD/tconc $ 103.50 Mining

Dilution % 5% Recovery % 95%

MCAF USD/t $ 2.74 Elevation Factor USD/t/m $ 0.01

Reference Elevation mRL 220 Processing

Cut-Off Grade % TGC 8% Production Rate t/yr 630,000

PCAF USD/t ore 29.06 Recovery % 94%

CSA Global’s opinion is that these inputs are in line with industry benchmarks. CSA Global views the basket prices used as reasonable.

8.3 Mining method

The May 2015 scoping study guided the mining approach, with processing rates and stripping ratio driving mine production. A traditional excavator and articulated dump truck configuration has been selected based on a maximum annual production rate of 5 Mt including a gradual increase in production in the first year and a gradual decrease in production as the end of the mine life approaches. Process production rates, open pit bench height, equipment performance specifications and capital and operating costs support the mining equipment selection.

CSA Global believes this is an appropriate approach to take when selecting mining equipment.

8.4 Cut-off grade

The revenue generated from a graphite operation is primarily driven by the flake size distribution of the product. The flake proportion over a series of size categories determines the basket price of the product. The carbon grade (TGC) is not directly related to flake size.

This project is based on a high-grade (HG) cut-off grade of 8% TGC. This cut-off grade is based on a distinct population step in the Mineral Resource estimate at this grade and a link identified in the mineralogy of the deposit where flake size distribution has a step improvement above 8% TGC.

A low-grade cut-off of 5% TGC has been used to identify lower grade material for incremental plant feed.

Basket price generation based on the expected percentage of flake size to be processed is in line with industry standards.



CSA Global agrees with the cut-off grades as applied.

8.5 Mine Schedule

The life-of-mine (LOM) schedule is driven by excavator hours and targets a processing rate of 630 kt/yr. The current inputs have resulted in 11-year life of operation.

In order to ensure processing rates (inclusive of planned processing plant maintenance and shutdowns) could be met with a practical mine sequence, scheduling was initially developed in months for the first four years with the remainder scheduled in years. Other focus areas included a minimum feed grade of 5% TGC, a maximum run-of-mine (ROM) stockpile of 200 kt during any one period, single mining fleet, and minimising low-grade material feed until end of mine life. Mine production parameters are shown in Table 11.

Mining cutbacks have been further split into hanging wall and footwall cutbacks to allow balanced mining of ore and waste. It is recommended these separations be part of a detailed operational design.

Table 11: Mining Schedule Input Parameters Parameter Unit Value

Mining Dilution % 105 Mining Recovery % 95 Shifts per 24hrs # 2 Hours per shift hr 10

Excavator hours per year hrs/yr 5,913 Maximum active benches # 2 Vertical rate of advance m/year 30

Process Rate t/yr 630,000 Cut-off Grade TGC % 5

Mill Recovery % 94 Concentrate Grade % 94

Improvement in the LOM schedule would be seen through cut back optimisation, tailings dam construction scheduling as part of detailed truck scheduling, ROM loader scheduling, and waste dump location review.

Mining of waste as part of pre-development work in period zero is integral to ensuring achievable process feed rates as well as providing material for the construction of the tailings dam wall and ROM pad.

Figure 14 illustrates the relative proportions of Indicated (red) and Inferred (yellow) that will be mined over the life of mine plan, and Figure 15 shows the Indicated (red) and Inferred (yellow) estimated resource blocks inside the pit shell. The Inferred material within the pit shell is primarily scheduled to be mined as part of the extraction of the Indicated Mineral Resource within the pit, and within a cut-back scheduled for the third year of the project life. The remainder of the Inferred material is scheduled to be mined towards the end of the current mine plan in subsequent cutbacks. It is anticipated that some of the Inferred material within the mining inventory will be converted to Indicated material with further drilling as the FS progresses.

CSA Global notes that the PFS mine plan has made minimal allowance for a ramp-up period, achieving full production in the space of the first year. It is recommended that time required to bring the Chilalo project up to full production be investigated further in the FS phase.



CSA Global believes the current level of detail is appropriate for PFS level and is of the opinion that further refinement of the mining sequence should be undertaken prior to mining, as part of a FS.

Figure 14: Tonnes by Confidence

8.6 Geotechnical engineering

Overall wall angles as per Geotechnical Design for Chilalo Project supplied by Open House Management Solutions (OHMS) (Cilliers, L. 2015) have been used in both the optimisation and design of the Chilalo open pit. Mine design parameters based on the geotechnical advice have been generated including the addition of a 10 m wide catch berm on the hangingwall at the base of oxidation (190 m RL). Parameters applied are shown in Table 12.

Table 12: Overall wall angles by azimuth from OHMS Geotechnical Report

Weathering Horizons Depth of Oxide-Transitional horizon mRL 190 Depth of Transitional-Fresh horizon mRL 160

AZIMUTH OVERALL SLOPE

OXIDE Overall slope @ given Azimuth deg 62˚ 51˚ deg 242˚ 40˚

TRANSITIONAL Overall slope @ given Azimuth deg 62˚ 51˚ deg 242˚ 40˚

FRESH Overall slope @ given Azimuth deg 62˚ 60˚ deg 242˚ 40˚



Figure 15: Plan view of classified resource estimate within pit

Additional mine design parameters include: • Minimum mining width of 25 m • Minimum cutback width of 30 m • Single lane for final three benches (30 m vertical) • Switchback radius of 12 m • Switchbacks are flat and allow room for dewatering staging tanks and storage • Final pit design and staging maintains the ramp on the footwall.

The footwall ramp accounts for reduced berm width while maintaining the overall wall angle. Final pit design has not been geotechnically reviewed by OHMS. The majority of the hangingwall material has not been geotechnically assessed. This is primarily due to existing drill-hole core being focussed on defining the zone of mineralisation.

CSA Global believes appropriate geotechnical consideration has been given to the mineralisation zone of the pit. It is recommended that a number of geotechnical drill holes be placed in regions of the pit that require further analysis, to confirm the final pit wall parameters.



8.7 ROM stockpiles

The final ROM stockpile pad design work will be completed in conjunction with the final crusher design and layout. ROM pad size and shape should allow for stockpiling of up to 200,000 t of HG ore (approximately three months feed).

Two stockpiling areas allow for crusher feeding and ROM stockpiling activities to remain separate. Reducing stockpile footprint reduces tramming distance thus increasing front-end loader (FEL) productivity. The ROM pad surface should be built with a 1:100 slope away from the bin to ensure adequate drainage and running conditions for the FEL.

It is important to consider implementation of appropriate ROM floor management. This may include addition of high precision GPS to the front-end loader in conjunction with regular surveying of floor. Dilution may be considered during construction of the ROM by utilizing a 200 mm skin of low-grade material under the stockpile area.

CSA Global finds the design parameters and floor management plan for ROM stockpiles appropriate. Stated parameters should be considered when undertaking detailed ROM design work as part of a FS.

8.8 Waste dumps

The waste dump is located 2.5 km north-northeast from the pit ramp crest in an area assumed to be sterilised — showing low conductance from an EM survey.

The waste dump extends east into a valley where topographical lows are filled to 248 m RL, providing a footprint on which the remainder of the dump is built. Waste dump volumes and design parameters are shown in Table 13.

Table 13: Waste dump design parameters and volumes Parameter Unit Value

Dump Footprint Ha 38.70 20m offset Ha 20.00

Total Dump Clearing Ha 44.00 Dump Design Volume m³ 13.84 million

Pit Waste Volume BCM 9.46 million Applied Swell Factor 1.30

Loose Volume LCM 12.32 million Angle of repose deg 37

Lift Height m 10 Final Lift Height m <= 18

Lift Offset m 8 Rill deg 37

Final Rehab Slope deg 25 concave

As is typical for a PFS, there has been no allowance for placement or encapsulation of potentially acid-forming material within this design. It is recommended a final rehabilitated design be completed in consultation with a rehabilitation specialist as part of the FS. Such a design should highlight rehabilitation preparation work that may be undertaken as part of the mining schedule. This may include separation of large waste rocks for erosion control, updating the build design to align with dozer capabilities or any other requirement, which may be unique to the area.



CSA Global agrees with this approach for refining waste dump design and rehabilitated design as part of further work.

Full cycle trucking distances for waste material start at 4 km increasing to 7 km at the end of mine life. Long haul distances such as these are not ideal for production mining equipment. Increasing cycle distances results in increasing truck numbers and subsequent cost, over the life-of-mine. A best estimate of required truck numbers has been completed as part of the life-of-mine plan. It is recommended that the next stage of work include a full haul cycle analysis to improve confidence in cycle distances and trucks required.

CSA Global believes that the current trucking estimates are appropriate for a PFS level of study, further detailed haulage study will improve estimates at the FS stage. The current waste dumpsite is based on attempts to avoid sterilising potential economic deposits. There is substantial opportunity to identify a waste dumpsite closer to the pit to reduce life of mine operating costs.

8.9 Environmental

On 9th March 2016, the National Environmental Management Council granted an Environmental Impact Assessment Certificate (Environmental Certificate) for development of the Project. The Environmental Certificate permits applications for a mining licence and other secondary approvals required to advance the Project towards production to now be made. More detail is included in the tenements report. From an environmental and social perspective, the key potential issues associated with the Project may include: • Impact of the Project on surface water and groundwater resources (socially and environmentally)

resulting from groundwater use and mine dewatering, contamination of water bodies and the river diversion.

• Acid rock drainage (ARD), tailings, and pit wall impacts, particularly from waste rocks. • Habitat removal and impacts on flora and fauna of conservation significance. • Immigration resulting in unsustainable pressure on the community and social infrastructure in the

Project area. • Local inflation because of increased money supply in the area. • Unsatisfactory consultation with the local communities and key stakeholders resulting in the failure

to obtain and maintain a ‘social licence’ to operate. • Disputes in relation to compensation and resettlement of community members in the Project area.

This could create local unrest and result in a failure to obtain and maintain a ‘social licence’ to operate; it could also cause project delays and attract external scrutiny.

• Public safety and amenity impacts (e.g., from traffic, dust and noise) along the site access road. • Equitable distribution of taxes, benefits, royalties and other forms of compensation and avoidance of

corruption. As part of the Environmental and Social Impact Assessment process, various mitigating strategies were developed for these, and other potential affects, and incorporated into the draft Environmental Management Plan.

CSA Global agrees with the processes undertaken within the environmental domain have been well considered and key risks identified with plans in place to mitigate these risks to the best of their ability.

8.10 Tailings dam

ATC Williams Pty Ltd (ATCW) were commissioned to carry out a PFS report for the tailings storage facility (TSF) for the Chilalo project with the following scope: • TSF capacity modelling



• Preliminary water balance • Schedule of quantities for starter TSF • Sensitivity analyses on the TSF storage capacity • Scoping geotechnical work for the next phase • List assumptions, unknowns and associated risks.

8.10.1 Assumptions

The high-level options study was based upon an approximate eight-year open pit mine life with an annual process plant feed rate of 670,000 t/yr. The proposed TSF is located in a valley to the northwest of the plant site and northeast of the open pit, as shown in Figure 16. Additional assumptions used by ATCW are outlined in Table 14

Table 14: ATCW TSF study assumptions ASSUMPTION VALUE

Tailings Classifications Sand content 78% Silt content 19%

Clay content (finer than 2 µm) 3%

Tailings dry density 1.3 t/m³

Starter storage capacity (2 years) 1.2 Mt

Containment embankment dimensions Crest width 8 m, includes safety windrows

Downstream slope 3(H):1(V) Upstream slope 2(H):1(V)

Results from preliminary geochemical testing of a fresh ore tailings sample by Graeme Campbell Associates indicate that the tailings might be potentially acid forming and require appropriate management. Further geochemical testing on tailings samples originating from the different ore types expected (once available) would be required to confirm this. However, for the purpose of the current study tailings are assumed to be non-acid forming.



Figure 16: Chilalo project geology showing location of proposed TSF

Laboratory observations suggests that particles will segregate upon discharge. ATCW experience and the particle size distribution indicates quick settling after discharge resulting in a steep beach profiles as shown in Table 15.

Table 15: ATCW TSF beach slope assumptions Distance from Discharge Point (m) Beach Slope (%)

0 – 130 4.9 130 – 270 3.2 270 – 400 2.0 400 – 530 1.0 530 – 800 0.3

800 – 1,100 0.0

CSA Global is of the opinion that ATCW has conducted appropriate testing of samples and that the assumptions used within the study are in line with industry standards for a PFS level study. Further geochemical analysis of all ore types should be undertaken as part of a FS.

8.10.2 Tailings Storage Facility

The ATCW study focuses on the starter TSF to cover the first 2 years of production. The LOM storage has been modelled to correctly place the starter embankment. Due to the anticipated beach slopes being steeper than the gradient of the natural valley chosen for the TSF, a deposition embankment has been considered to the south of the valley to create an elevated discharge point, as shown in Figure 17. It is



suggested that the deposition embankment be constructed using waste material from the pit, as the short haul will make this economically feasible.

CSA Global agrees with the plan to build the deposition embankment with waste material from the pit, but cautions that additional trucking fleet capacity may be required to achieve the desired result.

Figure 17: Proposed layout of the Chilalo TSF

An embankment to the north of the valley will contain the discharged tailings.

An emergency spillway is located to the west of the containment embankment. The spillway would require moving with each subsequent lift of the containment embankment as it is currently only designed for the start TSF. Additional diversion drains to the east and west of the TSF have been considered to reduce the run-off from the surrounding catchment entering the TSF.

Graphex has a preference to store water in the TSF and return it for mill use via a floating pontoon system. A nominal 2 m deep-water pond has been included to provide approximately 496,000 m³ of water storage capacity.

CSA Global agrees the proposed design is in line with industry standards and acceptable for a PFS.



8.10.3 Water Balance

The Chilalo project site experiences a wet and dry season. The dry season generally last seven months from May through November followed by the wet season with peak rainfall in March.

A preliminary water balance was undertaken to assess the excess water to be stored in the TSF and probable water outflow from the TSF. The water balance was undertaken on a monthly basis using the following inflows and outflows: • Inflows

Rainfall run-off from the surrounding catchment, excluding water diverted by the drains Rainfall run-off from the dry tailings beach Rainfall run-off from the wet tailings beach Bleed water from the tailings discharge.

• Outflows Evaporation Decant water return Overflow through the spillway Seepage.

The assumptions used in the water balance are outlined in Table 16.

Table 16: Water balance model assumptions Assumption Value

Slurry solid concentration 56% Tailings production rate 0.67 Mt/yr

Initial settled density 1.22 t/m³ Unit bleed 0.3 m³/t

Total catchment area 80.7 ha Dry beach portion 32%

Decant water return 44,000 m³ Maximum allowable water storage (Full supply level) 1,300,000 m³

For the one and two water year cases analysed, the model indicates that decant water available will exceed 44,000 m³ per month, except for the first month of operation. This is sufficient for mill requirements. Both cases indicate that ponding water increases with time, as shown in Figure 18.

Figure 18: Chilalo Water balance volume.



CSA Global concludes that the starter TSF is acceptable for the first 2 years of the Chilalo project.

8.10.4 Containment Embankment Design and Schedule of Quantities

Based upon available information for the ATCW study, a 4 m freeboard was considered appropriate for the starter embankment design. The allowances include: • 2 m for normal operating pond • 2 m storm water storage (wet season, extreme storm and contingency freeboard) • 1 m free board above the spillway level. The 808,000 m³ of water storage provides for 350 mm worth of rainfall.

The TSF embankment is conceptually designed as a zoned embankment with four zones. A cut-off trench to the upstream toe of the embankments needs to be excavated to reduce seepage from the embankment.

The containment embankment design has used conservative figures as no stability analysis has been completed, nor is the any available geotechnical data at the time of the study.

CSA Global highlights additional work is required concerning the TSF stability and geotechnical conditions of the proposed TSF location. The conservative figures used in the study are acceptable for a PFS level study.

Since the conclusion of the ATCW study in September 2015, the mining schedule has changed to a 10 year mine life with a process feed rate of 670,000 t/yr. This results in additional 800,000 tonnes of tailings production over the life of the mine.

It is the opinion of CSA Global that the September 2015 TSF study provides a basis for the TSF design and takes account of the main factors to be considered when designing a TSF. The study provides an appropriate basis for use in cost and risk modelling the TSF within a PFS. Due to the mining schedule change, further work is required to adjust the TSF design for increased LOM capacity.

8.11 Mine infrastructure

Clearing, preparation and construction of mine services infrastructure will be required as part of the pre-development ground works in order to allow smooth mining production to proceed. Required infrastructure is included in Table 17.

Table 17: Mining infrastructure requirements and surface area

Items Estimated Area Estimated Area + 50%

Comment m² ha m² ha

Maintenance workshop facilities for heavy and/or light vehicles 1,800 0.18 2,700 0.27 Four Bay Workshop

and office

Wash-down bay facilities for heavy and/or light vehicles 300 0.03 450 0.05

Servicing and refuelling facilities for heavy and/or light vehicles 400 0.04 600 0.06

Lay down yard – tires, tracks etc. 7,500 0.75 11,250 1.13

Bioremediation 2,500 0.25 3,750 0.38 Rubbish tip 1,600 0.16 2,400 0.24

Explosive Magazines 22,500 2.25 33,750 3.38



Power 300 0.03 450 0.05 Generators Mining office 4,000 0.40 6,000 0.60

Go line 300 0.03 450 0.05 for 10 Heavy Vehicles Light vehicle parking 400 0.04 600 0.06 for 8 LVs

Gate house 100 0.01 150 0.02

Mine support storage (geo tech supplies) 1,600 0.16 2,400 0.24

Core yard/ sample prep area 5,000 0.50 7,500 0.75 Receivables bay 2,500 0.25 3,750 0.38

Space between facilities (20% additional) 10,160 1.02 15,240 1.52

Warehouse (may be attributed to Mill) 10,000 1.00 15,000 1.50

Area estimate (m2) 60,960 6.10 91,440 9.14

Items which are included within Table 17 include dewatering and bore infrastructure, lighting, communications and data, potable water, ablution facilities, sewage systems, haul roads and accommodation facilities.

It is of the opinion of CSA Global that the above estimates for mine services infrastructure are in line with industry standards for this size project.

8.12 Mining cost estimates (CAPEX and OPEX)

Mining costs were developed in conjunction with IMX and Battery Limits, together with industry examples. Mining is to be undertaken as owner-operator and costs have been applied accordingly. The mining cost model estimate is in real 2015 terms.

The life-of-mine average mining cost per tonne of material mined is USD$2.84/t resulting in a life-of-mine total operating expenditure of USD$95.50 million.

Total Heavy Mining Equipment (HME) capital expenditure for the life-of-mine is USD$13.10 million inclusive of start-up capital of USD$6.97 million.

CSA Global has noted that the appropriate capital and sustaining expenditure has been accounted for in the financial model.

Capital expenditure as part of start-up accounts for 53% of life of mine capital expenditure. The trucking fleet has been staged over five years to account for increasing haulage distances. It has been assumed that all capital expenditure will be for new equipment.

The size of the deposit and processing parameters allows for relatively small mining equipment. The machine size results in reduced operating and maintenance costs over the life of mine. In addition to the selection of a smaller equipment fleet, the following cost assumptions have been made: • Diesel at $1.00 /L • HME fuel consumption based on manufacturer manual • Grade control on 25 m x 25 m x 18 m (depth) pattern • Grade control of 100% of ore and 20% of waste material • Production drill and blast costs apply to 30% oxide, 70% transitional and 100% fresh material



• Maintenance cost for all HME profiled over time to reflect life cycle cost variations • Ancillary utilization reduces towards the end of mine production and continues to end of processing

for mine rehabilitation purposes • Mine maintenance and operating personnel include labour on-costs of 25% for year 1 and 15%

thereafter.

A mine life of ten years will see some of the HME fleet approach or extend past the recommended engine life hours. Detailed maintenance schedules and costs would aid in defining any cost impact.

CSA agrees that maintenance schedules and detailed haulage schedule will improve confidence of required truck numbers over the mine life. In addition, appropriate inputs for operating expenditure on a project of this size have been used.

8.13 Conclusions and Recommendations

Overall CSA Global is in agreement with the methods and process undertaken as part of the mine engineering inputs into the Chilalo PFS study. The following recommendations are a result of the mining PFS and highlight areas where further detail will provide increased confidence in the project: • Sensitivity analysis, within the optimisation phase, around graphite basket price, mining rates,

processing cost, recovery and concentrate grade and flake size. This will highlight any direct impacts on ore reserve size as a result of fluctuations in the stated inputs.

• Mining cutback refinement in order to smooth production profile by maintaining a constant strip ratio where feasible inclusive of geotechnical review of final design.

• In addition to cut-back refinement, ramp crest location may be reconsidered in relation to distance from the waste dump. Ramp placement should be considered as part of a larger haulage study. A detailed haulage study will provide confidence in the number of dump trucks required over the life of mine.

• A cost-benefit analysis of waste movement to compare the cost of long haul dumping against short haul dumping and future rehandle related to risk of sterilising a future mining target below the dump site. This will provide confidence in waste dump location.

• Waste dump encapsulation of potentially acid forming material. Improved understanding of sulphides within the deposit and the waste material to ensure environmental risk is reduced.

• Final rehabilitated waste dump design is completed in consultation with a local rehabilitation specialist.

• Studies to improve estimates of the timing required for project commissioning and attainment of full production should be completed.

• Detailed maintenance schedules and costs for mining equipment, as appropriate for a FS level study. • Completion of ROM stockpile design.

A PFS was announced to the market by IMX on 23rd November 2015. CSA Global believes the current accuracy of work completed is appropriate to this level of study. CSA Global notes that an Ore Reserve has not yet been declared for the Chilalo Project. The PFS details a mine plan based on a pit shell, optimised around the Indicated and Inferred Mineral Resources using a 5% TGC cut-off to define a mining inventory for the purpose of the PFS. CSA Global has verified that the 5% TGC cut-off can be validated against lithological and geological controls. Assumptions in the PFS that relate to hangingwall geotechnical characterisation, ARD, and the metallurgical performance of oxide material, require confirmation to support the Ore Reserves. In CSA Global’s opinion, the Modifying Factors would be addressed in greater detail as part of a Feasibility Study (FS), including formal declaration of Ore Reserves.



The first two years of scheduled production from the mine plan is based on extraction of predominantly Indicated Mineral Resources.

The proportion of Inferred Resources mined within this pit shell (31%) is a combination of high-grade (>5% TGC) and lower grade (2-5% TGC). The Inferred material within the pit shell is mainly scheduled to be mined as part of the extraction of the Indicated Mineral Resource within the pit, and within a cutback scheduled for the third year of the project life. The remainder of the Inferred material is scheduled to be mined towards the end of the current mine plan in subsequent cutbacks. It is anticipated that refinement of metallurgical parameters as the project progresses will allow conversion the majority of the Inferred material to higher confidence material.

Sensitivity modelling completed as part of the PFS indicated that the economic viability of the project was not sensitive to the inclusion of the Inferred Mineral Resource within the pit.

CSA Global is in overall agreement with the methods and process undertaken as part of the Mine Engineering inputs into the Chilalo PFS. However, a key recommendation to improve the robustness of the project will be the declaration of an Ore Reserve, and further sensitivity analysis around graphite basket price, mining rates, processing cost, recovery, concentrate grade and flake size. This work will highlight any direct impacts on reserve size as a result of fluctuations in the stated inputs.



9 Production 9.1 Water Supply

For the PFS it has been assumed that sufficient ground water will be available within a 5 km radius of the process plant to operate an effective bore field. The availability of groundwater is considered likely given: • All exploration drilling campaigns in lower lying areas have encountered significant water at relatively

shallow depths • Close proximity of the river system

Groundwater assessment studies are planned as part of the FS.

CSA Global agrees that the risk associated with available water is low and it was appropriate to defer a more detailed water study until the FS.

9.2 Processing

The proposed flowsheet has been developed based on metallurgical test work undertaken to date. The process plant design is based on a metallurgical flowsheet with unit operations that are conventional, well proven in industry and aligned with current graphite industry practice.

The key criteria for equipment selection have been the suitability for duty, reliability, and ease of maintenance.

The plant has been designed with the following general philosophy: • Designed as fixed plant, using modular plant where practicable • Capability to process oxide, transitional and fresh type ores • Use of mineral industry proven methods and equipment • Utilisation of single processing lines including single grinding line and floatation lines and minimising

parallel operations • Open air construction with minimal covered plant buildings • The plant is designed to operate on a 24 hour basis • 10 year minimum life • Area immediately adjacent to the proposed plant site to expand the plant at a later stage if required.

The Process Design Criteria (PDC) forms the basis for the design of the process plant and the required site services. A summary of the design criteria used in the process design is shown in Table 18.

Key considerations incorporated into the design include: • Use of modular crushing plant to expedite design and minimise installation time • Increase crusher product size to 18 mm to feed the rod mill and reducing the need for tertiary crushing • Crushed product to be simple open stockpile with FEL reclaim to minimise capital cost • Use of Rod Mill for primary grinding to minimise generation of graphite fines • Screening of rougher concentrate into coarse and fine concentration streams to enable differential

regrind and cleaning of coarse and fine concentrates to maximise flake size distribution • Use of regrind stirred mills to reduce graphite flake breakage during regrind • Product screening for six products +500 µm, -500+300 µm, -300+180 µm, -180+150 µm, -150+75 µm,

and -75 µm bagged on site.



Table 18: Process Design Criteria Description Units Design

Ore Characteristics Resource category Type Indicated/Inferred

Ore tonnes Mt ≈6.5 Graphite (Cg) grade % 11

Bond Rod Wi kWh/t 6.4 General Concentrator

Mine life year 10 Annual treatment rate t/yr 670,000

Crushing Circuit ROM feed size - Maximum mm 500 Product size P80 – Design mm 16

Operating schedule h/d 24 Operating time % 75

Crusher annual run hours hpa 6,570 Crusher feed rate – Nominal dry dt/h 102

Crushed ore storage Type Open stockpile Concentrator

Mill feed reclaim Type FEL/Feed hopper Rod mill primary P80 µm 600 Daily treatment rate tpd 1,836 Operating schedule hpd 24

Operating time % 90 Concentrator annual run hours hpa 7,884

Concentrator feed rate – Nominal dry dtph 85 Concentrate Production

Flotation Configuration Rougher/Cleaning Cleaning and regrind Stages 4

Target concentrate grade TGC % 94 Overall graphite recovery % 94

Graphite Concentrate production t/yr 73,700 Production rate t/d 202

Nominal Product Split Super Jumbo +500 µm % 2

Jumbo -500 µm +300 µm % 23 Coarse -30 µm +180 µm % 22

Medium -180 µm +150 µm % 7 Small -150 µm +75 µm % 21

By product fines -75 µm % 25 Product package type 1 t Bulk bag

The following design concepts were identified as options to the PFS flowsheet and will be investigated in future studies: • Staged development including

Oxide feed start up, Defer installing tailings thickener, and Expansion to include transition and fresh feed.

• Review collector reagent and conduct further tests using diesel versus kerosene • Further floatation cleaning/regrinding circuit optimisation



• Further product filtration and drying test work • Additional ARD test work on transitional and fresh ore types.

CSA Global concurs with the philosophy and methodologies used in the processing plant design. CSA Global considers the future work plan acceptable as part of a FS.

9.3 Roads

The road to site is currently passable, but will require some upgrades for both the construction and operational phases of the Project. The road within 5 km of the site will require the majority of the work and an allowance has been included in the study and is based on the costs of other road upgrades in the projects area.

An annual maintenance allowance has been included in the operating costs of the Project. The requirement for any further major capital upgrades will need to be assessed as part of a FS level study in consideration to the final incoming and outgoing logistics requirements.

CSA Global agrees with the approach for road upgrades, maintenance, and planned future work.

9.4 Shipping

The port closest to the Project site is Mtwara. While the port at Dar-es-Salaam is larger and deals with a greater volume of ships, the road costs of transporting graphite to this port are significantly higher. Whilst Mtwara has been selected based on cost and overall port capacity for this study, additional investigations will need to be undertaken with freight companies to determine the frequency of shipping from Mtwara to the final destination port for graphite, as well as determine any other logistical issues.

The Mtwara port is a deep-water port with a quay dredged to –9.8 m. There are no tidal restrictions for vessels entering and leaving the harbour, however, there is a length restriction of 180 m due to the shape of the channel. The basin can accommodate six vessels of 180 m. The port has a quay wall of 385 m that can accommodate two ships and one coastal vessel at any one time. The port is mainly used for cashew nut export during the months of November and December and remains underutilised for the rest of the year.

Due to size restriction on ships, the graphite cargo that is loaded in Mtwara will generally be transhipped in Dar-es-Salaam or in Mombasa, Kenya for the subsequent leg of the voyage to Asia or Europe.

The Tanzania Port Authority (TPA) is presently undertaking expansion projects for the Mtwara port. The TPA estimates the total project value to be US$214 million. This will include: • Improvement of infrastructure and working equipment, and • Expansions to the port by acquiring 763 hectares of land, which will see the port berth seven ships

instead of four, thereby considerably increasing the tonnages of cargo handled.

CSA Global agrees with the need to further analyse shipping options in higher detail as part of a FS study.

9.5 Supply Chain and Product Transport

A Graphex supply chain team will oversee and arrange all activities that will allow raw material and plant equipment to be transported to site and product to be sold to customers Free on Board.

Containers will be used to deliver product to the ship and stevedoring is planned to be undertaken through a contract arrangement with the freight company.



A small onsite warehouse onsite will allow for packing of the bulk bags and trucks with a larger warehouse facility in Mtwara for packing of trucks or containers for transport to the port.

CSA Global agrees with the supply chain and product transport approach.

9.6 Transportation of Product

Alistair James Company Ltd (Alistair Logistics) provided information on transport of graphite from the Project site to the Mtwara Port. The company currently operates within the Mtwara and Mtwara Port areas. Alistair Logistics’ recommendation includes pricing per tonne of product moved between the site and Mtwara warehouse. This has been incorporated into the cost estimate.

Tanzanian road regulations state that trucks may be loaded to a maximum of 10 tonnes per axel. No Superlink or Multilink trucks are permitted on roads, only 30 t of product per truck can be transported via road to the port. Alistair Logistics have recommended 1 tonne bulk bags as the most efficient method to transport product to the port. At the port, bags will be stuffed in 20-foot shipping containers and sorted at Mtwara port in preparation for export. Each container will hold 20 bags of graphite.

Alistair Logistics have included the cost of a warehouse and supervisors office in the capital estimate for the Project. Also included are the additional costs per tonne of product for stuffing containers, preparation of export documentation, port charges, and relocation of the containers from the warehouse to over the ships rail. This is included in the operating cost estimate.

CSA Global agrees that the recommendations and cost estimates are reasonable as provided by Alistair Logistics.

9.7 Buildings and Operations Village

Converted shipping containers are to be used for operational buildings and the village. Cost estimates have been determined on this basis. This style of building has been chosen as it is cost effective, commonly used, readily available, allows for quick installation and readily expandable. Buildings will be designed for a 10-year life. Alternatively, it may be possible to use modular, pre-fabricated site buildings. All buildings will have lighting, electrical sockets, air conditioners and fly screens. Site buildings will include: • Site administration offices • Plant offices • Accommodation village • Crib and ablution blocks • Sheds for workshops, warehouse, product packaging, and storage.

Other buildings, which will be required as deconstructed kits transported in 40-foot shipping containers, include: • Processing maintenance workshop • Maintenance and consumables warehouse • Product packing shed housing the concentrate bagging facility • Logistics transfer shed located near Mtwara port.

CSA Global agrees with the industry standard approach of operations village buildings.

9.8 Accommodation Village and Management Service

The village has been designed for 110 residents at any given time. This is deemed sufficient for the expected workforce. A large contingent of the operations staff will be employed from the local area.



Rooms will be designed based on converted shipping container system with two rooms per container each with an en suite. The village will consist of: • 110 rooms with en suites • Recreation rooms • Kitchen, chiller/freezer and dining area • Laundry facilities • Village office • Two 150 kW generators (1 active, 1 standby).

The village will be managed by an independent camp management service provider with experience in Africa. The service provider will manage all day-to-day activities within the camp and be responsible for camp maintenance. The management services will include: • Management of the camp site • Maintenance of the village • Catering services( breakfast, lunch, supper) • Cleaning services • Janitorial services • Laundry services • Handling of bottled water • Pest control • Waste disposal

CSA Global agrees with the approach of accommodation village buildings and management services.



10 Financial Model 10.1 Overview

A financial model was built for analysing the potential cash flows generated by the Project. The model was used to evaluate the cash flow effects of the mining schedule, process plant design and the relative sensitivities of major cash flow components. The model reports all cash flows and financial metrics on a pre-tax, pre-financing basis. The model uses US dollars (USD) as the base currency with no allowance made for forecasted exchange rate variations as the majority of the cash flows occur in USD. Cash flows were calculated based on no cost escalation, no price escalation, and no inflation. The project NPV was calculated using a discount rate of 10%. The primary cash flows and metrics of this analysis are shown in Figure 19 and Table 19. All cash flows shown include the sale of all fractions produced including the -75 µm material.

Figure 19: Chilalo Project annual pre-tax cash flows.

Table 19: Chilalo primary financial metrics. Item Unit Mining Schedule v5a

LOM revenue US$M 838 LOM pre-tax cashflow US$M 391

EBITDA per year (average) US$M 47.3 Operating cost per tonne of concentrate US$ 490

Pre-production capital cost US$M 73.8 Pre-tax payback period Years 1 year 7 months

Pre-tax NPV (10% discount) US$M 200 Pre-tax IRR % 60

CSA Global concurs with the methodology used within the financial model.

10.2 Mining and Processing

A mining schedule was developed using a cut-off grade of 5%. This provided a mine life of approximately 10 years feeding the mill at 630,000 t/yr. The financial analysis was based upon mining schedule v5a with a nominal 69,000 t/yr concentrate production. The analysis assumes minimal ramp up will be required at



the beginning of the project. This may be optimistic for a project of this nature, with a newly commissioned plant. CSA Global recommends that this issue be investigated further during the FS phase to ascertain if it is necessary to make allowances for commissioning and other potential start-up issues.

The mining schedule is shown in Figure 20 with graphite concentrate production shown in Figure 21.

Figure 20: Chilalo Mining Schedule

Figure 21: Chilalo graphite concentrate production

CSA Global agrees that these figures are the basis for the input and output data of the financial model. There are slight differences between the mining schedule v5a used for the financial model and the mining schedule v6 that is used in the mining sections of the PFS. There is no material difference between the schedules. The absence of any flexibility at the beginning of the schedule for ramp-up and commissioning issues presents a technical risk that should be investigated further in the FS phase.



10.3 Capital and Operating Costs

Mine operating costs for grade control, drill and blast, hauling, loading, operators, maintenance and ancillary costs are output from scheduling software. The cost inputs for the financial model are generated in a thorough and transparent first-principle spreadsheet. This is further discussed in section 8.12 Mining cost estimates (CAPEX and OPEX).

Labour costs and additional mine operating costs not included in the scheduling software, are generated in a thorough and transparent first-principle spreadsheet within the financial model.

CSA Global agrees with the labour cost estimation and methods.

Mine capital costs are detailed within the financial model. The estimates for capital costs are based upon budget price quotations for major equipment, IMX in-house data from recent projects and industry standard estimating factors for equipment and installation costs. These costs have an accuracy of ±25%. A 10% contingency on capital costs was applied on the overall capital estimate to make allowance for PFS level design input, preliminary nature of the scope definition, no vendor quotations for minor equipment costing only budget estimations on major equipment and no vendor quotations of installation costs.

CSA Global concurs with the methodology of capital cost estimation and agrees with the accuracy for a PFS level study.

Operating cost were grouped into seven areas and calculated on a yearly resolution. These costs were divided by the production of graphite to produce the unit operating costs displayed in Figure 22.

Figure 22: Chilalo unit operating costs per tonne of graphite concentrate.

IMXundertook a comparative analysis of the development capital and operating costs per tonne of concentrate of the Chilalo project with global peers. As shown in Figure 23, the Chilalo project ranks highly when analysed in this manner.



Figure 23: Development capital cost vs operating costs per tonne of concentrate.

Note: TSX companies Northern and Focus above, stated part or their entire project economics in Canadian dollars were converted to USD at a rate of 1:0.75.

CSA Global notes that Chilalo sits in the upper 50% of global graphite projects and exploration targets for grade and quality, while being in the lower 50% for Mineral Resource tonnage. This explains the relative position of the Chilalo project compared with IMX's peers.

10.4 Basket price

Graphite does not trade on an open exchange, nor is there a readily available benchmark index of prices. Therefore, pricing used in the PFS (Hearse and Pass, 2015b) was determined from a range of sources and is shown in Table 20. The basket price used in the PFS was a 2016/2017 forecast and assumed the sale of all fractions produced including the –75 µm material.

Price assumptions in the PFS, for fine, small and medium flake products, are generally in accordance with data reported by Industrial Minerals Magazine in January 2016 (Table 4). However, the forecast price of US$1,400 assumed by IMX for large flake products (–300 µm to +180 µm) is higher than the average price of US$1,100 per tonne reported by Industrial Minerals Data. Prices for +300 µm and +500 µm flake graphite are not reported by Industrial Minerals Magazine or other publications, nonetheless other industry sources have suggested US$2,000 per tonne or more for +300 µm product with 94–97% carbon content.



Table 20: Assumed flake graphite prices for the Shimba deposit

Flake size (µm)

Flake size (name)

Purity (% C)

Retained Mass

%

Price*

(US$/t)

Basket Price*

(US$/t)

Price Low**

(US$/t)

Basket Price

Low** (US$/t)

Price High** (US$/t)

Basket Price

High** (US$/t)

>500 Super Jumbo 97–98 2 $2,500 $48 $2,500 $48 $2,500 $48

300-500 Jumbo 94–97 24 $2,200 $528 $2,000 $480 $2,200 $528 180-300 Large 94–97 23 $1,400 $315 $1,050** $236 $1,150** $259 150-180 Medium 94–97 6 $950 $57 $900** $54 $1,000** $60 75-150 Small 90–94 21 $700 $144 $750** $155 $800** $165

<75 Fine 90–94 25 $500 $125 $500** $125 $500** $125 Total 100 $1,217 $1,097 $1,184

Source: Hearse and Pass, 2015. * Forecast to 2016/2017. **Current, estimated from Industrial Minerals Data January 2016 (refer to Table 4)

The forecast basket price used in the PFS was $1,217/t, which is between 3% and 11% higher than the $1,097/t and $1,184/t basket prices estimated from Industrial Minerals Data.

Given that only 2% of the possible product split is +500 µm (Super Jumbo), reasonable price movements for this high-priced fraction are unlikely to materially affect the forecast basket price.

CSA Global is of the opinion that the forecast basket price of $1,217/t used in the PFS financial model is reasonable. However, it is noted that the graphite basket price is probably the most sensitive factor in the PFS financial model. CSA Global recommends that the assumption that all product is saleable continues to be refined.

10.5 Operation Summary

The key performance indicators from the financial model are shown in Table 21.

CSA Global agrees that these are a true reflection of the financial model inputs and outputs.



Table 21: Chilalo annual operation summary

Year 0 1 2 3 4 5 6 7 8 9 10 Mining

Ore mined Mt 0.01 0.74 0.74 0.88 0.54 0.47 0.59 0.72 0.46 0.59 0.56 Waste mined Mt 2.98 4.26 4.26 4.11 2.97 2.03 1.91 1.78 0.79 0.66 0.29

Strip ratio 219.2 5.7 5.8 4.7 5.5 4.3 3.2 2.5 1.7 1.1 0.5 Average ore grade % 7.0% 11.4% 10.7% 11.0% 10.4% 10.9% 10.7% 10.6% 10.5% 10.8% 11.4% Contained graphite kt 1.0 84.7 78.4 96.8 56.7 51.9 63.0 76.1 48.8 63.6 64.4

Processing Ore processed Mt 0.00 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63

Premium concentrate kt 0.0 53.6 50.8 51.6 50.4 51.1 50.6 50.1 49.9 51.0 53.6 Fines concentrate kt 0.0 18.7 17.7 18.0 17.5 17.8 17.6 17.4 17.4 17.7 18.7

Financial Revenue US$M 0.00 87.32 82.85 84.04 82.10 83.30 82.49 81.66 81.35 83.08 87.38

Operating costs US$M 0.00 (35.50) (35.68) (36.43) (36.23) (33.76) (33.98) (33.25) (31.48) (31.82) (30.54) Capital expenditure US$M (73.81) (0.09) (0.70) (0.10) (0.80) (1.33) (0.86) (3.40) (0.43) (0.43) (0.43)

Royalties US$M 0.00 (2.62) (2.49) (2.52) (2.46) (2.50) (2.47) (2.45) (2.44) (2.49) (2.62) Net pre-tax cash flow US$M (73.81) 49.11 43.99 44.99 42.61 45.71 45.17 42.56 47.00 48.35 53.79



10.6 Sensitivity Analysis

A sensitivity analysis was undertaken on the major factors influencing the project financial metrics. These factors are: • Overall basket price of graphite • Feed grade of ore being processed • Site operating costs • Development and sustaining capital costs The sensitivity tornado in Figure 24 shows the results of the sensitivity analysis.

Figure 24: Chilalo financial model sensitivity tornado.

Basket price changes have the largest impact on the project NPV. A more detailed analysis of the impact of changes in the basket price is shown in Figure 25.

Figure 25: Chilalo financial model basket price sensitivity graph.



10.7 Comments on the Financial Model

CSA Global believes the current accuracy of work completed is appropriate for a PFS.

The Modifying Factors should be addressed in greater detail as part of a FS, including formal declaration of Ore Reserves.

Assumptions in the PFS that relate to hangingwall geotechnical characterisation, ARD, and the metallurgical performance of oxide material, require confirmation to support the Ore Reserves.

CSA Global conclude that these latter aspects, while important to address in the FS, are sufficiently de-risked by the assumptions applied in the PFS, and provide a reasonable basis to support the financial model.



11 Technical Risks CSA Global is of the view that the level of technical risk examined in the current PFS is commensurate with the maturity of the project. The inputs into the PFS are currently insufficient to fully support the declaration of Ore Reserves. CSA Global are of the opinion that the principles and assumptions applied in the PFS are reasonable, and make the following recommendations to progress the project towards a Feasibility Study:

11.1.1 Conversion of Inferred Resources to Indicated

• Additional thin section petrographic work to reliably domain the deposit and improve metallurgical sample selection. This should include consideration of domaining by in situ flake size and possible liberation characteristics, and work to establish a better understanding and interpretation of the weathering profile.

• Additional drilling as required.

11.1.2 Metallurgical testwork

• Metallurgical work to be undertaken on the lower grade material to further investigate the viability of this material as a product source, given that there is the probability that coarse flakes exist in this domain.

• Further metallurgical work to be undertaken on the oxide zone of the high-grade material to improve the understanding of the process routes for this material.

11.1.3 Basket prices

• Refine sensitivity analyses around Graphite basket price, mining rates, processing cost, and recovery and concentrate grade and flake size.

11.1.4 Production ramp-up

• Mining cut back refinement in order to smooth production profile by maintaining a constant strip ratio where feasible.

• In addition to cutback refinement, ramp crest location may be reconsidered in relation to distance from the waste dump. Ramp placement to be reviewed further as part of a larger haulage study.

• Cost benefit analysis of waste movement, to compare the cost of long haul dumping against short haul dumping and future rehandle related to risk of sterilising a future mining target below the dump site.

• Investigation of waste dump encapsulation to manage potentially acid forming material. • Final rehabilitated waste dump design should be completed in consultation with a local rehabilitation

specialist. • Detailed maintenance schedules and costs for mining equipment, as part of detailed production

scheduling.

11.1.5 Market analysis

• Test current assumptions that all production will be saleable.



12 Planned work 12.1 Overview

Graphex proposes to use the funds raised to purchase the Chilalo Project from IMX, undertake a Feasibility Study (FS) and to cover the costs of the Offer, Marketing, and Administration (Table 22).

The purpose of the FS will be to make a comprehensive technical and economic study of the selected development option for the Shimba project. This will include detailed assessments of relevant Modifying Factors, together with operational factors and detailed financial analysis to demonstrate that extraction is reasonably justified, i.e. economically mineable. The results of the study are anticipated to serve as the basis for a final decision by Graphex to proceed with the development of the Shimba Project.

The relevant Modifying Factors are considerations used to convert Mineral Resources to Ore Reserves and include mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social, and governmental factors.

Table 22: Proposed use of funds

Use of funds Minimum Subscription $ million

Maximum Subscription $ million

Cash purchase price 1.00 1.00 Transaction costs 0.55 0.72 Corporate and administration costs 0.97 0.97 Tenement 0.05 0.05 Feasibility costs 1.08 3.30 Offtake marketing costs 0.30 0.40 Working capital 0.30 0.56 TOTAL 4.25 7.00

12.2 Feasibility Study

CSA Global notes that the proposed expenditure set out in Table 22 is as at the date of the Prospectus, and may change at the discretion of the Graphex board, depending on a number of factors, including the outcome of offtake marketing and development activities, studies, regulatory developments and market and general economic conditions. CSA Global further notes that in the event the Company raises an amount between the Minimum and Maximum Subscription, funds will be apportioned on a pro-rata basis.

CSA Global’s opinion is rendered only in relation to the portion of funds, which apply to the conduct of the FS. CSA Global understands that should only the minimum subscription be achieved, there will be sufficient funds to commence the FS; and further fundraising may be required to complete the study, depending on the outcome of Graphex’s offtake and project financing arrangements, and how the study develops. Graphex proposes to undertake a six-month FS addressing amongst others:

• Resources and Reserves;

• Pit, Waste Dump and Tailings Storage Facility design;

• Metallurgy, Process Engineering and Detailed Engineering;

• Water Supply and Ground Water

• Community Relations and Environment;



• Capital and Operating Costs; and,

• Product Marketing, Logistics, and Shipping.

The timeframe for key aspects and activities of the planned FS is shown in Table 23.

CSA Global is of the opinion that the scope of work planned at the Chilalo Graphite Project is an appropriate use of funds, and will address the technical risks previously outlined in this report. In the eventuality that only the minimum subscription is achieved, there appears to be sufficient provision to commence the FS; with a possible subsequent raising required to see the FS through to completion, depending on the progress of work on the FS.

Table 23: FS schedule summary



13 References AusIMM (1998): "VALMIN 94 – Mineral Valuation Methodologies". Conference Proceedings.

AusIMM (2012): “VALMIN Seminar Series 2011-12”. Conference Proceedings, 161pp

CIMVAL (2003). Standards and Guidelines for Valuation of Mineral Properties.

Cilliers, L. 2015: Geotechnical Design for Chilalo Project. September 2015. Open House Management Solutions (OHMS), Potchefstroom, South Africa.

Hearse, P. and Pass, D., 2015b: Chilalo Graphite Project Prefeasibility Study Report. December 2015. BatteryLimits, Perth, 821pp.

IMX Resources Ltd (2015a): Substantial Resource Upgrade at Chilalo Graphite Project. ASX announcement, 13 October 2015. IMX Resources, West Perth 6872, Australia.

IMX Resources Ltd (2015b): Maiden Resource Highlights Strong Production Potential for Chilalo Graphite Project. ASX announcement, 2 September 2015. IMX Resources, West Perth 6872, Australia.

IMX Resources Ltd (2015c): Substantial Resource Upgrade at Chilalo Graphite Project. ASX announcement, 13 October 2015. IMX Resources, West Perth 6872, Australia.

JORC (2012): Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code). The Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia. Available online: www.jorc.org

Olson, D. W. (2015): Graphite. Minerals Commodity Summaries, January 2015. United States Geological Survey.

Scogings, A.J. (2014): Public Reporting of Industrial Mineral Resources according to JORC 2012. AusIMM Bulletin No. 3, 34-38. Feature: Mineral Resource & Ore Reserve Estimation. Journal of the Australasian Institute of Mining and Metallurgy.

Scogings, A.J., Hughes, E., Salwan, S. and Li, A. (2015): Natural Graphite Report. Strategic Outlook to 2020. November 2015, 484 pp. Industrial Minerals Research, Euromoney Institutional Investor PLC, 8 Bouverie Street, London EC4Y 8AX, United Kingdom.

USGS (2015): Natural Graphite Statistics, January 2015. Historical Statistics for Mineral Commodities in the United States, Data Series 140. United States Geological Survey.

VALMIN Committee (2016). “Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports”, 2016 edition.

http://www.jorc.org/



14 Glossary Below are brief descriptions of some terms used in this report. For further information or for terms that are not described here, please refer to internet sources such as Wikipedia www.wikipedia.org

A

Acid rock drainage Contaminated water caused by drainage through acid-generating rocks.

Aeromagnetic Refers to measurement of magnetic qualities of rocks using an aeroplane-mounted instrument.

Altered, alteration Refers to physical or chemical change in a rock or mineral subsequent to its formation.

Amorphous graphite Crystalline fine-grained graphite where the crystalline size is not evident to the eye. Usually formed by metamorphism of coal seams.

Amphibolite A rock of medium metamorphic (metamorphism, metamorphic) grade-rich in the iron and magnesium silicate minerals called amphibole.

Anomaly Zone or point in the soil or underlying rock determined by exploration methods to be different from its general surroundings.

Assay Test to determine the content of various chemical elements in a sample

B

Backfill Material used to fill mined-out stope voids.

Ball mill A rotating cylindrical mill using iron balls to reduce broken ore to powder to assist the release of constituent minerals.

Base metal Non-precious metal, usually refers to copper, lead, zinc.

Basement Generally refers to the older cratonic rocks below sedimentary basins.

Batters and berms Technical terms for the components of a final pit wall. The slope batters are typically 10–20 metres high vertically and have slopes between 40° and 70°. The horizontal berms between the batters are typically 5–10 m wide.

D

D50 Average particle diameter of a sample, by mass.

DHEM Down Hole Electromagnetics. A method of geophysical exploration.

Diamond drilling Drilling method, where the rock is cut with a diamond bit, to extract cores.

Dip The angle that a structural surface, i.e. a bedding or fault plane, makes with the horizontal measured perpendicular to the strike of the structure.

E

EM Electromagnetics. Geophysical exploration method using the measurement of secondary electromagnetic fields induced in the earth by the application of an electromagnetic field on the surface.

Exploration Target An Exploration Target is a statement or estimate of the exploration potential of a mineral deposit in a defined geological setting where the statement or estimate, quoted as a range of tonnes and a range of grade (or quality), relates to mineralisation for which there has been insufficient exploration to estimate a Mineral Resource.

F

http://www.wikipedia.org/



Flake graphite Flat shaped graphite particles occurring as isolated flakes within a host rock. The flakes are sub 1mm to a few mm in two dimensions and sub 1mm in the third dimension.

FLEM Fixed Loop Electromagnetics. A method of geophysical exploration.

G

Geophysics The study of the Earth using quantitative physical methods to measure its electrical conductivity, gravitational and magnetic fields.

Gneiss A rock type of granitic composition formed by high-grade regional metamorphic processes from pre-existing rock formations. It is layered and characterized by alternating darker and lighter coloured bands, called gneissic banding.

Graphite Crystalline form of carbon. Very soft, with perfect basal cleavage. Properties include electrical conductivity, high temperature stability and lubricity.

Granulite Medium to coarse grained rocks formed by high temperature metamorphism, composed mainly of feldspars with quartz and anhydrous ferromagnesian minerals.

J

JORC Code Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.

K

Kaolinite A clay mineral, with the chemical composition Al2Si2O5(OH)4.

M

Mesh Number Number of openings per linear inch in a sieve. The higher the mesh number, the smaller the openings in a sieve. E.g. 50 mesh = 0.3mm openings; 100 mesh = 0.15mm openings; 200 mesh = 0.075 mm openings.

Metamorphism Term used to describe the effect on rocks due to heat and pressure from geological conditions and events.

Mica Hydrated alumino silicate sheet minerals having nearly perfect basal cleavage.

Mineral Resource A Mineral Resource is a concentration or occurrence of solid material of economic interest in or on the Earth's crust in such form, grade (or quality) and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade (or quality), continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge including sampling. Mineral Resources are sub-divided in order of increasing geological confidence, into Inferred, Indicated and Measured categories.

Mineralisation Geological occurrence of mineral of potential economic interest, in this case graphite.

Modifying Factors ‘Modifying Factors’ are considerations used to convert Mineral Resources to Ore Reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social, and governmental factors.

O

Ore Reserve An ‘Ore Reserve’ is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified.

Oxidised rock Rock which has been broken down by the influences of water and air and which becomes softened and partially decomposed. Also described as Weathered rock.



P

PSD Particle Size Distribution. Often measured using sieves, where a sample is separated onto different size sieves. The limits of a PSD are usually defined according to the size ranges present in a sample.

R

Reverse Circulation Drilling method where drill cuttings are returned to surface inside the drill rods. The drilling mechanism is a pneumatic reciprocating piston known as a "hammer" driving a tungsten-steel drill bit.

S

Sillimanite Alumina silicate mineral Al2SiO5

Sulphide mineral Minerals that contain Sulphur as the major anion.

Synthetic graphite Produced by the calcination of carbon, typically petroleum coke.

T

TGC% Total graphitic carbon%.

Tonne Metric tonne (1,000kg).

V

Vein Graphite Occurrences of graphite in planar form and mainly sub vertical in orientation.

VTEM Versatile Time Domain Electromagnetics



15 Abbreviations and Units of Measurement

FS Feasibility Study

ha hectares

km kilometres

km2 square kilometres

kt/yr thousands of tonnes a year, kt/yr

Mt million tonnes

PFS Preliminary Feasibility Study

QAQC quality assurance and quality control (for sampling and assaying)

t metric tonnes

t/yr tonnes per annum

USD US Dollars



Appendix 1: JORC Table 1 for Chilalo Mineral Resource Estimate

Section 1 Sampling Techniques and Data

Criteria Commentary Sampling techniques Reverse Circulation

• Reverse Circulation (RC) drilling was used to collect 1 m downhole samples for assaying. • Typically, a 1 to 2 kg sample was collected using a cone splitter. Samples were composited to 2 m and sent for LECO analyses as well as

for ICP Multi-element analyses. All RC samples were submitted for analysis. • Certified Reference Materials (CRM’s) and field duplicate samples were used to monitor analytical accuracy and sampling precision. • Sampling is guided by IMX Resources’ standard operating and QA/QC procedures.

Diamond • Samples were composited to 2 m and sent for LECO analyses as well as for ICP Multi-element analyses. All core samples were submitted

for analysis. • CRM’s and field duplicate samples were used to monitor analytical accuracy and sampling precision. • Sampling is guided by IMX Resources’ standard operating and QA/QC procedures. • HQ diamond core is geologically logged and sampled to corresponding RC intervals when twinning an RC hole, otherwise sampling is to

geological contacts with nominal samples lengths between 0.25 and 1.5 m. Core is quarter cored by diamond blade rock saw, numbered and bagged before dispatch to the laboratory for analysis.

• Core is routinely photographed. Drilling techniques • Diamond and RC holes were drilled in a direction to intersect the mineralisation orthogonally.

• RC holes were drilled using a 140 mm face sampling hammer button bit. • The RC drilling is completed using a Schramm 450 drill rig with additional booster and auxiliary used as required to keep samples dry and

produce identifiable rock chips. • Diamond drilling (HQ) with standard inner tubes. HQ diameter (63.5mm) to target depth.

Drill sample recovery • Diamond core recoveries in fresh rock are measured in the core trays. Rock Quality Designation (RQD) is also recorded as part of the geological logging process.

• Core recoveries were good – typically >95%. • Sample quality and recovery of RC drilling was continuously monitored during drilling to ensure that samples were representative and

recoveries maximised. • RC Sample recovery was recorded using sample weights. • There is no discernible relationship between sample recovery and TGC grade. Diamond twinning of RC holes has demonstrated a minimal



Criteria Commentary downwards bias in RC TGC grade.

Logging • Detailed geological logging of all diamond holes captured various qualitative and quantitative parameters including mineralogy, colour, texture and sample quality.

• Detailed geological logging of all RC holes captured various qualitative and quantitative parameters including mineralogy, colour, texture and sample quality.

• RC holes were logged at 1 m intervals. • Logging data is collected via rugged laptops. The data is subsequently downloaded into a dedicated Datashed database for storage,

hosted by a database consultant. • All diamond core has been geologically and geotechnically logged to a level of detail to support Mineral Resource estimation.

Sub-sampling techniques and sample preparation

• RC samples are drilled dry and are routinely taken in 1 m intervals with a 1–2 kg sample retrieved from a regularly cleaned cone splitter. The remainder is recovered in a larger plastic bag. 1 m samples are then composited into a 2 m sample using a laboratory deck splitter.

• A small fraction of samples returned to the surface wet. These samples were dried prior to compositing. All samples were submitted for assay.

• Samples were stored on site prior to being transported to the laboratory. • Samples were sorted, dried and weighed at the laboratory where they were then crushed and riffle split to obtain a sub-fraction for

pulverisation. • Core is cut with a diamond saw into half core and then one half into quarter core. A quarter of the core is sent for assay, a quarter for

archive and a half for metallurgical testwork. Generally, one of each of the 2 control samples (blank or standard) is inserted into the sample stream every twentieth sample.

Quality of assay data and laboratory tests

• All RC and diamond samples were submitted to ALS for both the sample preparation and analytical assay. • Samples were sent to the ALS laboratory in Mwanza (Tanzania) for sample preparation. Samples are crushed to >70% passing -2 mm and

then pulverised to >85% passing -75 microns. • For all samples a split of the sample is analysed using a LECO analyser to determine graphitic carbon (ALS Minerals Codes C-IR18). • QC sample insertion rates are every 20th sample (1 standard, 1 blank, 1 site duplicate). Additionally 1 standard, 1 blank and 1 site

duplicate will be inserted for every 20 m of mineralisation intersected. A mineralised zone is a zone greater than 5 m with a visual estimate of more than 5% graphite. Internal dilution of non-mineralisation (up to 5 m) can be included in the mineralised thickness.

• Laboratory duplicates and standards were also used as quality control measures at different sub-sampling stages. • 76 samples were sent for umpire laboratory testing, with the results validating the accuracy of the primary laboratory assay results. • Examination of all the QA/QC data indicates that the laboratory performance has been satisfactory for both standards, with no failures

and acceptable levels of precision and accuracy. CSA Global believes that laboratory accuracy and precision has been sufficiently demonstrated to use the drill assay data with a reasonable level of confidence in a MRE.

Verification of sampling and • Senior IMX geological personnel supervise the sampling, and alternative personnel verified the sampling locations. External oversight is



Criteria Commentary assaying established with the contracting of an external consultant to regularly assess on site standards and practices to maintain best practice.

• Some RC holes have been twinned by diamond drilling core holes to assess the degree of intersection and grade compatibility between the dominant RC samples and the twinned core.

• Assay data is loaded directly into the Datashed database which is hosted by and managed by an external database consultancy. • Visual comparisons will be undertaken between the recorded database assays and hard copy records at a rate of 5% of all loaded data. • No adjustments have been made to assay data.

Location of data points • Drill hole collar locations have been surveyed using a handheld GPS with an accuracy of <5 m for easting, northing and elevation coordinates.

• Drill hole collars were re-surveyed using a Differential GPS with an accuracy of <5 cm at the end of the program. • Collar surveys are validated against planned coordinates and the topographic surface. • Downhole surveys are conducted during drilling using a Reflex single shot every 30 m. • The primary (only) grid used is UTM WGS84 Zone 37 South datum and projection. • The topographic surface used in resource modelling has been generated a Differential GPS with an accuracy of <5 cm over the resource

Data spacing and distribution

• The Shimba deposit has been sampled using RC and diamond core drilling over a number of drilling campaigns, with drilling completed on a nominal 200 m by 200 m grid.

• Infill drilling has been completed to a grid of roughly 100 m by 50 m over the high graphite grade zone. A total of 50 RC holes for 3,809.8 m and 22 diamond holes for 2,031.35 m have been drilled and assayed for graphite content at the Project.

• Six pairs of diamond core and RC twinned holes are included in the drilling totals. Orientation of data in relation to geological structure

• All holes have been orientated to intersect the graphitic mineralisation as close to perpendicular as possible. • From surface mapping of the area and VTEM modelling, the regional foliation dips at angles of between 50 and 60 degrees to the south

to south-south-west. The drilling was hence planned at a dip of -60/65 degrees oriented 315 to 360 degrees. Sample security • The samples are packed at the drill site and sealed prior to daily transport to the local field office which has 24 hour security prior to

transport by locked commercial truck carrier to ALS Mwanza. The laboratory (ALS) ships the sealed samples after preparation, to Brisbane in Australia.

Audits or reviews • An independent consultant from CSA Global, with expertise in graphite, completed a site visit prior to and upon commencement of drilling to ensure the sampling protocol met best practices to conform to industry standards.

Section 2 Reporting of Exploration Results

Criteria Commentary Mineral tenement and land tenure status

• The exploration results reported in this announcement are from work carried out on granted prospecting licences PL 6073/2009 which are owned by Warthog Resources Limited, a wholly owned subsidiary of IMX.



Criteria Commentary • The tenements are the subject of a joint venture agreement with MMG Exploration Holdings Limited which hold an interest in the

Nachingwea Property of approximately 15%. Exploration done by other parties

• Exploration has been performed by an incorporated subsidiary company of IMX, Ngwena Limited. • Stream sediment surveys carried out historically by BHP were not assayed for the commodity referred to in the announcement.

Geology • The regional geology is comprised of late Proterozoic Mozambique mobile belt lithologies consisting of mafic to felsic gneisses interlayered with amphibolites and metasedimentary rocks. The mineralisation consists of a series of intercalated graphitic horizons within felsic gneiss (aluminous rich sediments), amphibolites (mafic sourced material) and rarely high purity marble horizons.

Drill hole Information • All relevant drill hole information has been previously reported to the ASX. No material changes have occurred to this information since it was originally reported.

• All relevant data has been reported. Data aggregation methods • Not relevant when reporting Mineral Resources.

• No metal equivalent grades have been used. Relationship between mineralisation widths and intercept lengths

• Not relevant when reporting Mineral Resources.

Diagrams • Refer to figures within the main body of this report. Balanced reporting • Not relevant when reporting Mineral Resources. Other substantive exploration data

• A VTEM geophysical survey was initially completed over a large portion of the Nachingwea Property. It identified numerous anomalies which were likely to be associated with graphite mineralisation. Based on the VTEM data a number of the identified targets were drilled in 2014 and the Shimba high grade deposit was discovered.

• DHEM surveys were carried out on 18 of the reverse circulation (RC) drill holes completed in 2014 and nine diamond holes completed in 2015. The DHEM survey data were acquired by IMX’s in house survey crew and equipment. The aim of the DHEM survey campaign was to detect known and off-hole EM responses associated with graphite mineralisation.

• FLEM surveys were carried out during the 2015 field season to collect ground EM data over multiple linear conductive graphitic schist horizons identified in the existing versatile time-domain EM (VTEM) survey data. IMX’s in-house Zonge GGT-10 transmitter, a SmartEM 24 receiver and a Smart Fluxgate 3-component B-Field sensor and personnel were used for the FLEM surveying.

• All other meaningful exploration data concerning the Chilalo Project has been reported in previous reports to the ASX. • No other exploration data is considered material in the context of the Mineral Resource estimate which has been prepared. All relevant

data has been described in Section 1 and Section 3 of JORC Table 1. Further work • Extensional drilling to the east to test for strike extent based on surface geology mapping indications and on section to test depth extent.

• Figures are provided within the main body of this report.



Section 3 Estimation and Reporting of Mineral Resources

Criteria Commentary Database integrity • Data used in the Mineral Resource estimate is sourced from a database export. Relevant tables from the data base are exported to MS

Excel format and converted to csv format for import into Datamine Studio 3 software. • Validation of the data import include checks for overlapping intervals, missing survey data, missing assay data, missing lithological data,

and missing collars. Site visits • Representatives of the Competent Person (CP) have visited the project on several occasions, most recently in June 2015. The CP’s

representatives were able to review drilling and sampling procedures, as well as examine the mineralisation occurrence and associated geological features. All samples and geological data were deemed fit for use in the Mineral Resource estimate.

Geological interpretation • The geology and mineral distribution of the system appears to be reasonably consistent through the core high grade zone. Data density is currently not sufficient to define potential structural influences along strike from the high grade core zone and modelling will need to be refined as more data is collected. Any structural influences are not expected to be significant through the high grade zone of the deposit, where the drilling and geophysical data have shown good geological and grade continuity. The CP has taken a conservative approach to Mineral Resource classification along strike where continuity of geology and grade has a lower confidence level.

• Drill hole intercept logging, assay results, DHEM and FLEM modelling have formed the basis for the mineralisation domain interpretation. Assumptions have been made on the depth and strike extents of the mineralisation based on drilling and geophysical information.

• The extents of the modelled zones are constrained by the information obtained from the drill logging and geophysical data. Alternative interpretations are unlikely to have a significant influence on the global Mineral Resource estimate.

• An overburden layer with an average thickness of 4 m has been modelled based on drill logging and is depleted from the model. A geological model for the core high grade zone of Chilalo Project area has been generated by IMX. A mineralisation interpretation based on a nominal TGC% cut-off grade of 5% for the core higher grade lenses and a nominal 2% for the surrounding lower grade lenses has been generated by CSA Global and correlated with the geological model reasonably well.

• Continuity of geology and grade can be identified and traced between drill holes by visual, geophysical and geochemical characteristics. The effect of any potential structural or other influences have not yet been modelled as more data is required. Confidence in the grade and geological continuity is reflected in the Mineral Resource classification.

Dimensions • The core high grade mineralisation (>5% TGC) interpretation consists to two lenses. The main footwall lens strikes towards 070⁰, dipping roughly 50⁰ towards 160⁰, with a strike length of roughly 1.3 km. The average interpreted depth is approximately 140 m below surface and the true thickness is approximately 25 m for the eastern half and 10 m for the western half. The secondary high grade lens is interpreted to be 800 m long in the hangingwall of the western half of the main lens. It is interpreted to be between 25 m and 90 m in depth and between 2 m and 15 m in true thickness with a similar strike and dip. The low grade mineralisation (>2% TGC) lenses enclose the high grade lenses and are in the hangingwall above them and have similar strike and depth extents over the classified portions of the model. Some of the low grade lenses are interpreted to continue along strike to the west for approximately 800 m, but these portions of the model are not classified due to insufficient data and therefore lower confidence. These lenses are generally about 5 m to 15 m in



Criteria Commentary thickness.

Estimation and modelling techniques

• The mineralisation has been estimated using ordinary kriging (OK). • Two >5% TGC high grade lenses and five >2% low grade lenses were interpreted. • Samples were selected within each lens for data analysis. Statistical analysis was completed on each lens to determine if any outlier

grades required top-cutting. • Statistical analysis to check grade population distributions using histograms, probability plots and summary statistics and the co-efficient

of variation, was completed on each lens for the estimated element. The checks showed there were no significant outlier grades in the interpreted cut-off grade lenses. The few modestly outlying values were visually assessed and found to reflect true higher grade zones, having some continuity, but which were not large enough to separately model. These areas were checked during the model validation process to verify they did not unduly influence the grade estimation.

• An inverse distance to the power 2 (IDS) grade estimate was completed concurrently with the OK estimate in a number of estimation runs with varying parameters. Block model results are compared against each other and the drill hole results to ensure an estimate that best honours the drill sample data is reported.

• No mining has yet taken place at these deposits. • No mining assumptions have been made. • Sulphur has been estimated into the model but is not reported. • Interpreted domains are built into a sub-celled block model with a 10 m N by 50 m E by 10 m RL parent block size. Search ellipsoids for

each lens have been orientated based on their overall geometry. Sample numbers per block estimate and ellipsoid axial search ranges have been tailored to geometry and data density of each lens to ensure the majority of the model is estimated within the first search pass. The search ellipse is doubled for a second search pass and increased 20 fold for a third search pass to ensure all blocks are estimated. Sample numbers required per block estimate have been reduced with each search pass.

• Hard boundaries have been used in the grade estimate between each individual interpreted mineralisation lens. • Validation checks included statistical comparison between drill sample grades, the OK estimate and the IDS estimate results for each

zone. Visual validation of grade trends along the drill sections was completed and trend plots comparing drill sample grades and model grades for northings, eastings and elevation were completed. These checks show reasonable correlation between estimated block grades and drill sample grades.

• No reconciliation data is available as no mining has taken place. Moisture • Tonnages have been estimated on a dry, in situ basis, and samples were generally dry. No moisture values could be reviewed as these

have not been captured, with core samples being dried before density measurements. Cut-off parameters • Visual analysis of the drill assay results demonstrated the higher grade zones interpreted at the nominal lower cut-off grade of 5% TGC

corresponds to a natural grade change from lower to higher grade mineralisation. The lower cut-off interpretation of 2% TGC corresponds to natural break in the grade population distribution. IMX verbally confirmed that early indications from metallurgical testing show that the lower grade material is capable delivering good quality flake material. Since this material is also primarily located



Criteria Commentary in the hangingwall, and it would need to be mined in an open cut to access deeper portions of the higher grade zones, it has been classified as Inferred as it may be possible to economically beneficiate.

Mining factors or assumptions

• It has been assumed that these deposits will be amenable to open cut mining methods and are economic to exploit to the depths currently modelled using the cut-off grade applied.

• No assumptions regarding minimum mining widths and dilution have been made. Metallurgical factors or assumptions

• Thirty two quarter-core samples from four boreholes were selected for thin section examination by Townend Mineralogy, mainly to identify weathering zones and to assess graphite flake size and likely liberation characteristics.

• Minerals such as jarosite, opaline silica and goethite have replaced pyrite, marcasite and pyrrhotite to depths of 20 to 30 metres down-hole. This mineral assemblage is interpreted to define the Oxidised Zone.

• There is significant weathering / alteration in the high grade graphite domain, resulting particularly in the breakdown of sillimanite to kaolin which occurs to depths of approximately 50 metres down-hole. The occurrence of kaolinised sillimanite (plus Fe sulphides is interpreted to define the Transitional Zone.

• There appears to be two graphite populations in terms of flake width: i) thin flakes generally less than about 100 micron width and up to about 1mm in length, in lithologies with between about 2 and 5% TGC and ii) flakes up to 1mm thick and several mm in length in rocks with more than about 5% graphite.

• Metallurgical composites were prepared at SGS laboratory in Perth from diamond drill core, to form representative fresh and transitional ore samples.

• The metallurgical composites were crushed to minus 3.35 mm and demonstrate that highest TC grades are in the coarse size fractions greater than about 0.25 mm;

• Cleaner flotation test work on fresh and transitional composites using five stages of cleaning produced final graphite concentrates at target grade TGC>94% and up to 95% graphite recovery, maintaining a favourable coarse PSD (40 to 70% of the flakes are >150 micron).

• Test work on oxide composites using a standard flotation procedure has demonstrated high graphite recovery. • The preliminary test work program demonstrated that the mineralisation is amenable to the production of high grade graphite

concentrates, at coarse flake sizes, using relatively simple flotation processes. • Additional metallurgical testwork on each mineralisation and weathering domain is required to verify and refine the initial findings

Environmental factors or assumptions

• No assumptions regarding waste and process residue disposal options have been made. It is assumed that such disposal will not present a significant hurdle to exploitation of the deposit and that any disposal and potential environmental impacts would be correctly managed as required under the regulatory permitting conditions.

Bulk density • In situ dry bulk density values have been applied to the modelled mineralisation based on the average measured values for each of the weathering zones. Of the 1,145 measurements taken, 224 fall within the interpreted weathered zone, 442 in the transitional zone and 476 in the fresh zone.

• Density measurements have been taken on drill samples from all different lithological types, using water displacement methods. • Weathered material was wax coated prior to immersion, while the non-porous competent rock did not require coating.



Criteria Commentary • It is assumed that use of the average measured density for each of the different weathering zones is an appropriate method of

representing the expected bulk density for the deposit. Classification • Classification of the Mineral Resource estimates was carried out taking into account the level of geological understanding of the deposit,

quality of samples, density data and drill hole spacing. • The Mineral Resource estimate has been classified in accordance with the JORC Code, 2012 Edition using a qualitative approach. All

factors that have been considered have been adequately communicated in Section 1 and Section 3 of this Table. • Overall the mineralisation trends are reasonably consistent over numerous drill sections. • The Mineral Resource estimate appropriately reflects the view of the Competent Person.

Audits or reviews • Internal audits were completed by CSA Global which verified the technical inputs, methodology, parameters and results of the estimate. No external audits have been undertaken.

Discussion of relative accuracy/ confidence

• The relative accuracy of the Mineral Resource estimate is reflected in the reporting of the Mineral Resource as per the guidelines of the 2012 JORC Code.

• The Mineral Resource statement relates to global estimates of in situ tonnes and grade.

7. Independent Solicitor's Report

Member of Bowman Gilfillan Africa Group

Plot No. 18, Rukwa Street Masaki, Dar es Salaam

PO Box 38192, Dar es Salaam, Tanzania Telephone: +255 (0)222600854| +255 22 2600857

Fax: +255 (0)222600868 Email: [email protected]

www.ealawchambers.com Our Reference: EALC/GML/DD/1/16 Your Reference: E-mail Address: [email protected] Date: 31 March 2016

Graphex Mining Limited Suite 4 Level One 2 Richardson Street West Perth Western Australia 6005

Attn: Stuart McKenzie

RE: LEGAL DUE DILIGENCE REPORT ON THE LEGAL AFFAIRS OF NGWENA TANZANIA

LIMITED

1.0 GENERAL BACKGROUND

1.1 Introduction

We are a law firm duly qualified to practice in Tanzania Mainland and Tanzania Zanzibar

engaged to provide a legal due diligence report (the “Report”) to Graphex Mining Limited

(“Graphex”) on the legal affairs of Ngwena Tanzania Limited ("NGL"), in respect of the

legal risks associated with NGL's investment and operations in Tanzania and a summary of

relevant laws in Tanzania which affect the operation thereof, in connection with a

Prospectus document (the “Prospectus”).

1.2 Scope of the Report

This Report has been prepared for purposes of inclusion in the prospectus to be lodged by

Graphex. As such we provide this Report on matters relating to Tanzanian laws and

regulations only.

This Report has been prepared for purposes of inclusion in the prospectus to be lodged

by Graphex. As such we provide this Report on matters relating to Tanzanian laws and

regulations only.

2. SEARCH, SOURCE OF INFORMATION, DOCUMENTS AND THE LAWS EXAMINED.

2.1 Searches

We have searched the Registry of Companies in respect of NGL to establish its

corporate standing, including compliance with statutory requirements in accordance with

the Companies Act No. 12 of 2002 (the “Companies Act”). We have also relied on

search reports issued by the Commissioner for Minerals dated 29th January, 2016 and

9th February, 2016 following a search conducted in the Registry of Minerals Rights in Dar

es Salaam to establish the status of 6 Prospecting Licenses (“PLs”).

2.2 Source of Information and Documents Examined.

For the purposes of providing this Report, we have reviewed such documents and

conducted database research as we have considered necessary. The documents

examined are as follows:-

i) Copies of the official search results issued by the Commissioner for Minerals on

29th January, 2016 in respect of PLs numbers PL 6073/2009, PL 6158/2009, PL

9929/2014, PL 9946/2014, PL 8628/2012 and PL 5447/2008.

ii) Printouts in respect of several prospecting licences from the Mining Cadastre

Portal maintained by the Ministry of Energy and Minerals, Tanzania.

iii) We conducted an official search with the Registrar of Companies in respect of

NGL to which the PLs will be transferred and obtained official search dated 10th

March, 2016 for NGL.

3

2.3 Laws Examined

We have also reviewed the following pieces of legislation: -

i) The Companies Act;

ii) The Mining Act No. 14 of 2010 (the “Mining Act”);

iii) The Mining (Mineral Rights) Regulations , 2010 (the “Mining Regulations”);

iv) The Environmental Management Act No. 20 of 2004 (the “EMA”); and

v) The Tanzania Extractive Industry Industries (Transparency and Accountability)

Act No. 23 of 2015 (the “Tanzania Extractive Industry Transparency and

Accountability Act”)

2.4 Assumption

In preparing this Report we have made the following assumptions: -

i) The accuracy and correctness of the instructions which we have received with

respect to all matters of fact;

ii) All facts stated in the documents and certificates upon which we have relied in

providing this Report are correct; and

iii) The absence of any actual or pending litigation or agreements in respect of any

of the Licence Holders and the Mineral Rights or applications for such rights the

subject of this Report that may be prejudicial or have any material bearing or

otherwise upon this Report, its recipients or the purpose for which it was

prepared.

4

3. CORPORATE MATTERS

3.1 Incorporation

NGL was incorporated on 22nd February, 2016 and given incorporation number 124002.

3.2 The shareholders and Directors are:-

a) Shareholders:-

i) Graphex Mining UK Limited (990 shares)

ii) Graphex Mining Limited (10 shares)

b) Directors:-

i) Stuart McKenzie

ii) Christopher Knee

3.3 Registered office

#4 Pecanwood Apartments, Haile Sellasie Road, Masaki, Dar es Salaam, Tanzania

3.4 Share Capital

The share capital of NGL is Tanzania Shillings Ten Million (TZS. 10,000,000) divided

into then thousand (10,000) shares of Tanzania Shillings One Thousand (TZS. 1,000)

each.

3.5 Main Object

In terms of the provisions of Clause 3 of the NGL Memarts, NGL’s main object is to carry

on business as a general commercial company and this would include the business of

exploration, mining and related objects.

5

3.6 Register of Members

3.6.1 Section 115 of the Companies Act requires every company to keep a register of

members indicating, inter alia, the names and addresses of the members, and in the

case of a company having a share capital, a statement of the shares held by each

member, distinguishing each share by its number, and also the amount paid or agreed to

be considered as paid on the shares of each member.

3.6.2 The register should also indicate the date on which each person was entered in the

register as a member, and the date when each person ceased to be a member.

3.6.3 We confirmed based on our review that the Register of Members kept by NGL shows the

proper recording tallying with NGL Memarts.

3.7 Register of Directors

3.7.1 According to section 210(1) of the Companies Act every company is required to keep at

its registered office, a register of directors. The register of directors should contain the

first name and surname and where applicable, any former name(s) or surname, usual

residential address, nationality (and where such nationality is not the nationality of origin,

the nationality of origin), business occupation, if any, particulars of all other directorships

and the date of birth of each director. Section 210(3) also requires that the names and

usual address of the company secretary must also be provided in the company’s register

of directors. Where there has been a change in the directorship of a company, section

210(4) requires that the company delivers to the Registrar for registration a return in the

prescribed form containing the particulars specified in the said register and a notification

in the prescribed form of any change among the directors. Such notification must be

made within fourteen (14) days from the date of such change in accordance with section

210(5).

3.7.2 The current list of directors of the Company based on the search results is as follows:

6

a) Stuart McKenzie; and

b) Christopher Knee

3.8 Register of Charges

Section 108(1) of the Companies Act enjoins every company to keep a register of

charges and enter all charges specifically affecting property of the company, and all

floating charges on the undertaking of any property of the company. Such register of

charges must contain a short description of the property charged, the amount of the

charge, and the names of the persons entitled to the charge. Based on the review of the

NGL records NGL has not created any charge(s) over its assets.

3.9 Annual Returns

3.9.1 Section 128 of the Companies Act requires every company having a share capital to

deliver to the Registrar successive returns made in the prescribed form each of which

must be made up to the date not later than the anniversary of the company’s

incorporation or where the return has been made up to a different date, the anniversary

of that date. Such return must be signed by a director or secretary of the company and

must state the date to which it is made up and must contain the following information:-

a) The address of the company’s registered office;

b) The type of company (whether the company is public/private/open-ended investment

company);

c) The name and address of the company secretary;

d) The name and address of every director of the company. Where such director is an

individual, the returns must indicate in respect to each director, the name, nationality,

date of birth, business occupation and such particulars of other directorships as are

required to be contained in the company’s register of directors;

e) The address where the register of members is kept in the event that it is kept at a

place other than the registered office;

7

f) The address of the place where the register of charges is kept in the event that the

same is not kept at the company’s registered office;

g) The total number of the issued shares of the company at the date to which the return

is made up and the aggregate nominal value of those shares;

h) With respect to each class of shares in the company, the nature of the class and the

total number and aggregate nominal value of issued shares of that class at the date

to which the return is made up;

i) A list of names and addresses of every person who is a member of the company on

the date to which the return is made up, or the date when such person has ceased to

be a member of the company since the date to which the last return was made (or in

the case of the first return, since the incorporation of the company);

j) The number of shares of each class held by each member of the company at the

date to which the return is made up; and

k) The number of shares of each class transferred since the date to which the last

return was made up (or in the case of the first return, since incorporation of the

company) by each member or person who has ceased to be a member, and the

dates of registration of the transfers.

3.9.2 Annual Returns must be delivered to the Registrar within twenty eight (28) days from the

date of the company’s anniversary of incorporation or where the company’s last return

was made at a different date, the anniversary of that date. Where a company defaults to

file the returns in the manner prescribed above, such company, and every officer of the

company who is in default is liable to a fine, and in the case of continued failure to

deliver an annual return, to a default fine in terms of section 128(3).

3.9.3 Where a company fails to comply with the above, the company and every officer of the

company who is in default is liable to a fine in accordance with section 132(2), and for

purposes of the said section, the expression “officer” includes any person in accordance

8

with whose directions or instructions the directors of the company are accustomed to

act.

3.9.4 NGL is a newly incorporated entity and will only be required to file its annual return on

the first anniversary of its incorporation.

4. MINERAL RIGHTS TITLE AND STATUS

4.1 General

4.1.1 Rights for prospecting or mining for minerals are licensed under the Mining Act. The

responsible authority being, the Minister for Energy and Minerals (the “Minister”) and

the Commissioner for Minerals (the “Commissioner”) has power to grant, renew,

suspend or cancel any licence. However, the responsible authority is obliged to serve on

the licence holder a default notice specifying the grounds on which the licence is liable to

be suspended or cancelled indicating a specific period during which the default may be

cured. The powers of the Minister, or where the law specifies the Commissioner, are

exercisable in accordance with the powers conferred to them under the Mining Act. A

mineral right is deemed a requisite and sufficient authority over the land in respect of

which the right is granted.

However, a separate authority (water permit) is required for abstraction and use of

water. A holder of a mineral right is also obliged to seek the prior consent of lawful

occupiers before he can exercise his rights under the Mining Act. All licenses issued

under the Mining Act are referred to as mineral rights.

4.2 Types of Mineral Rights

The types of rights (“Mineral Rights”) which may be granted under the Mining Act

include a prospecting licence, retention licence, special mining licence for large scale

mining operations, (whose capital investment is not less than US$100,000,000 or its

equivalent in Tanzanian Shillings), mining licence for medium scale mining operations

(whose capital investments is between US$ 100,000 and US$100,000,000 or its

9

equivalent in Tanzanian Shillings), gemstone mining licence and a primary mining

licence. Primary mining licences are restricted to Tanzanian citizens or corporate entities

whose memberships are composed exclusively of Tanzanian citizens, for small scale

mining operations characterised by minimal machinery or technology of an initial capital

for investment which does not exceed US$ 5,000,000 or its equivalent in Tanzanian

Shillings.

4.3 Mining Licences, Special Mining Licences and Prospecting Licences

4.3.1 Mining licences or special mining licences may be applied for by a Prospecting Licence

holder who has established the existence of minerals in commercial quantities. Mining

licences are normally granted for a period not exceeding 10 years, and in the case of

special mining licences for the estimated life of the ore body, as indicated in the

feasibility study report or as the applicant may request, whichever is shorter. Mining

licences may be renewed for a further period not exceeding 10 years and in the case of

special mining licences for another period not exceeding the estimated life of the

remaining ore body, unless the applicant is in default, the development has not

proceeded with reasonable speed, minerals in reasonable quantities do not remain to be

produced, the intended mining operations do not ensure the proper development of the

mineral resources or the applicant has not included the relevant environmental certificate

under the EMA.

4.3.2 Under the Mining Act, the Government does not per se have a right to buy into or to be

given an interest in a mining licence. However, for projects governed by a special mining

licence section 10 of the Mining Act provides that the Government may enter into a

development agreement with the holder under which the Government may retain a free

carried interest in the project, as negotiated on a case by case basis.

4.3.3 Section 87 of the Mining Act provides for the payment of royalties for minerals extracted,

ranging from 1% to 5% depending on the type of mineral. The royalty payable for

graphite is 3%.

10

4.3.4 Note in terms of the Mining Act that prospecting licences fall into several groups

including metallic minerals, energy minerals, gemstone excluding kimberlitic diamond,

kimberlitic diamond, industrial minerals and building materials. Graphite falls in the

industrial minerals group. Once issued a prospecting licence would state the group and

the type of mineral that the licence applies to and under section 35 (1) of the Mining Act

the holder of a prospecting licence has a right to carry on prospecting operations in the

prospecting area for minerals to which the licence applies. Where in the course of

exploration activities, a licence holder discover a type of minerals to which the licence

does not apply he is required to notify the Commissioner for Minerals and request to

proceed with prospecting for the type of minerals discovered upon which an addendum

to the licence will be made allowing such prospecting to proceed.

4.4 PROSPECTING LICENCES (“PLS”)

4.4.1 The opinion we provide relating to Mineral Rights to be held by NGL following

completion of a sale and purchase agreement between IMX Resources Limited (and its

subsidiaries) and Graphex Mining Limited (and its subsidiaries) is based on the official

search report from the Registry of Mineral Rights maintained by the Commissioner as

well as information obtained from the Mining Cadastre Portal maintained by the Ministry

of Energy and Minerals.

4.4.2 The PLs are currently held by Warthog Resources Limited (“Warthog”), Ngwena Limited

(“Ngwena”) and Anga Resources Limited (“Anga”).

4.4.3 We understand that each of these entities is controlled by IMX Resources Limited, who

as at the date of this report also holds all of the issued capital of Graphex.

4.4.4 Warthog holds 3 PLs which include PL 6073/2009, PL 6158/2009 and PL 5447

(“Warthog PLs”); Anga owns 2 PLs which include PL 9929/2014 and PL 8628/2012

(“Anga PLs”); and Ngwena holds 1 PL which is PL number 9946/2014 (“Ngwena PL”)

per the table below:

11

S/N Licence

number

Registered

owner Status

Application

Date

Grant

Date

Expiry

Date

Area

(km2)

1. PL

6073/2009 Warthog Active

13-June-

2007

31-Dec-

09

30-Dec-

17 49.47

2. PL


13-June-

2007

31-Dec-

09

30-Dec-

17 48.00

3. PL


05- Dec-

2006

31-Dec-

08

31-Dec-

16 43.21

4. PL

9929/2014 Anga Active 14-May-14

08-Jul-

14

07-Jul-

18 48.36

5. PL

8628/2012 Anga Active 25-May-09

24-Dec-

12

23-Dec-

16 99.73

6. PL

9946/2014 Ngwena Active 06-May-13

08-Jul-

14 7-Jul-18 99.49

4.4.5 Under section 32(1) of the Mining Act, the initial period of prospecting licences is four (4)

years, followed by a first renewal period of three (3) years and a second renewal period

of two (2) years. The maximum life span of a prospecting licence is therefore nine (9)

years. Where the holder is not in default and at the end of the second renewal period,

further period is required to complete a feasibility study already commenced, the

prospecting licence may be renewed for such further periods but not exceeding two (2)

years required for that purpose.

4.4.6 Two Warthog PLs, PL 6073/2009 and PL 6158/2009, are pending for renewal; PL

5449/2008 is due for renewal in June this year and PL 8628/2012 is due for submission

in December this year. None of the other PLs are due for renewal during 2016.

4.4.7 Section 32 (4)(b)of the Mining Act stipulates that, in the case of a first renewal the holder

of a prospecting licence shall relinquish fifty (50) percent of the area held during the

initial prospecting period and a further fifty (50) percent of the balance in the second

12

renewal period. Note however that in terms of section 32 (4) (c) of the Mining Act as

amended by the Tanzania Extractive Industries Transparency and Accountability Act, a

holder of a prospecting licence whose licence has less than 40 square kilometres shall

relinquish part of the licence such that the remaining area is not less than 20 square

kilometres. The Mining Act does not preclude the holder of a prospecting licence to

apply for the part of the licence that he has relinquished. Note however that in terms of

section 32 (5) there is an obligation on the part of the Ministry of Energy and Minerals to

display the relinquished areas on the notice boards of the Ministry headquarters, Zonal

and Resident Mines Offices on a monthly basis.

4.4.8 Information pertaining to the Mineral Rights held by the Company showing the dates of

application and grant are stated in paragraph 4.7 below.

4.4.9 Pursuant to section 32(3) and (4)(a) of the Mining Act, unless the holder is in default and

the Minister has issued a default notice and given an opportunity to the licence holder to

cure the default, the Commissioner is obliged to renew a prospecting licence upon

application:

a) at the end of the initial prospecting period, or as the case may be, at the end of

the first renewal period; and

b) at the end of the second renewal period for the period required to complete a

feasibility study, if applicable.

4.4.10 The Licensing Authority must grant the application for renewal of a prospecting licence

not later than six (6) weeks from the date on which the application is made, unless the

holder has been issued a notice of default pursuant to Section 33(1) of the Mining Act.

4.5 Annual Rent:

4.5.1 The annual rent on a prospecting licence for its initial prospecting period is calculated by

multiplying the area of the licence in square kilometres allocated in the grant by US$100

as per clause 7(a) of the First Schedule of the Mining Regulations, 2010 as amended by

the Mining (Mineral Right) (Amendment) Regulations, 2012.

13

4.5.2 Currently the annual rent for the first renewal of a prospecting licence is US$150 and for

the second renewal is US$200 per square kilometre as per the Mining (Mineral Rights)

(Amendment) Regulations, 2012 read together with the Mining Regulations, 2010.

4.6 Minimum Expenditure:

4.6.1 Regulations 8(1) and (2) of the Mining Act provide for the amount to be expended

annually on prospecting licences. Regulation 8(2)(a),(b) and (c) provides that the

minimum expenditure required for a prospecting licence for the initial prospecting period

is US$500 per square kilometre per annum. The maximum size for a prospecting licence

during this period is three hundred (300) square kilometres. The minimum amount to be

expended on a prospecting licence for the first renewal period is US$2,000 per square

kilometre per annum and in the case of the second renewal period is US$6,000 per

square kilometre per annum.

4.6.2 The Ministry monitors the work commitment over a tenement by noting the expenditure

in the quarterly reports lodged at the Ministry. Each licence holder has an obligation to

lodge quarterly and annual reports. We confirm that the annual expenditure for the past

years has been met for each PL and no default notice has been issued.

4.7 Title Search Finding

4.7.1 The searches conducted at the Registry of Mineral Rights confirmed the status of the

Mineral Rights to be held by NGL as follows:-

a) PL 6073/2009 was granted to Warthog on 31st December, 2009 and will expire on 30th

December, 2017. The PL was granted for prospecting metallic minerals,

b) PL 6158/2009 was granted to Warthog on 31st December, 2009 and expired on 30th

December, 2015. The current status of this PL is that it is pending for renewal and we

14

have seen evidence that the renewal application fee has already been paid. PL

6158/2009 was granted for prospecting of copper.

c) PL 9929/2014 was granted to Anga on 7th August, 2014 and will expire on 7th July,

2018 and was granted for prospecting of nickel. Its status is active and annual rent has

been duly paid.

d) PL 9946/2014 was granted to Ngwena on 7th August, 2014 and will expire on 7th July,

2018 and was granted for prospecting of nickel. Its status is active and annual rent has

been duly paid.

e) PL 5447/2008 was granted to Warthog on 31st December, 20108 and will expire on 30th

December, 2016. The licence was granted for prospecting of nickel and its status is

active.

f) PL 8628/2012 was granted to Anga on 24th December, 2012 and will expire on 23rd

December, 2016. The licence was granted for prospecting for copper and its status is

active.

5. CONFIRMATION

5.1 We confirm that we have reviewed information pertaining to the 6 Prospecting Licences.

5.2 All 6 licences are validly held.

5.3 PLs are transferable by virtue of Section 9 of the Mining Act subject to execution of a

sale agreement and completion of Form No. MRF 13 as per Section 9(6) of the Mining

Act. Once the agreement is executed and Form MRF 13 duly filled, these are to be

submitted in original form to the office of the Commissioner for Minerals accompanied by

original copies of the Memorandum and Articles of Association of both the transferor and

the transferee as well as a resolution of the board of directors of the licence holder

sanctioning the transfer. Note that it is the obligation of the licence holder to lodge the

application for transfer. This is a straight forward administrative process.

15

5.4 Prospecting Licence holders enjoy exclusive rights to undertake mineral exploration and

if viable deposits are found to develop mines at the licensed areas. The 6 Prospecting

Licences have been validly granted pursuant to the Mining Act and are in good standing

and have not been cancelled, suspended or expired as of the date of this Report.

5.5 Non-submission of quarterly reports poses a threat of suspension or cancellation under

Section 63 of the Mining Act. However a licence cannot be cancelled without issuance of

a default notice and granting the holder of the licence subject of default an opportunity to

rectify the default. All quarterly reports have been submitted with respect to the six PLs.

5.6 By virtue of Section 32 read together with the definition Section 4(1) of the Mining Act,

the Commissioner for Minerals has the exclusive authority to grant exploration permits.

The holders of all Prospecting Licences have therefore an undisputable right of access

to the Licence, as they wish, and do not require any other administrative authorization or

prior application to carry on prospecting operations in the prospecting area for minerals

to which the licence applied by virtue of Section 35 of the Mining Act.

5.7 There are no disputes that we are aware of relating to the Mineral Rights with any

governmental or regional authority or any unrelated third party.

5.8 There are no provisions under Tanzanian law or regulation in relation to the Mineral

Rights which would permit the Prospecting Licences to be forfeited or otherwise with

drawn in the event of a change of ownership or control.

5.9 All 6 PLs are granted for prospecting for minerals under the metallic minerals group.

However prospecting for other minerals that may be available within prospecting licence

is possible as long as notification of the availability of such minerals is made to the

Ministry of Energy and Minerals upon which an addendum is made to the respective

licence to allow for prospecting of such other minerals. We understand that a request for

addendum on the PLs has already been lodged with the Commissioner for Minerals.

16

5.2 Environmental Factors

5.2.1 Mining activity is one of the listed items that require an Environmental Impact

Assessment (EIA) by virtue of Section 81(1) read together with the Third Schedule of the

EMA.

5.2.2 An EIA is required first before carrying out mining activity, which may be approved or

disapproved under Section 92(1). Warthog has obtained a Certificate of EIA in respect to

the area covered by the Warthog PLs.

5.2.3 Disapproval may lead to cancellation of a mining licence by the licensing authority

(which in our case is the Ministry responsible for Minerals) where the project or the

undertaking is likely to cause a significant adverse impact on the environment which

cannot be mitigated or remedied or where there is a failure to abide with the mitigation,

or compelling social, economic, religious, health or culture factors likely to lead to an

irreversible impact to the society.

5.3 The Security Charges

There are no registered security charges on the PLs.

6. LITIGATION

We are not aware of any material litigation, pending or actual, involving the Company.

The information available to us does not suggest the existence of any litigation or

dispute involving either of the Company or the Mineral Rights the subject of the six (6)

PLs.

7. CONCLUSION

This opinion is given based on examined documents and official searches issued by the

Commissioner for Minerals and official searches made to the Registrar of Companies.

This opinion is for the benefit of the addressee only and for the purposes requested for

only. The opinion is limited up to the date herein above appearing and no obligation or

17

undertaking is offered in respect of any changes of laws, regulation and rules which may

come to our knowledge after the date of this opinion.

Yours Faithfully

EAST AFRICAN LAW CHAMBERS

Per: Thomas Sipemba

8. Financial information

8.1 Introduction

This section sets out the Historical Financial Information and Pro Forma Historical Financial Information (collectively, the Financial Information). The basis of preparation and presentation is set out below.

The Financial Information was prepared by management and was adopted by the Directors. The Directors are responsible for inclusion of all Financial Information in this Prospectus. KPMG Financial Advisory Services (Australia) Pty Ltd has prepared an Investigating Accountant's Report in respect of the Pro Forma Historical Statement of Financial Position. A copy of the report, together with an explanation of the scope of the Investigating Accountant's work, is set out in Section 9.

The Financial Information has been prepared in accordance with measurement and recognition criteria of Australian Accounting Standards and the significant accounting policies set out in section 8.4(b) to the Financial Information. The Financial Information comprises consolidated financial information including the Company and the entities it controls.

As detailed in Section 2.1, the Company was incorporated in January 2016 and became the ultimate holding company of Ngwena Tanzania Limited in February 2016. The Statement of Financial Position assumes the Company had control of Ngwena Tanzania Limited at 31 December 2015. The Statement of Profit & Loss and other Comprehensive Income represents the nil results of Ngwena Tanzania Limited as the Company will not begin trading until after the completion of the transaction.

The Prospecting Licences to be acquired, including the Chilalo Graphite Project, form part of the IMX exploration and evaluation expenditure asset which has not been audited on a standalone basis. Approximately $5 million was spent on the acquired Prospecting Licences whilst controlled by IMX.

The Financial Information is presented in an abbreviated form insofar as it does not include all the disclosures and notes required in an annual financial report prepared in accordance with Australian Accounting Standards and the Corporations Act.

The Pro Forma Historical Statement of Financial Position is:

• the extraction of historical financial information on IMX’s Chilalo graphite project as at 31 December 2015 from the reviewed consolidated interim financial report of IMX for the six months ended 31 December 2015; and

• the application of pro forma adjustments, determined in accordance with Australian Accounting Standards and Graphex’s accounting policies, to illustrate the effects of the transaction on Graphex.

8.2 Historical Financial Information

The Historical Financial Information for the Company set out on in Section 8.4 of the Prospectus comprises the following:

(a) the Historical Consolidated Statement of Financial Position as at 31 December 2015; and

(b) selected notes to the reviewed Statement of Financial Position.

The Historical Financial Information does not include a Statement of Consolidated Statement of Profit and Loss and Other Comprehensive Income or a Statement of Cash Flows. As noted in Section 8.1, the Company was incorporated in January 2016 and the Company has not traded and therefore has not earned any revenue or incurred any expenses from operations.

8.3 Pro Forma Historical Financial Information

The Pro Forma Historical Financial Information as set out in Section 8.4 comprises the Consolidated Pro Forma Statement of Financial Position as at 31 December 2015 assuming completion of the Offers on both a Minimum and Maximum Subscription basis and includes the following pro forma adjustments as at that date as disclosed.

(a) The purchase of prospecting licences by Graphex from IMX for consideration of $1 million in cash and $4 million of share capital in accordance with the Acquisition Agreement.

(b) The additional purchase under the Acquisition Agreement of fixed assets with a fair value of $125,000 and the assignment of $105,000 in employee entitlement liabilities associated with the transfer of staff from IMX to Graphex. The net amount of $20,000 is to be settled in cash.

(c) The capital raising via the Offers represented as the Minimum and Maximum Subscription amounts being $4.25 million and $7 million respectively.

(d) Transaction fees as outlined in detail in Section 12.11 will be settled with the net proceeds of the Offers. Of the total transaction costs, $309,000 under the Minimum Subscription and $319,000 under the Maximum Subscription will be expensed as transaction costs as it is not directly attributable to the Offers. The balance of the costs that are directly attributable to the Offers will be recognised against Contributed Equity in the Consolidated Pro Forma Statement of Financial Position.

(e) The issue of unlisted options to Azure Capital of 2.5% of the total diluted share capital post the Offers. The options will be priced at a 25% premium to the issue price, with a three year expiry date from the date of issue. A further tranche of 5% of the total diluted share capital will be issued to the Joint Lead Managers on the same terms as the Corporate Advisor.

(f) The issue of 2.35 million unlisted options to Directors with an exercise price of $0.20 each, vesting immediately with a three year expiry. Key management personnel will be issued 0.65 million options on the same terms as Directors.

8.4 Financial Information

Consolidated Pro Forma Statement of Financial Position as at 31 December 2015

Notes 31 December

2015

$'000

Pro-forma Financial Information

31 December 2015

Minimum Subscription

$'000


$'000

Current Assets

Cash and cash equivalents 8.4(c) - 2,666 5,241 Total Current Assets - 2,666 5,241

Non-Current Assets Exploration and evaluation expenditure assets 8.4(d) - 5,000 5,000 Property, plant and equipment 8.4(e) - 125 125 Total Non-Current Assets - 5,125 5,125

Total Assets - 7,791 10,366

Current Liabilities Provisions 8.4(f) - 105 105 Total Current Liabilities - 105 105

Total Liabilities - 105 105

Net Assets - 7,686 10,261

Equity Contributed equity 8.4(g) - 7,995 10,580 Reserves 8.4(h) - 890 1,063 Retained Earnings - - - Loss for the year 8.4(i) - (1,199) (1,382) Total Equity - 7,686 10,261

Selected notes to the reviewed Statement of Financial Position

The following is a summary of the material accounting policies adopted by the Company in the preparation of the financial information. The accounting policies have been consistently applied unless otherwise stated. The financial information is in compliance with the recognition and measurement requirements of Australian Accounting Standards.

(a) Basis of Preparation

(i) Going concern

The financial information has been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. Graphex has not yet generated revenues from operations. As such, Graphex's ability to continue as a going concern will depend on the successful closure of the Offers.

(ii) Reporting basis and conventions

The financial information has been prepared on an accruals basis and is based on historical costs, except for certain financial instruments measured at fair value. The Consolidated Statement of Financial Position is prepared in accordance with Australian Accounting Standards.

(b) Accounting Policies

(i) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

(ii) Exploration and evaluation expenditure assets

Costs arising from the acquisition of exploration and evaluation activities are carried forward where these activities have not, at reporting date, reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective areas of interest. Ongoing exploration activities are expensed as incurred.

Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount, in particular when exploration for and evaluation of mineral resource in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the company has decided to discontinue such activities in the specific area.

(iii) Property, plant and equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset and costs directly attributable to bringing the asset to a working condition for their intended use.

(iv) Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost when the Group becomes obliged to make payments resulting from the purchase of goods and services. The amounts are non-interest-bearing, unsecured and are usually paid within 30 days of recognition.

(v) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.

(vi) Contributed equity

Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit recognised.

(vii) GST/VAT

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) or value added tax (VAT), unless the GST/VAT incurred is not recoverable from taxation authorities. In this case it is recognised as part of the cost of acquisition of the asset or as part of an item of the expense.

Receivables and payables are stated inclusive of the amount of GST/VAT receivable or payable. The net amount of GST/VAT recoverable from, or payable to, taxation authorities is included with other receivables or payables in the Consolidated Statement of Financial Position.

(viii) Critical accounting estimates and judgements

The Directors evaluate estimates and judgements incorporated into the financial information based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained internally and externally.

(ix) Share-based payments

The fair value of options granted is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the option holder become unconditionally entitled to the options.

The fair value of the options at grant date is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The fair value of the options granted is adjusted to reflect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each reporting date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the consolidated statement of comprehensive income with a corresponding adjustment to equity.

The fair value of these equity instruments does not necessarily relate to the actual value that may be received in future by the recipients.

(c) Cash and Cash Equivalents

Reference Minimum Subscription

$'000


$'000

Cash and cash equivalents as at 31 December 2015

- -

Proceeds from the issue of shares 8.3(c) 4,250 7,000

Net cash paid to IMX being the estimated difference between fixed assets acquired and employee liabilities assumed

8.3(b) (20) (20)

Transaction costs including equity raising costs

8.3(d) (564) (739)

Cash paid to IMX upon acquisition of tenements

8.3(a) (1,000) (1,000)

Total cash and cash equivalents 2,666 5,241

(d) Exploration and evaluation expenditure asset


$'000


$'000

Acquisition of Prospecting Licences from IMX for $4 million in Graphex shares and $1 million in cash

8.3(a) 5,000 5,000

Total exploration and evaluation expenditure assets

5,000 5,000

(e) Property, Plant and Equipment


$'000


$'000

Property plant and equipment purchased from IMX under the Acquisition Agreement set out in Section 11.2

8.3(b) 125 125

Total property, plant and equipment 125 125

(f) Provisions


$'000


$'000

Employee leave provisions acquired from IMX under the Acquisition Agreement set out in Section 11.2

8.3(b) 105 105

Total provisions 105 105

(g) Contributed Equity


$'000


$'000

Issue of shares to IMX pursuant to the Acquisition Agreement

8.3(a) 4,000 4,000

Share placement pursuant to this Prospectus 8.3(c) 4,250 7,000

Equity raising costs 8.3(d) (255) (420)

Total contributed equity 7,995 10,580

(h) Options Reserve


$'000


$'000

Options issued to Corporate Advisor and Lead Manager

8.3(e) 516 689

Options issued to Directors 8.3(f) 293 293

Options issued to key management personnel

8.3(f) 81 81

Total reserve 890 1,063

(i) Accumulated Losses


$'000


$'000

Accumulated losses as at 31 December 2015 - -

Transaction costs 8.3(d) 209 219

Corporate advisor recognised in the profit and loss

8.3(d) 100 100

Options issued to Directors 8.3(f) 293 293

Options issued to corporate advisor and lead manager

8.3(e) 516 689

Options issued to key management personnel

8.3(f) 81 81

Total accumulated losses 1,199 1,382

(j) Commitments


$'000


$'000

Less than 12 months 693 693

Between 12 months and 5 years 674 674

Greater than 5 years - -

Total commitments 1,367 1,367

Graphex has commitments in respect of the prospecting licence areas acquired. The commitments include both annual rental amounts and minimum expenditure commitments prescribed in license conditions and legislation. To keep prospecting licences in good standing, work programs should meet minimum expenditure requirements. If the requirements are not met, the Company has the option to negotiate new terms or relinquish the licences. Graphex has the ability meet expenditure requirements through the planned equity raising as outlined in this Prospectus.

(k) Contingent assets and liabilities

There were no contingent assets or liabilities as at 31 December 2015.

(l) Subsequent events

The Directors are not aware of any other significant changes in the state of affairs of the Company or events subsequent to 31 December 2015 that would have a material impact on the historical or pro-forma financial information.

9. Investigating Accountant's Report

KPMG Transaction Services ABN: 43 007 363 215 A division of KPMG Financial Advisory Services (Australia) Pty Ltd Australian Financial Services Licence No. 246901 235 St Georges Terrace Perth WA 6000 GPO Box A29 Perth WA 6837 Australia

Telephone: +61 8 9263 7171 Facsimile: +61 8 9263 7129 www.kpmg.com.au

ABCD

KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Investigating Accountant’s Report

Introduction KPMG Financial Advisory Services (Australia) Pty Ltd (of which KPMG Transaction Services is a division) (“KPMG Transaction Services”) has been engaged by Graphex Mining (“Graphex”) to prepare this report for inclusion in the prospectus to be dated 4 April 2016 (“prospectus”), and to be issued by Graphex, in respect of the proposed issue of up to 35 million Shares in Graphex at $0.20 per share (the “Transaction”).

Expressions defined in the prospectus have the same meaning in this report.

Scope

You have requested KPMG Transaction Services to perform a limited assurance engagement in relation to the consolidated pro forma historical financial information of Graphex being the consolidated pro forma historical Statement of Financial Position as at 31 December 2015 (the “Consolidated Pro Forma Historical Statement of Financial Postion”) decribed below and disclosed in the prospectus

The consolidated pro forma historical financial information is presented in the prospectus in an abbreviated form, insofar as it does not include all of the presentation and disclosures required by Australian Accounting Standards and other mandatory professional reporting requirements applicable to general purpose financial reports prepared in accordance with the Corporations Act 2001.

Consolidated Pro Forma Historical Statement of Financial Position You have requested KPMG Transaction Services to perform limited assurance procedures in relation to the Consolidated Pro Forma Historical Statement of Financial Postion of Graphex (the responsible party) included in section 8.4 the prospectus.

The Directors Graphex Mining Suite 4, Level 1 2 Richardson Street West Perth 6065

4 April 2016

Dear Directors

Limited Assurance Investigating Accountant’s Report and Financial Services Guide

2

Graphex Mining Limited Assurance Investigating Accountant’s Report and

Financial Services Guide 4 April 2016

The Consolidated Pro Forma Historical Statement of Financial Postion has been derived from the historical financial information of IMX’s Chilalo graphite project, after adjusting for the effects of pro forma adjustments described in section 8.3 of the prospectus. The stated basis of preparation is the recognition and measurement principles contained in Australian Accounting Standards applied to the historical financial information and the event(s) or transaction(s) to which the pro forma adjustments relate, as described in section 8.3 of the prospectus. Due to its nature, the Consolidated Pro Forma Historical Statement of Financial Postion does not represent the company’s actual or prospective financial position. The Consolidated Pro Forma Historical Statement of Financial Postion has been compiled by Graphex to illustrate the impact of the event(s) or transaction(s) described in section 8.3 on Graphex’s financial position as at 31 December 2015. As part of this process, historical financial information of IMX’s Chilalo graphite project at 31 December 2015 has been extracted from the reviewed financial statements of IMX for the six-months ended 31 December 2015.

The financial statements of IMX for the year ended 31 December 2015 were reviewed by KPMG in accordance with Australian Auditing Standards. The review opinions issued to the members of IMX relating to those financial statements were modified in respect of going concern.

For the purposes of preparing this report we have performed limited assurance procedures in relation to Consolidated Pro Forma Historical Statement of Financial Postion in order to state whether, on the basis of the procedures described, anything comes to our attention that would cause us to believe that the Consolidated Pro Forma Historical Statement of Financial Postion is not prepared, in all material respects, by the directors in accordance with the stated basis of preparation. As stated in section 8.1 of the prospectus, the stated basis of preparation is: • the extraction of the historical financial information of IMX’s Chilalo graphite project at

31 December 2015 (“Historical Financial Information”) from the reviewed financial statements of IMX for the six-months ended 31 December 2015;

• the application of pro forma adjustments, determined in accordance with Australian Accounting Standards and Graphex’s accounting policies, to the Historical Financial Information to illustrate the effects of the Transaction on Graphex described in section 8.3 of the proposed prospectus.

We have conducted our engagement in accordance with the Standard on Assurance Engagements ASAE 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective Financial Information.

The procedures we performed were based on our professional judgement and included:

Historical financial information

3



• consideration of work papers, accounting records and other documents, including those dealing with the extraction of the Historical Financial Information of IMX’s Chilalo graphite project from the reviewed financial statements of IMX for the year ended 31 December 2015.

Pro forma adjustments:

• consideration of the pro forma adjustments described in the prospectus;

• enquiry of directors, management, personnel and advisors;

• the performance of analytical procedures applied to the Consolidatated Pro Forma Historical Statement of Financial Postion; and

• a review of accounting policies for consistency of application. The procedures performed in a limited assurance engagement vary in nature from, and are less in extent than for, an audit. As a result, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had we performed an audit. Accordingly, we do not express an audit opinion about whether the Consolidated Pro Forma Historical Statement of Financial Postion is prepared, in all material respects, by the directors in accordance with the stated basis of preparation.

Directors’ responsibilities

The directors of Graphex are responsible for the preparation of:

• the Historical Financial Information;

• the Consolidated Pro Forma Historical Statement of Financial Postion, including the selection and determination of the pro forma transactions and/or adjustments made to the historical financial information and included in the Consolidated Pro Forma Historical Statement of Financial Postion.

The directors’ responsibility includes establishing and maintaining such internal controls as the directors determine are necessary to enable the preparation of financial information that is free from material misstatement, whether due to fraud or error.

Conclusions

Review statement on the Consolidated Pro Forma Historical Statement of Financial Postion Based on our procedures, which are not an audit, nothing has come to our attention that causes us to believe that the Consolidated Pro Forma Historical Statement of Financial Postion at 31 December 2015, as set out in section 8.4 of the Prospectus is not prepared or presented fairly, in all material respects, on the basis of the pro forma transactions and/or adjustments described in

4



section 8.3 of the Prospectus, and in accordance with the recognition and measurement principles prescribed in Australian Accounting Standards, and Graphex’s accounting policies.

Independence

KPMG Transaction Services does not have any interest in the outcome of the proposed transaction, other than in connection with the preparation of this report and participation in due diligence procedures for which normal professional fees will be received. KPMG is the auditor of IMX and from time to time, KPMG also provides IMX with certain other professional services for which normal professional fees are received.

General advice warning

This report has been prepared, and included in the prospectus, to provide investors with general information only and does not take into account the objectives, financial situation or needs of any specific investor. It is not intended to take the place of professional advice and investors should not make specific investment decisions in reliance on the information contained in this report. Before acting or relying on any information, an investor should consider whether it is appropriate for their circumstances having regard to their objectives, financial situation or needs.

Restriction on use

Without modifying our conclusions, we draw attention to section 8.1 of the prospectus, which describes the purpose of the financial information, being for inclusion in the prospectus. As a result, the financial information may not be suitable for use for another purpose. We disclaim any assumption of responsibility for any reliance on this report, or on the financial information to which it relates, for any purpose other than that for which it was prepared.

KPMG Transaction Services has consented to the inclusion of this Investigating Accountant’s Report in the prospectus in the form and context in which it is so included, but has not authorised the issue of the prospectus. Accordingly, KPMG Transaction Services makes no representation regarding, and takes no responsibility for, any other statements, or material in, or omissions from, the prospectus.

Yours faithfully

Matthew Kelly Authorised Representative

KPMG Transaction Services ABN: 43 007 363 215 A division of KPMG Financial Advisory Services (Australia) Pty Ltd Australian Financial Services Licence No. 246901 235 St Georges Terrace Perth WA 6000 GPO Box A29 Perth WA 6837 Australia

Telephone: +61 8 9263 7171 Facsimile: +61 8 9263 7129 www.kpmg.com.au

ABCD

KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Financial Services Guide Dated 4 April 2016

What is a Financial Services Guide (FSG)? This FSG is designed to help you to decide whether to use any of the general financial product advice provided by KPMG Financial Advisory Services (Australia) Pty Ltd ABN 43 007 363 215, Australian Financial Services Licence Number 246901 (of which KPMG Transaction Services is a division) (‘KPMG Transaction Services’), and Matthew Kelly as an authorised representative of KPMG Transaction Services, authorised representative number 000404260 (Authorised Representative). This FSG includes information about:

• KPMG Transaction Services and its Authorised Representative and how they can be contacted

• the services KPMG Transaction Services and its Authorised Representative are authorised to provide

• how KPMG Transaction Services and its Authorised Representative are paid

• any relevant associations or relationships of KPMG Transaction Services and its Authorised Representative

• how complaints are dealt with as well as information about internal and external dispute resolution systems and how you can access them; and

• the compensation arrangements that KPMG Transaction Services has in place.

The distribution of this FSG by the Authorised Representative has been authorised by KPMG Transaction Services. This FSG forms part of an Investigating Accountant’s Report (Report) which has been prepared for inclusion in a disclosure document or, if you are offered a financial product for issue or sale, a Product Disclosure Statement (PDS). The purpose of the disclosure document or PDS is to help you make an informed decision in relation to a financial product. The contents of the disclosure document or PDS, as relevant, will include details such as the risks, benefits and costs of acquiring the particular financial product.

2

Graphex Mining Limited Assurance Investigating

Accountant’s Report and Financial Services Guide

4 April 2016

Financial services that KPMG Transaction Services and the Authorised Representative are authorised to provide

KPMG Transaction Services holds an Australian Financial Services Licence, which authorises it to provide, amongst other services, financial product advice for the following classes of financial products:

• deposit and non-cash payment products;

• derivatives;

• foreign exchange contracts;

• government debentures, stocks or bonds;

• interests in managed investments schemes including investor directed portfolio services;

• securities;

• superannuation;

• carbon units;

• Australian carbon credit units; and

• eligible international emissions units,

to retail and wholesale clients. We provide financial product advice when engaged to prepare a report in relation to a transaction relating to one of these types of financial products. The Authorised Representative is authorised by KPMG Transaction Services to provide financial product advice on KPMG Transaction Services' behalf.

KPMG Transaction Services and the Authorised Representative's responsibility to you

KPMG Transaction Services has been engaged by Graphex (Client) to provide general financial product advice in the form of a Report to be included in the prospectus (Document) prepared by Graphex in relation to the proposed demerger of IMX Resources Ltd’s (“IMX”) Chilalo graphite project into a Graphex by way of an in-specie distribution of shares to existing IMX shareholders and a capital raising as part of the Graphex Initial Public Offering process (Transaction).

You have not engaged KPMG Transaction Services or the Authorised Representative directly but have received a copy of the Report because you have been provided with a copy of the Document. Neither KPMG Transaction

Services nor the Authorised Representative are acting for any person other than the Client.

KPMG Transaction Services and the Authorised Representative are responsible and accountable to you for ensuring that there is a reasonable basis for the conclusions in the Report.

General Advice

As KPMG Transaction Services has been engaged by the Client, the Report only contains general advice as it has been prepared without taking into account your personal objectives, financial situation or needs.

You should consider the appropriateness of the general advice in the Report having regard to your circumstances before you act on the general advice contained in the Report.

You should also consider the other parts of the Document before making any decision in relation to the Transaction.

Fees KPMG Transaction Services may receive and remuneration or other benefits received by our representatives

KPMG Transaction Services charges fees for preparing reports. These fees will usually be agreed with, and paid by, the Client. Fees are agreed on either a fixed fee or a time cost basis. In this instance, the Client has agreed to pay KPMG Transaction Services $20,000 for preparing the Report. KPMG Transaction Services and its officers, representatives, related entities and associates will not receive any other fee or benefit in connection with the provision of the Report.

KPMG Transaction Services officers and representatives (including the Authorised Representative) receive a salary or a partnership distribution from KPMG’s Australian professional advisory and accounting practice (the KPMG Partnership). KPMG Transaction Services’ representatives (including the Authorised Representative) are eligible for bonuses based on overall productivity. Bonuses and other remuneration and benefits are not provided directly in connection with any engagement for the provision of general financial product advice in the Report.

Further details may be provided on request.

3

Graphex Mining Limited Assurance Investigating Accountant’s Report and Financial

Services Guide 4 April 2016

Referrals

Neither KPMG Transaction Services nor the Authorised Representative pay commissions or provide any other benefits to any person for referring customers to them in connection with a Report.

Associations and relationships

Through a variety of corporate and trust structures KPMG Transaction Services is controlled by and operates as part of the KPMG Partnership. KPMG Transaction Services’ directors and Authorised Representatives may be partners in the KPMG Partnership. The Authorised Representative is a partner in the KPMG Partnership. The financial product advice in the Report is provided by KPMG Transaction Services and the Authorised Representative and not by the KPMG Partnership.

From time to time KPMG Transaction Services, the KPMG Partnership and related entities (KPMG entities) may provide professional services, including audit, tax and financial advisory services, to companies and issuers of financial products in the ordinary course of their businesses.

KPMG entities have not provided any other services to the client over the past two years.

No individual involved in the preparation of this Report holds a substantial interest in, or is a substantial creditor of, the Client or has other material financial interests in the transaction.

Complaints resolution

Internal complaints resolution process

If you have a complaint, please let either KPMG Transaction Services or the Authorised Representative know. Formal complaints should be sent in writing to The Complaints Officer, KPMG, PO Box H67, Australia Square, Sydney NSW 1213. If you have difficulty in putting your complaint in writing, please telephone the Complaints Officer on 02 9335 7000 and they will assist you in documenting your complaint.

Written complaints are recorded, acknowledged within 5 days and investigated. As soon as practical, and not more than 45 days after receiving the written complaint, the response to your complaint will be advised in writing.

External complaints resolution process

If KPMG Transaction Services or the Authorised Representative cannot resolve your complaint to your satisfaction within 45 days, you can refer the matter to the Financial Ombudsman Service (FOS). FOS is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry.

Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly at:

Address: Financial Ombudsman Service Limited, GPO Box 3, Melbourne Victoria 3001

Telephone: 1800 367 287 Facsimile: (03) 9613 6399 Email: [email protected].

The Australian Securities and Investments Commission also has a freecall infoline on 1300 300 630 which you may use to obtain information about your rights.

Compensation arrangements

KPMG Transaction Services has professional indemnity insurance cover as required by the Corporations Act 2001(Cth).

Contact Details

You may contact KPMG Transaction Services or the Authorised Representative using the contact details:

KPMG Transaction Services A division of KPMG Financial Advisory Services (Australia) Pty Ltd 10 Shelley St Sydney NSW 2000 PO Box H67 Australia Square NSW 1213 Telephone: (02) 9335 7000 Facsimile: (02) 9335 7200

Matthew Kelly C/O KPMG PO Box H67 Australia Square NSW 1213 Telephone: (02) 9335 7000

Facsimile: (02) 9335 7200

http://www.fos.org.au/

mailto:[email protected]

10. Directors, Key Management and Corporate Governance

10.1 Board of Directors

As at the date of this Prospectus, the Board comprises of:

(a) Philip Hoskins – Director;

(b) Stephen Dennis – Director and Chairman; and

(c) Grant Davey – Director.

Should the Offers not complete, Mr Dennis and Mr Davey will retire as Graphex directors and the Company will remain a subsidiary of IMX.

10.2 Director profiles

Details of the Directors comprising the Board are set out below.

(a) Phil Hoskins – Director and Proposed Managing Director

BCom, CA, GDipAppFin

Mr Hoskins commenced his career at a large international accounting firm and has since gained corporate experience with both Australian and international listed companies. He is a senior executive with 14 years of broad finance and commercial experience across resources exploration, project development and production as well as large-scale property developments requiring debt and equity financing. He was appointed as the IMX’s Managing Director in October 2015 after being Chief Executive Officer since September 2014, before which he spent almost three years as IMX’s Chief Financial Officer. Mr Hoskins will step down as IMX's Managing Director prior to the Company's admission to the official list of ASX, and will commence in the role of Managing Director of the Company upon admission.

As previously disclosed by IMX on 21 September 2015, Mr Hoskins has received notice of a potential claim against him in his capacity as a former director and officer of Termite Resources NL (In liquidation) (Termite). Termite was a wholly owned subsidiary of Outback Iron Pty Ltd, an incorporated joint venture entity, itself a half owned subsidiary of IMX. Termite undertook the management and operation of the Cairn Hill iron ore mine in South Australia. As a result of the unexpected and significant downturn in iron ore prices in the second quarter of 2014, IMX announced on 19 June 2014 that the directors of Termite had appointed voluntary administrators. Subsequently, on 15 September 2014, Termite's creditors voted to place it into liquidation.

Should a claim proceed, Mr Hoskins is expected to continue to be insured for legal costs and to be insured for any claims against him that may ultimately be successful. Mr Hoskins will vigorously defend a claim should one be made.

(b) Stephen Dennis – Non-Executive Director and Chairman

BCom, LLB, GDipAppFin (Finsia)

Stephen Dennis has been actively involved in the mining industry for over 30 years. He has held senior management positions at MIM Holdings Limited, Minara Resources Limited and Brambles Australia Limited. Until recently, Mr Dennis was the chief executive officer and managing director of CBH Resources Limited, the Australian subsidiary of Toho Zinc Co., Ltd of Japan. Mr Dennis is also currently the Chairman (Non-Executive) of Heron Resources Limited, Rox Resources Limited and Cott Oil & Gas Limited.

(c) Grant Davey – Non-Executive Director

BSc

Grant Davey holds a BSc Mining Engineering degree and has over 20 years of senior management and operational experience in the construction and operation of gold, platinum and coal mines in Africa, Australia, South America and Russia. More recently he has been involved in venture capital investments in several Canadian and Australian listed exploration and mining projects. Grant has recently been instrumental in acquiring the Honeymoon Uranium project in South Australia. He was the managing director of Cradle Resources Limited and founder and managing director of the Panda Hill niobium project in Tanzania which is expected to go into construction during 2016. Grant is currently an executive director of ASX listed Boss Resources Limited.

10.3 Company Secretary

Stuart McKenzie - Company Secretary.

LLB, BEc.(Hons), AGIA

Stuart has over 25 years of experience in senior commercial roles. He was previously Company Secretary with Anvil Mining Limited for almost six years, prior to which he held senior positions with Ok Tedi Mining Limited, Ernst and Young and HSBC. Mr McKenzie is also the Company Secretary of IMX.

10.4 Key personnel

(a) Nicholas Corlis – General Manager Technical

BSc (Hons), MSc, MAIG

Nick is a geologist with over 20 years of domestic and international experience in the resources industry across a broad range of commodities including, gold, iron ore, base metals, graphite and coal. He has significant experience in mineral exploration and project management; from project generation / M&A, discovery and resource definition, through to feasibility and development. His previous role was General Manager Business Development for Flinders Mines where he oversaw the discovery and delineation of a significant iron ore project. Prior to that, he held senior management roles with Perilya Limited, Golder Associates and WMC Limited. Mr Corlis holds a Bachelor of Science and a Masters of Science. Mr Corlis is currently an executive director of and exploration manager for IMX.

(b) Christopher Knee – Chief Financial Officer

BCom, CA

Chris has over 10 years' experience working as a Chartered Accountant in senior finance roles. He commenced his career with a large multi-national accounting firm working both in Australia and the United States, in consulting, audit, corporate finance and technical roles. His most recent role was as the Chief Financial Officer of Manas Resources Limited. He holds a Bachelor of Commerce. Mr Knee is currently the Chief Financial Officer of IMX.

10.5 Interests of Directors

No Director of the Company (or entity in which they are a partner or director) has, or has had in the two years before the date of this Prospectus, any interests in:

(a) the formation or promotion of the Company;

(b) property acquired or proposed to be acquired by the Company in connection with its formation or promotion of the Offers; or

(c) the Offers,

and no amounts have been paid or agreed to be paid and no value or other benefit has been given or agreed to be given to:

(d) any Director to induce him or her to become, or to qualify as, a Director; or

(e) any Director of the Company for services which he or she (or an entity in which they are a partner or director) has provided in connection with the formation or promotion of the Company or the Offers,

except as disclosed in this Prospectus and as follows.

10.6 Security holdings of Directors

The Directors and their related entities have the following interests in Shares and Options as at the date of this Prospectus:

Director Shares held Options held

Philip Hoskins Nil Nil

Stephen Dennis Nil Nil

Grant Davey Nil Nil

Based on the intentions of the Directors at the date of this Prospectus in relation to the Offers, the Directors and their related entities will have the following interests in Shares and Options on Admission:

Director Shares Options

Philip Hoskins 368,221 1,585,0001

Stephen Dennis 250,000 1,000,0001

Grant Davey 250,000 1,000,0001

Notes:

1. See Section 1.6 for details of Options, including vesting conditions.

10.7 Remuneration of Directors

The Directors have received the following remuneration since incorporation of the Company:

Director1 Remuneration

Philip Hoskins2,3 Nil

Stephen Dennis4 Nil

Grant Davey5 Nil

Notes:

1. See Section 12.6 for details of the Director Share Plan, the effect of which is to permit the issue of Shares to directors in lieu of fees.

2. Mr Hoskins was appointed as a Director on 21 January 2016. He has not received any remuneration in his capacity as a Director.

3. On 1 April 2016, Mr Hoskins entered into an executive services agreement with the Company, pursuant to which he will receive remuneration of $260,000 per year plus superannuation. The agreement commences upon Listing. See Section 11.6(a).

4. On 16 March 2016, Mr Dennis entered into a director services agreement with the Company, pursuant to which he will receive remuneration of $60,000 plus superannuation per year for services provided as non-executive chairman of the Company. Payment commences upon Listing. See Section 11.7.

5. On 22 March 2016, Mr Davey entered into a director services agreement with the Company, pursuant to which he will receive remuneration of $40,000 plus superannuation per year for services provided as a non-executive director. Payment commences upon Listing. See Section 11.7.

10.8 Related party transactions

The Company has entered into the following related party transactions on arms' length terms:

(a) letters of appointment with each of its Directors on standard terms (refer Section 11.7 for details);

(b) deeds of indemnity, insurance and access with each of its Directors on standard terms (refer Section 11.8 for details); and

(c) the Acquisition Agreement (refer Section 11.2 for details).

At the date of this Prospectus, no other material transactions with related parties and Directors' interests exist that the Directors are aware of, other than those disclosed in the Prospectus.

10.9 Corporate Governance

The Board is committed to conducting the Company's business in accordance with the highest standards of corporate governance to create and deliver value for its shareholders. The Board has established a corporate governance framework, as described in this Section 10.9, including corporate governance policies, procedures and charters, to support this commitment. The framework will be reviewed regularly

and revised in response to changes in law, developments in corporate governance and changes to the Company's business.

In establishing its corporate governance framework, the Board has referred to the 3rd edition of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations (Recommendations). To the extent applicable, commensurate with the Company's size and nature, the Company has adopted the Recommendations.

The Company's main corporate governance policies and practices as at the date of this Prospectus are outlined below and further details on the Company's corporate governance procedures, policies and practices can be obtained from the Company website at www.graphexmining.com.au.

(a) Board of Directors

The Board is responsible to shareholders for the long-term performance of the Company and for overseeing the implementation of appropriate corporate governance with respect to Graphex's affairs.

The Board has adopted a formal Board Charter that details the Board's role, authority, responsibilities, membership and operations, and is available on our website at:

http://www.graphexmining.com.au/corporate-profile/corporate-governance

The Charter sets out the matters specifically reserved for the Board and the powers delegated to any of its Committees and to the Managing Director.

The Board delegates responsibility for the day-to-day management of Graphex to the Managing Director, but retains responsibility for the overall strategy, governance and performance of the Company. The Managing Director then delegates authority to the appropriate senior executives for specific activities and transactions. This authority is governed by a formal 'delegations of authority' policy.

In general, the Board assumes (among others) the following responsibilities:

(i) setting the direction, strategies and financial objectives of Graphex and ensuring appropriate resources are available;

(ii) overseeing management's implementation of the Company's strategic objectives and its performance generally;

(iii) monitoring compliance with control and accountability systems, regulatory requirements and ethical standards;

(iv) ensuring the preparation of accurate financial reports and statements;

(v) reporting to shareholders and the investment community on the performance and state of the Company;

(vi) maintaining written agreements with each Director which detail the terms of their appointment;

(vii) approving operating budgets and major capital expenditure;

http://www.imxresources.com.au/corporate-profile/corporate-governance

(viii) overseeing the integrity of the Company's accounting and corporate reporting systems including the external audit;

(ix) overseeing the Company's process for making timely and balanced disclosure of all material information concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company's securities;

(x) ensuring that the Company has in place an appropriate risk management framework and setting the risk appetite within which the Board expects management to operate; and

(xi) monitoring the effectiveness of the Company's governance practices.

(b) Composition of the Board

Election of Board members is substantially the province of the Shareholders in general meeting. Upon Listing, the Board will be comprised of one Executive and two Non-Executive Directors. From the commencement of Listing, the Board shall at all times have at least three members, a majority of whom shall be independent Directors. As the Company's activities develop in size, nature and scope, the composition of the Board and the implementation of additional corporate governance policies and structures will be reviewed.

(c) Identification and management of risk

The Board's collective experience will assist in the identification of the principal risks that may affect the Company's business. Key operational risks and their management will be recurring items for deliberation at Board meetings.

(d) Ethical standards

The Board is committed to the establishment and maintenance of appropriate ethical standards.

(e) Independent professional advice

Subject to the Chairman's approval (not to be unreasonably withheld), the Directors, at the Company's expense, may obtain independent professional advice on issues arising in the course of their duties.

(f) Remuneration arrangements

The remuneration of any executive director will be decided by the Board, without the affected executive director participating in that decision-making process.

In addition, subject to any necessary Shareholder approval, a Director may be paid fees or other amounts as the Directors determine where a Director performs special duties or otherwise performs services outside the scope of the ordinary duties of a Director (e.g. non-cash performance incentives such as options).

Subject to any necessary shareholder approval and the Corporations Act, the Board may offer Directors Shares in lieu of Directors' fees upon such terms and conditions as the Board determines.

Directors are also entitled to be paid reasonable travel and other expenses incurred by them in the course of the performance of their duties as Directors.

The Board reviews and approves the Company's remuneration policy in order to ensure that the Company is able to attract and retain executives and Directors who will create value for Shareholders, having regard to the amount considered to be commensurate for an entity of the Company's size and level of activity as well as the relevant Directors' time, commitment and responsibility.

The Board is also responsible for reviewing any employee incentive and equity-based plans including the appropriateness of performance hurdles and total payments proposed.

(g) Securities trading policy

The Board has adopted a policy that sets out the guidelines on the sale and purchase of securities in the Company by its directors, employees, contractors and consultants. The policy generally provides that the written acknowledgement of the Chairman (or the Board in the case of the Chairman) must be obtained prior to trading.

(h) Audit and risk

The Company will not have a separate audit or risk committee until such time as the Board is of a sufficient size and structure, and the Company's operations are of a sufficient magnitude for a separate committee to be of benefit to the Company. In the meantime, the full Board will carry out the duties that would ordinarily be assigned to that committee under the written terms of reference for that committee, including but not limited to, monitoring and reviewing any matters of significance affecting financial reporting and compliance, the integrity of the financial reporting of the Company, the Company's internal financial control system and risk management systems and the external audit function.

(i) External audit

The Company in general meetings is responsible for the appointment of the external auditors of the Company, and the Board from time to time will review the scope, performance and fees of those external auditors.

10.10 Departures from Recommendations

Following Admission to the Official List, the Company will be required to report any departures from the Recommendations in its annual financial report.

The Company's departures from the Recommendations as at the date of this Prospectus are detailed in the table below.

Principles and Recommendations

Explanation for departure

Principles and Recommendations

Explanation for departure

1.5 Diversity Policy While the Company is committed to workforce diversity, the Board believes that with its scale of activities and relatively small number of employees, it is not appropriate in the Company's current circumstances that the Board set and disclose measurable objectives for achieving gender diversity; and annually assesses objectives and the entity's progress in achieving them.

2.1 Nomination Committee

The Company will not have a separate nomination committee until such time as the Board is of a sufficient size and structure, and the Company's operations are of a sufficient magnitude for a separate committee to be of benefit to the Company. In the meantime, the full Board will carry out the duties that would ordinarily be assigned to that committee under the written terms of reference for that committee.

4.1 Audit Committee and 7.1 Risk Committee

The Company will not have a separate audit or risk committee until such time as the Board is of a sufficient size and structure, and the Company's operations are of a sufficient magnitude for a separate committee to be of benefit to the Company. In the meantime, the full Board will carry out the duties that would ordinarily be assigned to that committee under the written terms of reference for that committee.

8.1 Remuneration Committee

The Company will not have a separate remuneration committee until such time as the Board is of a sufficient size and structure, and the Company's operations are of a sufficient magnitude for a separate committee to be of benefit to the Company. In the meantime, the full Board will carry out the duties that would ordinarily be assigned to that committee under the written terms of reference for that committee.

11. Material Contracts

11.1 Introduction

The Directors consider that certain contracts entered into by the Company are material to the Company or are of such a nature that an investor may wish to have particulars of them when making an assessment of whether to apply for Shares under the Offers. The provisions of such material contracts are summarised in this Section.

11.2 Acquisition Agreement

The Company and IMX (and their various subsidiaries) have entered into an agreement for the sale and purchase of five Prospecting Licences (Acquisition Agreement). The effect of the Acquisition Agreement is that Graphex acquires the Chilalo Graphite Project tenements and various minor assets and employees (Assets) for 20,000,000 fully paid ordinary shares in Graphex at a deemed issue price of $0.20 per Graphex share and $1,000,000 cash. Contemporaneously with completion, IMX will transfer to MMG (IMX's joint venture partner on the Chilalo Graphite Project) approximately 3,546,000 fully paid ordinary shares in Graphex, leaving IMX with approximately 16,454,000 Graphex Shares.

(a) Conditions precedent

The conditions precedent for completion of the Acquisition Agreement include (Conditions):

(i) IMX obtaining all necessary regulatory and shareholder approvals or waivers or modifications pursuant to the Listing Rules and Corporations Act to undertake the demerger;

(ii) obtaining all necessary governmental consents and approvals, including the consent of the Minister under the Mining Act (if required) to transfer the Assets and the approval of the transfer of the Assets by the Tanzanian Fair Competition Commission (if required);

(iii) IMX and Graphex entering into the Co-operation Deed pursuant to which IMX and Graphex agree, among other things, to the sharing of services and assets on terms satisfactory to IMX and Graphex acting reasonably;

(iv) Ngwena Tanzania becoming registered for VAT in Tanzania; and

(v) satisfaction of the In-specie Conditions, being:

(A) IMX obtaining shareholder approval under the Corporations Act for the proposed In-specie Distribution;

(B) receipt of a draft class ruling by IMX from the Australian Taxation Office confirming the availability of Demerger Relief;

(C) Graphex meeting Minimum Subscription; and

(D) Graphex obtaining a conditional admission letter from ASX on terms satisfactory to the Directors, acting reasonably.

The parties have until 15 July 2016 to satisfy the Conditions. Should the In-specie Conditions not be satisfied by 15 July 2016, then providing the remaining Conditions have been satisfied, IMX will still proceed with an internal restructure which will see Chilalo Graphite Project transferred to Graphex. For the avoidance of doubt, if the In-specie Conditions are not satisfied the Listing will not proceed.

(b) Other material terms

(i) (Representations and warranties) The parties provide representations and warranties that are considered standard for agreements of this nature, with the maximum amount of any claim recoverable by Graphex limited to $5,000,000.

(ii) (New discoveries) For a period of three years following completion, IMX and Graphex have agreed to reciprocal rights with respect to notification of discoveries of each other's preferred minerals on the other's Tanzanian tenements (e.g. Graphex must notify IMX of a potentially commercial discovery of base and precious metals on Graphex's Tanzanian tenements and IMX must notify Graphex of a potentially commercial discovery of graphite on IMX's Tanzanian tenements). Following notification the parties are then obliged to enter into good faith negotiations in an attempt to reach agreement for the sale or joint development of a potential new project, with the party whose preferred mineral exists on the other's tenement having the right to lead the development of the potential new project.

If no agreement is reached following three months of negotiations, then the party with the new discovery is free to develop that project, but only after a three year period from the date of settlement of the Acquisition Agreement has lapsed.

In addition, both IMX and Graphex agree that for a period of three years from the date of settlement of the Acquisition Agreement, they will not acquire any interests in any tenements or develop a project in Tanzania prospective for the other party's preferred mineral.

11.3 Joint Lead Manager Mandate

The Company entered into a mandate agreement appointing Palladion Partners Pty Ltd and RM Corporate Finance Pty Ltd as 'Joint Lead Managers' to the Offers on 4 April 2016. The Joint Lead Managers are not underwriting the Offers.

Under the mandate, the Joint Lead Managers will provide services and assistance customarily provided in connection with marketing and execution of an initial public offer. The term of the mandate is 12 months from the date of Listing, and it can be terminated upon provision of 14 days' notice.

Pursuant to the mandate the Company has agreed to pay the Joint Lead Managers as follows:

(a) (corporate advisory fee) a monthly corporate advisory fee of $3,750 (plus GST) payable in Shares, shall be payable to each of the Joint Lead Managers (or their nominees) (i.e. total $7,500 plus GST), on the first day of each calendar month commencing on the date of the Company’s listing on ASX, at

an issue price equal to the VWAP of the last five days of trading of each calendar month;

(b) (IPO management fee) a fee in the amount of 2% (plus GST) payable to the Joint Lead Managers (or their nominees) in respect to the total amount raised under the General Offer, excluding the amount raised via the IMX Offer;

(c) (IPO placement fee) a fee in the amount of 4.0% (plus GST) payable to the Joint Lead Managers (or their nominees) in respect to the total amount raised under the General Offer, excluding the amount raised via the IMX Offer. The Joint Lead Managers will pay all or part of this fee to third party AFSL holders whose clients participate in the IPO and/or investors that wish to underwrite the IPO at their sole discretion.

(d) (IMX Offer fee) a fee in the amount of 3% (plus GST) payable to the Joint Lead Managers (or their nominees) on the total amount raised pursuant to the IMX Offer; and

(e) (Advisor Options) each of the Joint Lead Managers (or their nominee) shall be entitled to Advisor Options equal to 2.5% (5% total) of the fully diluted issue capital of the Company.

The mandate is otherwise on terms that are considered standard for agreements of this nature.

11.4 Corporate Advisory Mandate

The Company has an agreement with Azure Capital Limited (Azure) for the provision of corporate advisory services in relation to the Company (Azure Agreement). In consideration for the provision of those services, and upon successful completion of the transaction, the following fees will become payable to Azure:

(a) $100,000 payable in cash; and

(b) Options equivalent to 2.50% of the fully diluted issued share capital of Graphex issued at the time of listing, exercisable at a 25% premium to the capital raising issue price with an expiry date three years from the time of completion of the transaction.

11.5 Cost Reimbursement Agreement

Pursuant to a cost reimbursement agreement between the Company and IMX, IMX has agreed to meet the Company's costs incurred up to completion of the listing, on the condition that the Company reimburses IMX for these costs. IMX is to be repaid within 21 days of providing the Company with a notice of the costs. As at the date of this Prospectus the Company anticipates a reimbursement to IMX of approximately between $209,000 and $219,000 will be made.

11.6 Executive services and employment agreements

(a) Executive services agreement – Phil Hoskins, Managing Director

The Company has entered into an executive services agreement with Phil Hoskins (Hoskins Agreement).

Under the Hoskins Agreement, Mr Hoskins is engaged by the Company to provide executive services to the Company as Managing Director on a full

time basis, commencing from Listing. The Company will remunerate Mr Hoskins for his services with an executive remuneration package comprising the following:

(i) a base salary of $260,000 plus superannuation per year; and

(ii) reimbursement for reasonable expenses necessarily incurred by Mr Hoskins in the performance of his services as Managing Director.

In addition, Mr Hoskins will be issued with the following Options:

(iii) 350,000 Options exercisable at $0.20 each and expiring 3 years from the date the Company is admitted to the Official List;

(iv) 520,000 Options with a nil exercise price, expiring 3 years from the date the Company is admitted to the Official List and vesting on 1 July 2017, subject to performance against KPIs relating to health and safety, securing of offtake and financing agreements, delivery of a DFS in accordance with board approved budget and timeline, completion of Project permitting and ensuring the Company is sufficiently funded to deliver on its strategy, to be issued as short term incentives for the period to 30 June 2017 (STI Options); and

(v) 715,000 Options with a nil exercise price, expiring 5 years from the date the Company is admitted to the Official List, with one third vesting on each of 1 July 2017, 1 July 2018 and 1 July 2019, subject to achievement of key project milestones including execution of binding offtake and project financing agreements, commencement of commercial production and share price performance, to be issued as long term incentives (LTI Options).

In the event of a change of control, Mr Hoskins will receive a bonus payment equal to 12 months base salary.

The Hoskins Agreement is for an indefinite term, and will continue until terminated by either the Company by the giving of six months’ written notice or Mr Hoskins by the giving of three months' written notice of termination (or shorter period in limited circumstances).

(b) Employment agreement – Nicholas Corlis, General Manager Technical

The Company has entered into an employment agreement with Nicholas Corlis (Corlis Agreement). The Corlis Agreement commences on the date the Company is admitted to the Official List.

Under the Corlis Agreement, Mr Corlis is employed by the Company as General Manager Technical. The Company will remunerate Mr Corlis as follows:


(ii) reimbursement for reasonable expenses necessarily incurred by Mr Corlis in the performance of his services as Technical Manager.

In addition, Mr Corlis will also be issued with the following Options:


(iv) 210,000 STI Options; and

(v) 577,500 LTI Options.

In the event of a change of control, Mr Corlis will receive a bonus payment equal to 6 months base salary.

Whilst Mr Corlis will be employed by the Company, it is the intention of the Company and IMX that Mr Corlis dedicate approximately 60% of his time to the Company, with the remaining 40% dedicated to IMX pursuant to the proposed Co-operation Deed (such time spent to be reimbursed to the Company by IMX). See Section 11.9 for further details of the proposed Co-operation Deed.

(c) Employment agreement – Stuart McKenzie, Commercial Manager and Company Secretary

The Company has entered into an employment agreement with Stuart McKenzie (McKenzie Agreement). The McKenzie Agreement commences on the date the Company is admitted to the Official List.

Under the McKenzie Agreement, Mr McKenzie is employed by the Company as Commercial Manager and Company Secretary, on a full time basis. The Company will remunerate Mr McKenzie as follows:


(ii) reimbursement for reasonable expenses necessarily incurred by Mr McKenzie in the performance of his services as Commercial Manager and Company Secretary.

In addition, Mr McKenzie will also be issued with the following Options:




In the event of a change of control, Mr McKenzie will receive a bonus payment equal to 6 months base salary.

(d) Employment agreement – Christopher Knee, Chief Financial Officer

The Company has entered into an employment agreement with Christopher Knee (Knee Agreement). The Knee Agreement commences on the date the Company is admitted to the Official List.

Under the Knee Agreement, Mr Knee is employed by the Company as Chief Financial Officer, on a full time basis. The Company will remunerate Mr Knee as follows:


(ii) reimbursement for reasonable expenses necessarily incurred by Mr Knee in the performance of his services as Chief Financial Officer.

In addition, Mr Knee will also be issued with the following Options:




In the event of a change of control, Mr Knee will receive a bonus payment equal to 6 months base salary.

11.7 Non-Executive Director agreements

The Company has entered into separate non-executive service letter agreements with each of Stephen Dennis and Grant Davey pursuant to which the Company has agreed to pay Mr Dennis $60,000 plus superannuation per year for services provided to the Company as non-executive chairman and Mr Davey $40,000 plus superannuation per year for services provided to the Company as non-executive directors.

Pursuant to the agreements each of Messrs Dennis and Davey will be issued with 1,000,000 unquoted Options exercisable at $0.20 each and expiring 3 years from the date the Company is admitted to Official List. These Options will be escrowed for a period of 24 months in accordance with Listing Rules.

Subject to any necessary shareholder approval and the Corporations Act, the Board may offer Directors Shares in lieu of Directors' fees upon such terms and conditions as the Board determines. For further information see Section 12.6.

11.8 Deeds of indemnity, insurance and access

The Company has entered into deeds of indemnity, insurance and access with each of its Directors and the Company Secretary. Under these deeds, the Company agrees to indemnify each officer to the extent permitted by the Corporations Act against any liability arising as a result of the officer acting as an officer of the Company or a related body corporate (subject to customary exceptions). The Company is also required to maintain insurance policies for the benefit of the relevant officer and must also allow the officers to inspect board papers and other documents provided to the Board in certain circumstances.

11.9 Proposed Co-operation Deed

It is a condition precedent to completion of the Acquisition Agreement that the Company and IMX enter into a co-operation deed. As at the date of this Prospectus, the Co-operation Deed was yet to be executed, but is likely to include the following features:

(a) the provision of staff to perform specific services (including accounting, company secretarial and administration) by Graphex to IMX both in Australia and Tanzania at agreed rates; and

(b) an agreement by Graphex not to charge IMX for services provided by Graphex in Tanzania to December 2016 up to an amount of $250,000.

12. Additional Information

12.1 Rights and liabilities attaching to Shares

The following is a general description of the more significant rights and liabilities attaching to the Shares. This summary is not exhaustive. Full details of provisions relating to rights attaching to the Shares are contained in the Corporations Act, Listing Rules and the Company's Constitution, a copy of which is available for inspection at the Company's registered office during normal business hours.

(a) (Ranking of Shares): At the date of this Prospectus, all Shares are of the same class and rank equally in all respects. Specifically, the Shares issued pursuant to this Prospectus will rank equally with existing Shares.

(b) (Voting rights): Subject to any rights or restrictions, at general meetings:

(i) every Shareholder present and entitled to vote may vote in person or by attorney, proxy or representative;

(ii) has one vote on a show of hands; and

(iii) has one vote for every Share held, upon a poll.

(c) (Dividend rights): Shareholders will be entitled to dividends, distributed among members in proportion to the capital paid up, from the date of payment. No dividend carries interest against the Company and the declaration of Directors as to the amount to be distributed is conclusive.

Shareholders may be paid interim dividends or bonuses at the discretion of the Directors.

(d) (Variation of rights): The rights attaching to the Shares may only be varied by the consent in writing of the holders of three-quarters of the Shares, or with the sanction of a special resolution passed at a general meeting.

(e) (Transfer of Shares): Shares can be transferred upon delivery of a proper instrument of transfer to the Company or by a transfer in accordance with the ASX Settlement Operating Rules.

The Directors may refuse to register any transfer in any of the circumstances permitted by the Listing Rules.

(f) (General meetings): Shareholders are entitled to be present in person, or by proxy, attorney or representative to attend and vote at general meetings of the Company.

The Directors may convene a general meeting at their discretion. General meetings shall also be convened on requisition as provided for by the Corporations Act.

(g) (Unmarketable parcels): The Company's Constitution provides for the sale of unmarketable parcels subject to any applicable laws and provided a notice is given to the minority Shareholders stating that the Company intends to sell their relevant Shares unless an exemption notice is received by a specified date.

(h) (Rights on winding up): If the Company is wound up, the liquidator may with the sanction of special resolution, divide the assets of the Company amongst members as the liquidator sees fit. If the assets are insufficient to repay the whole of the paid up capital of members, they will be distributed in such a way that the losses borne by members are in proportion to the capital paid up.

12.2 Terms and conditions of Loyalty Options

The terms of issue of the Loyalty Options are:

(a) (Issue price): The Loyalty Options will be issued for no consideration.

(b) (Entitlement to be issued Shares and vesting): Upon vesting and subject to paragraph (f) below, each Loyalty Option entitles the holder to be issued one Share for each Loyalty Option vested.

The number of Loyalty Options to vest will be the lesser of:

(i) the number of Loyalty Options held on the Vesting Date; and

(ii) the number of Shares held on the Vesting Date divided by 3, where the Vesting Date is the date that is 3 months following the commencement of trading of the Company's Shares on ASX.

Loyalty Options which do not vest on the Vesting Date will immediately lapse.

(c) (Exercise price): The exercise price of the Loyalty Options is $0.25 each.

(d) (Expiry Date): The expiry date of the Loyalty Options is 3 years from the date of issue (Expiry Date). The Loyalty Options may be exercised at any time after vesting and prior to the Expiry Date, in whole or in part, upon payment of the exercise price per Loyalty Option.

(e) (Transferable): The Loyalty Options are not transferable prior to vesting. Following the Vesting Date the Loyalty Options will become transferable.

(f) (Exercise): The Company will provide to each Loyalty Option holder a notice that is to be completed when exercising the Loyalty Options (Notice of Exercise). Loyalty Options may be exercised by the Loyalty Option holder in whole or in part by completing the Notice of Exercise and forwarding the same to the Company Secretary to be received prior to the Expiry Date. The Notice of Exercise must state the number of Loyalty Options exercised, the consequent number of Shares to be allotted and the identity of the proposed allottee. The Notice of Exercise by a Loyalty Option holder must be accompanied by payment in full for the relevant number of Shares being subscribed, being an amount of the exercise price per Shares.

(g) (Ranking of Shares): All Shares issued upon the exercise of the Loyalty Options will rank equally in all respects with the Company's then issued Shares. The Company will apply to the ASX for quotation of all Shares issued upon exercise of Loyalty Options.

(h) (Participating rights): There are no participating rights or entitlements inherent in the Loyalty Options and the holders will not be entitled to participate in new issues or pro-rata issues of capital to Shareholders during the term of the Loyalty Options. Thereby, the Loyalty Option holder has no

rights to a change in the exercise price of the Loyalty Option or a change to the number of underlying securities over which the Loyalty Option can be exercised except in the event of a bonus issue. The Company will ensure, for the purposes of determining entitlements to any issue, that Loyalty Option holder will be notified of a proposed issue after the issue is announced. This will give Loyalty Option holders the opportunity to exercise their Loyalty Options prior to the date for determining entitlements to participate in such issues.

(i) (Bonus issue): If from time to time on or prior to the Expiry Date the Company makes a bonus issue of securities to holders of Shares in the Company (Bonus Issue), then upon exercise of his or her Loyalty Options a holder will be entitled to have issued to him or her (in addition to the Shares which he or she is otherwise entitled to have issued to him or her upon such exercise) the number of securities which would have been issued to him or her under that Bonus Issue if the Loyalty Options had been exercised before the Loyalty Option Record Date for the Bonus Issue.

(j) (Reconstructions): In the event of any reconstruction (including consolidation, subdivisions, reduction or return) of the authorised or issued capital of the Company, all rights of the Loyalty Option holder shall be reconstructed (as appropriate) in accordance with the ASX Listing Rules.

12.3 Terms and conditions of Advisor Options

The terms of issue of the Advisor Options are:

(a) (Issue price): The Advisor Options will be issued as part consideration for corporate advisory and lead manager services received by the Company.

(b) (Entitlement): Each Advisor Option entitles the holder to subscribe for one Share upon exercise of the Advisor Option.

(c) (Exercise price): The exercise price of the Advisor Options is $0.25 each.

(d) (Expiry Date): The expiry date of the Advisor Options is 3 years from the date of issue (Expiry Date). The Advisor Options may be exercised at any time after prior to the Expiry Date, in whole or in part, upon payment of the exercise price per Advisor Option (Exercise Period).

(e) (Transferability and quotation): The Advisor Options will not be quoted and are not transferable.

(f) (Exercise): The Advisor Options may be exercised during the Exercise Period by notice in writing to the Company in the manner specified on the Adviser Option certificate (Notice of Exercise) and payment of the Exercise Price for each Adviser Option being exercised in Australian currency by electronic funds transfer or other means of payment acceptable to the Company.

(g) (Exercise Date): A Notice of Exercise is only effective on and from the later of the date of receipt of the Notice of Exercise and the date of receipt of the payment of the Exercise Price for each Advisor Option being exercised in cleared funds (Exercise Date).

(h) (Timing of issue of Shares on exercise): Within 15 Business Days after the Exercise Date, the Company will:

(i) allot and issue the number of Shares required under these terms and conditions in respect of the number of Advisor Options specified in the Notice of Exercise and for which cleared funds have been received by the Company;

(ii) if required, give ASX a notice that complies with section 708A(5)(e) of the Corporations Act, or, if the Company is unable to issue such a notice, lodge with ASIC a prospectus prepared in accordance with the Corporations Act and do all such things necessary to satisfy section 708A(11) of the Corporations Act to ensure that an offer for sale of the Shares does not require disclosure to investors; and

(iii) if admitted to the official list of ASX at the time, apply for official quotation on ASX of Shares issued pursuant to the exercise of the Advisor Options.

If a notice delivered under (h)(ii) for any reason is not effective to ensure that an offer for sale of the Shares does not require disclosure to investors, the Company must, no later than 20 Business Days after becoming aware of such notice being ineffective, lodge with ASIC a prospectus prepared in accordance with the Corporations Act and do all such things necessary to satisfy section 708A(11) of the Corporations Act to ensure that an offer for sale of the Shares does not require disclosure to investors.

(i) (Ranking of Shares): All Shares issued upon the exercise of the Advisor Options will rank equally in all respects with the Company's then issued Shares. If admitted to the official list of ASX at the time, the Company will apply to the ASX for quotation of all Shares issued upon exercise of Advisor Options.

(j) (Participating rights): There are no participating rights or entitlements inherent in the Advisor Options and the holders will not be entitled to participate in new issues or pro-rata issues of capital to Shareholders during the term of the Advisor Options. Advisor Option holders have no rights to a change in the exercise price of the Advisor Options or a change to the number of underlying securities over which the Advisor Options can be exercised except in the event of a bonus issue. The Company will ensure, for the purposes of determining entitlements to any issue, that Advisor Option holder will be notified of a proposed issue after the issue is announced. This will give Advisor Option holders the opportunity to exercise their Advisor Options prior to the date for determining entitlements to participate in such issues.

(k) (Bonus issue): If from time to time on or prior to the Expiry Date the Company makes a bonus issue of securities to holders of Shares in the Company (Bonus Issue), then upon exercise of his or her Advisor Options a holder will be entitled to have issued to him or her (in addition to the Shares which he or she is otherwise entitled to have issued to him or her upon such exercise) the number of securities which would have been issued to him or her under that Bonus Issue if the Advisor Options had been exercised before the record date for the Bonus Issue.

(l) (Reconstructions): In the event of any reconstruction (including consolidation, subdivisions, reduction or return) of the authorised or issued capital of the Company, all rights of the Advisor Option holder shall be reconstructed (as appropriate) in accordance with the ASX Listing Rules.

12.4 Option Plan

The Company has adopted the Graphex Mining Limited Option Plan (Option Plan). A summary of the Option Plan is set out below:

(a) Eligible Participant

Eligible Participant means a person that:

(i) is an "eligible participant" (as that term is defined in ASIC Class Order 14/1000) in relation to the Company or an Associated Body Corporate (as that term is defined in ASIC Class Order 14/1000); and

(ii) has been determined by the Board to be eligible to participate in the Option Plan from time to time.

(b) Purpose

The purpose of the Option Plan is to:

(i) assist in the reward, retention and motivation of Eligible Participants;

(ii) link the reward of Eligible Participants to Shareholder value creation; and

(iii) align the interests of Eligible Participants with shareholders of the Group (being the Company and each of its Associated Bodies Corporate), by providing an opportunity to Eligible Participants to receive an equity interest in the Company in the form of Options.

(c) Option Plan administration

The Option Plan will be administered by the Board. The Board may exercise any power or discretion conferred on it by the Option Plan rules in its sole and absolute discretion. The Board may delegate its powers and discretion.

(d) Eligibility, invitation and application

(i) The Board may from time to time determine that an Eligible Participant may participate in the Option Plan and make an invitation to that Eligible Participant to apply for Options on such terms and conditions as the Board decides.

(ii) On receipt of an Invitation, an Eligible Participant may apply for the Options the subject of the invitation by sending a completed application form to the Company. The Board may accept an application from an Eligible Participant in whole or in part.

(iii) If an Eligible Participant is permitted in the invitation, the Eligible Participant may, by notice in writing to the Board, nominate a party in whose favour the Eligible Participant wishes to renounce the invitation.

(e) Grant of Options

The Company will, to the extent that it has accepted a duly completed application, grant the Participant the relevant number of Options, subject to

the terms and conditions set out in the invitation, the Option Plan rules and any ancillary documentation required.

(f) Terms of Options

Each Option represents a right to acquire one or more Shares, subject to the terms and conditions of the Option Plan.

Prior to an Option being exercised a Participant does not have any interest (legal, equitable or otherwise) in any Share the subject of the Option by virtue of holding the Option. A Participant may not sell, assign, transfer, grant a security interest over or otherwise deal with an Option that has been granted to them. A Participant must not enter into any arrangement for the purpose of hedging their economic exposure to an Option that has been granted to them.

(g) Vesting

Any vesting conditions applicable to the grant of Options will be described in the invitation. If all the vesting conditions are satisfied and/or otherwise waived by the Board, a vesting notice will be sent to the Participant by the Company informing them that the relevant Options have vested. Unless and until the vesting notice is issued by the Company, the Options will not be considered to have vested. For the avoidance of doubt, if the vesting conditions relevant to an Option are not satisfied and/or otherwise waived by the Board, that Option will lapse.

(h) Exercise of Options and cashless exercise

To exercise an Option, the Participant must deliver a signed notice of exercise and, subject to a cashless exercise of options (see below), pay the Option exercise price (if any) to or as directed by the Company, at any time prior to the earlier of any date specified in the vesting notice and the expiry date as set out in the invitation.

An invitation may specify that at the time of exercise of the Options, the Participant may elect not to be required to provide payment of the Option exercise price for the number of Options specified in a notice of exercise, but that on exercise of those Options the Company will transfer or issue to the Participant that number of Shares equal in value to the positive difference between the Market Value of the Shares at the time of exercise and the Option exercise price that would otherwise be payable to exercise those Options.

Market Value means, at any given date, the volume weighted average price per Share traded on the ASX over the 5 trading days immediately preceding that given date, unless otherwise specified in an invitation.

An Option may not be exercised unless and until that Option has vested in accordance with the Option Plan rules, or such earlier date as set out in the Option Plan rules.

(i) Delivery of Shares on exercise of Options

As soon as practicable after the valid exercise of an Option by a Participant, the Company will issue or cause to be transferred to that Participant the number of Shares to which the Participant is entitled under the Option Plan

rules and issue a substitute certificate for any remaining unexercised Options held by that Participant.

(j) Forfeiture of Options

Where a Participant who holds Options ceases to be an Eligible Participant or becomes insolvent, all unvested Options will automatically be forfeited by the Participant, unless the Board otherwise determines in its discretion to permit some or all of the Options to vest.

Where the Board determines that a Participant has acted fraudulently or dishonestly, or wilfully breached his or her duties to the Group, the Board may in its discretion deem all unvested Options held by that Participant to have been forfeited.

Unless the Board otherwise determines, or as otherwise set out in the Option Plan rules:

(i) any Options which have not yet vested will be forfeited immediately on the date that the Board determines (acting reasonably and in good faith) that any applicable vesting conditions have not been met or cannot be met by the relevant date; and

(ii) any Options which have not yet vested will be automatically forfeited on the expiry date specified in the invitation.

(k) Change of control

If a change of control event occurs in relation to the Company, or the Board determines that such an event is likely to occur, the Board may in its discretion determine the manner in which any or all of the Participant's Options will be dealt with, including, without limitation, in a manner that allows the Participant to participate in and/or benefit from any transaction arising from or in connection with the change of control event.

(l) Rights attaching to Plan Shares

All Shares issued or transferred to a Participant upon the valid exercise of an Option (Plan Shares) will rank pari passu in all respects with the Shares of the same class. A Participant will be entitled to any dividends declared and distributed by the Company on the Plan Shares and may participate in any dividend reinvestment plan operated by the Company in respect of Plan Shares. A Participant may exercise any voting rights attaching to Plan Shares.

(m) Disposal restrictions on Plan Shares

If the invitation provides that any Plan Shares are subject to any restrictions as to the disposal or other dealing by a Participant for a period, the Board may implement any procedure it deems appropriate to ensure the compliance by the Participant with this restriction.

For so long as a Plan Share is subject to any disposal restrictions under the Option Plan, the Participant will not:

(i) transfer, encumber or otherwise dispose of, or have a security interest granted over that Plan Share; or

(ii) take any action or permit another person to take any action to remove or circumvent the disposal restrictions without the express written consent of the Company.

(n) Adjustment of Options

If there is a reorganisation of the issued share capital of the Company (including any subdivision, consolidation, reduction, return or cancellation of such issued capital of the Company), the rights of each Participant holding Options will be changed to the extent necessary to comply with the Listing Rules applicable to a reorganisation of capital at the time of the reorganisation.

If Shares are issued by the Company by way of bonus issue (other than an issue in lieu of dividends or by way of dividend reinvestment), the holder of Options is entitled, upon exercise of the Options, to receive an allotment of as many additional Shares as would have been issued to the holder if the holder held Shares equal in number to the Shares in respect of which the Options are exercised.

Unless otherwise determined by the Board, a holder of Options does not have the right to participate in a pro rata issue of Shares made by the Company or sell renounceable rights.

(o) Participation in new issues

There are no participation rights or entitlements inherent in the Options and holders are not entitled to participate in any new issue of Shares of the Company during the currency of the Options without exercising the Options.

(p) Amendment of Option Plan

Subject to the following paragraph, the Board may at any time amend any provisions of the Option Plan rules, including (without limitation) the terms and conditions upon which any Options have been granted under the Option Plan and determine that any amendments to the Option Plan rules be given retrospective effect, immediate effect or future effect.

No amendment to any provision of the Option Plan rules may be made if the amendment materially reduces the rights of any Participant as they existed before the date of the amendment, other than an amendment introduced primarily for the purpose of complying with legislation or to correct manifest error or mistake, amongst other things, or is agreed to in writing by all Participants.

(q) Option Plan duration

The Option Plan continues in operation until the Board decides to end it. The Board may from time to time suspend the operation of the Option Plan for a fixed period or indefinitely, and may end any suspension. If the Option Plan is terminated or suspended for any reason, that termination or suspension must not prejudice the accrued rights of the Participants.

If a Participant and the Company (acting by the Board) agree in writing that some or all of the Options granted to that Participant are to be cancelled on a specified date or on the occurrence of a particular event, then those Options may be cancelled in the manner agreed between the Company and the Participant.

12.5 Proposed issue to Director under Option Plan

The following information is provided in relation to the proposed issue to Director Phil Hoskins of STI Options and LTI Options under the Option Plan:

(a) the maximum number of STI Options to be issued under the Option Plan is 520,000 and the maximum number of LTI Options is 715,000

(b) the STI Options and LTI Options will be issued for nil cash consideration;

(c) no STI Options and LTI Options have previously been issued under the Option Plan;

(d) all current Directors of the Company are eligible to participate in the Option Plan;

(e) no loan has been provided to the Mr Hoskins in relation to the issue of the STI Options and LTI Options; and

(f) the STI Options and LTI Options will be issued no later than 12 months after the date the Company is admitted to the Official List (or such later date as permitted by any ASX waiver or modification of the Listing Rules).

12.6 Summary of Directors' Share Plan

The Company has adopted a directors' share plan, the purpose of which is to enable directors' to subscribe for Shares in lieu of Directors' fees owing by the Company (Directors' Share Plan). A summary of the terms and conditions of the Directors' Share Plan is set out below:

(a) Eligible Participants

The Board may offer Shares to a Director of the Company or any Subsidiary, including non-executive Directors (Eligible Participant).

Subject to Shareholder approval, the Board may offer to Eligible Participants the opportunity to subscribe for Shares in lieu of Directors' fees owing by the Company to the Eligible Participant and upon such additional terms and conditions as the Board determines (including, without limitation, that an Eligible Participant continues to be a Director of the Company at the relevant time).

An Eligible Participant will not be required to make any payment in return for the Shares as they will be issued in satisfaction of Directors' fees owing by the Company at the time of issue of the Shares, calculated on a quarterly basis.

(b) Limitations of offers

If the Company makes an offer of Shares where:

(i) the total number of Shares the subject of that offer, exceeds the limit set out in ASIC Class Order 14/1000; or

(ii) the offer does not otherwise comply with the terms and conditions set out in ASIC Class Order 14/1000,

the Company must comply with Chapter 6D of the Corporations Act at the time of that offer.

(c) Issue of Shares

Shares issued under the Directors' Share Plan will rank equally in all respects with the then issued class of fully paid ordinary shares of the Company.

The Company will issue Shares under the Directors' Share Plan on a quarterly basis, being 31 March, 30 June, 30 September and 31 December each year (Quarter).

The issue of Shares under the Directors' Share Plan will be deemed to satisfy the relevant fees or salary owing by the Company to the Eligible Participant.

Shares issued to an Eligible Participant under the Directors' Share Plan will have no restrictions on their transfer.

(d) Deemed issue price of Shares

The Shares issued pursuant to the Directors' Share Plan will be issued for nil cash consideration as they will be issued in satisfaction of fees and salary owing by the Company to the Eligible Participant. The Shares will be deemed to have an issue price as determined by the Board at the time of issue of the Shares but such deemed issue price will be no less than the VWAP of Shares sold on ASX during the 90 days prior to the expiration of the relevant Quarter.

(e) Shareholder Approval

All Shares issued pursuant to the Directors' Share Plan will be subject to prior Shareholder approval under the Listing Rules and the Corporations Act (if required). The Company will seek Shareholder approval for the issue of a maximum amount of Shares to a particular Director(s) for a 12 month period.

(f) Amendments

Subject to the Listing Rules, the Board may at any time by resolution amend all or any of the provisions of the Directors' Share Plan, or the terms or conditions of any Shares issued under the Directors' Share Plan, provided that as soon as reasonably practicable after making any amendment, the Board gives notice in writing of that amendment to any Eligible Participant affected by the amendment.

(g) Non-residents of Australia

The Board may adopt additional rules of the Directors' Share Plan applicable in any jurisdiction outside Australia under which rights offered under the Directors' Share Plan may be subject to additional or modified terms, having regard to any securities, exchange control or taxation laws or regulations or similar factors which may apply to the Eligible Participant or to the Company in relation to the rights. Any additional rule must conform to the basic principles of the Directors' Share Plan.

12.7 Substantial Shareholders

As at the date of this Prospectus the Company is a wholly-owned subsidiary of IMX.

Based on the information known as at the date of this Prospectus, and assuming only the Minimum Subscription is achieved, on Admission the following persons will have an interest in 5% or more of the Shares on issue. Investors should note the details below do not include any IMX Shareholder who participates in the IMX Offer:

Name Number of Shares % of Shares

MMG Exploration Holdings Limited 3,546,000 8.60

12.8 Interests of experts and advisers

(a) No interest except as disclosed

Other than as set out below or elsewhere in this Prospectus, no persons or entity named in this Prospectus as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of this Prospectus holds at the date of this Prospectus, or held at any time during the last 2 years, any interest in:

(i) the formation or promotion of the Company;

(ii) property acquired or proposed to be acquired by the Company in connection with its formation or promotion, or the Offers; or

(iii) the Offer,

and the Company has not paid any amount or provided any benefit, or agreed to do so, to any of those persons for services rendered by them in connection with the formation or promotion of the Company or the Offers.

(b) Share registry

Computershare Investor Services Pty Limited has been appointed to conduct the Company's share registry functions and to provide administrative services in respect to the processing of Applications received pursuant to this Prospectus, and will be paid for these services on standard industry terms and conditions.

(c) Auditor

PricewaterhouseCoopers has been appointed to act as auditor to the Company. The Company estimates it will pay PricewaterhouseCoopers a total of $70,000 (excluding GST) for these services. During the 24 months preceding lodgement of this Prospectus with ASIC, PricewaterhouseCoopers has not provided services to the Company.

(d) Australian legal adviser

Bellanhouse Legal has acted as the Australian solicitors to the Company in relation to the Offers. The Company estimates it will pay Bellanhouse Legal $50,000 (excluding GST) for these services. During the 24 months preceding lodgement of this Prospectus with ASIC, Bellanhouse Legal has not provided services to the Company.

(e) Investigating Accountant

KPMG Financial Advisory Services (Australia) Pty Ltd has acted as Investigating Accountant and has prepared the Investigating Accountant's Report which is included in Section 9 of this Prospectus. The Company estimates it will pay KPMG Financial Advisory Services (Australia) Pty Ltd a total of $20,000 (excluding GST) for these services. During the 24 months preceding lodgement of this Prospectus with ASIC, KPMG Financial Advisory Services (Australia) Pty Ltd has not provided services to the Company.

(f) Independent Technical Assessor

CSA Global Pty Ltd has prepared the Independent Technical Assessment which is included in Section 6 of this Prospectus. The Company estimates it will pay CSA Global Pty Ltd a total of $30,000 (excluding GST) for these services. During the 24 months preceding lodgement of this Prospectus with ASIC, CSA Global Pty Ltd has not provided services to the Company.

(g) Independent Solicitor

East African Law Chambers has acted as the Independent Solicitor and has prepared the Independent Solicitor's Report which is included in Section 7 of this Prospectus. The Company estimates it will pay East African Law Chambers a total of $4,000 (excluding GST) for these services. During the 24 months preceding lodgement of this Prospectus with ASIC, East African Law Chambers has not provided services to the Company.

(h) Joint Lead Managers

Palladion Partners Pty Ltd and RM Corporate Finance Pty Ltd have acted as the Joint Lead Managers to the Offers. Details of the payments to be made to the Joint Lead Managers are set out in Section 11.3. During the 24 months preceding lodgement of this Prospectus with ASIC, the Joint Lead Managers have not provided services to the Company.

(i) Corporate Advisor

Azure Capital has acted as the corporate advisor to the Company. The Company estimates that on Listing and completion of the In-specie Distribution, it will pay Azure Capital:

(i) a cash payment of $100,000; and

(ii) Options equivalent to 2.50% of the fully diluted share capital of Graphex issued at the time of Listing, exercisable at a 25% premium to the capital raising issue price with an expiry date three years from the time of completion of Listing.

During the 24 months preceding lodgement of this Prospectus with ASIC, Azure Capital has not provided services to the Company.

12.9 Consents

(a) Each of the parties referred to below:

(i) does not make the Offers;

(ii) does not make, or purport to make, any statement that is included in this Prospectus, or a statement on which a statement made in this Prospectus is based, other than as specified below or elsewhere in this Prospectus;

(iii) to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any part of this Prospectus other than a reference to its name and a statement contained in this Prospectus with the consent of that party as specified below; and

(iv) has given and has not, prior to the lodgement of this Prospectus with ASIC, withdrawn its consent to the inclusion of the statements in this Prospectus that are specified below in the form and context in which the statements appear.

(b) Share Registry

Computershare Investor Services Pty Limited has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to being named in this Prospectus as Share Registry of the Company in the form and context in which it is named.

(c) Auditor

PricewaterhouseCoopers has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to being named in this Prospectus as auditor of the Company in the form and context in which it is named.

(d) Australian legal adviser

Bellanhouse Legal has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to being named in this Prospectus as the Australian legal adviser to the Company in the form and context in which it is named.

(e) Investigating Accountant

KPMG Financial Advisory Services (Australia) Pty Ltd has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to being named in this Prospectus as the Investigating Accountant to the Company in the form and context in which it is named and has given and not withdrawn its consent to the inclusion of the Investigating Accountant's Report in the form and context in which it is included.

(f) Independent Technical Assessor

CSA Global Pty Ltd has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to being named in this Prospectus as the Independent Technical Assessor in the form and context in which it is named and has given and not withdrawn its consent to the inclusion of the Independent Technical Assessment in the form and context in which it is included.

(g) Independent Solicitor

East African Law Chambers has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to being named

in this Prospectus as the Independent Solicitor to the Company in the form and context in which it is named and has given and not withdrawn its consent to the inclusion of the Independent Solicitor's Report in the form and context in which it is included.

(h) Joint Lead Managers

Palladion Partners Pty Ltd has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to being named in this Prospectus as the Joint Lead Manager to the Offers in the form and context in which it is named.

RM Corporate Finance Pty Ltd has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to being named in this Prospectus as the Joint Lead Manager to the Offers in the form and context in which it is named.

(i) Corporate advisor

Azure Capital has given, and has not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to being named in this Prospectus as the Company's corporate advisor in the form and context in which it is named.

12.10 Competent person statement

The information in this Prospectus that relates to exploration results is based on, and fairly represents, data collected under the supervision of Mr Nick Corlis, in his capacity as Executive Director, Exploration, IMX Resources. Mr Corlis, BSc (Hons) MSc, is a registered member of the Australian Institute of Geoscientists and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and the activity being undertaken to qualify as a Competent Person under the JORC Code 2012. Mr Corlis consents to this statement and to references in this Prospectus to him in the form and context in which they appear. Mr Corlis has not withdrawn his consent before lodgement of this Prospectus with ASIC.

The information contained in this Prospectus that relates to Mineral Resources and referred to in the Independent Technical Assessment is based on, and fairly represents, information compiled by Mr Grant Louw under the direction and supervision of Dr Andrew Scogings, who are both full-time employees of CSA. Dr Scogings is a member of both the Australian Institute of Geoscientists and the Australasian Institute of Mining and Metallurgy and is a Competent Person as defined in the JORC Code having sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking. Dr Scogings consents to this statement and to references in this Prospectus to him in the form and context in which they appear. Dr Scogings has not withdrawn his consent before lodgement of this Prospectus with ASIC.

12.11 Expenses of the Offers

The total approximate expenses of the Offers payable by the Company are:

Expense Minimum Subscription

raised


raised

ASX and ASIC fees $59,000 $69,000

Australian legal fees $50,000 $50,000

Investigating Accountant fees $20,000 $20,000

Independent Technical Assessment fees $30,000 $30,000

Independent legal review Tanzania $5,000 $5,000

Asset Transfer Fees and Stamp Duty $20,000 $20,000

Printing, postage and administration fees $25,000 $25,000

Brokers fees1 $255,000 $420,000

Corporate advisor cash fees $100,000 $100,000

TOTAL $564,000 $739,000

Note:

1. Refer to Section 11.3.

12.12 Continuous disclosure obligations

Following Admission, the Company will be a "disclosing entity" (as defined in section 111AC of the Corporations Act) and, as such, will be subject to regular reporting and disclosure obligations. Specifically, like all listed companies, the Company will be required to continuously disclose any information it has to the market which a reasonable person would expect to have a material effect on the price or the value of the Shares (unless a relevant exception to disclosure applies). Price sensitive information will be publicly released through ASX before it is otherwise disclosed to Shareholders and market participants. Distribution of other information to Shareholders and market participants will also be managed through disclosure to ASX. In addition, the Company will post this information on its website after ASX confirms that an announcement has been made, with the aim of making the information readily accessible to the widest audience.

12.13 Litigation

So far as the Directors are aware, there is no current or threatened civil litigation, arbitration proceedings or administrative appeals, or criminal or governmental prosecutions of a material nature in which the Company or its subsidiaries is directly or indirectly concerned which is likely to have a material adverse effect on the business or financial position of the Company or its subsidiaries.

See also Section 5.1(k) for litigation risk.

13. Directors' Authorisation

The Prospectus is issued by the Company and its issue has been authorised by a resolution of the Directors.

In accordance with section 720 of the Corporations Act, each Director has consented to the lodgement of this Prospectus with ASIC and has not withdrawn that consent.

Signed for and on behalf of the Company.

Stephen Dennis Chairman 4 April 2016

14. Definitions

Acquisition Agreement means the agreement between the Company and IMX (and their subsidiaries) for the sale and purchase, among other things, of the Chilalo Graphite Project.

Admission means admission of the Company to the Official List, following completion of the Offers.

Advisor Options means the options described in Section 12.3.

Application means an application for Shares pursuant to this Prospectus.

Application Form means the General Offer Application Form and/or the IMX Offer Application Form, as the context requires.

Application Monies means the amount of money in dollars and cents payable for Shares at the Offer Price per Share pursuant to the Offers.

Assets has the meaning ascribed to it in Section 11.2.

ASIC means the Australian Securities and Investments Commission.

ASX means ASX Limited (ACN 008 624 691) or the Australian Securities Exchange, as the context requires.

ASX Settlement means ASX Settlement Pty Limited (ACN 008 504 532).

ASX Settlement Operating Rules means the settlement and operating rules of ASX Settlement.

Board means the board of Directors.

Business Day means Monday to Friday except for any day that ASX declares is not a business day.

CHESS means the Clearing House Electronic Subregister System operated by ASX Settlement.

Chilalo Graphite Project or Project means the graphite project in Tanzania located on PL6073/2009.

Closing Date means the General Offer Closing Date and the IMX Offer Closing Date, as applicable.

Company or Graphex means Graphex Mining Limited ACN 610 319 769.

Consideration Shares means approximately 16,454,000 Shares to be issued by the Company to IMX pursuant to the Acquisition Agreement.

Constitution means the constitution of the Company.

Co-operation Deed means the proposed agreement between the Company and Graphex for the provision of management, administrative, corporate compliance, accounting, secretarial and technical and geological services.

Corporate Advisor means Azure Capital.

Corporations Act means the Corporations Act 2001 (Cth).

DFS means definitive feasibility study, and is interchangeable with the term 'Feasibility Study' as described in clause 40 of the JORC Code 2012.

Director means a director of the Company.

Eligible IMX Shareholders means IMX Shareholders who are registered with IMX on the IMX Offer Record Date.

Exposure Period means the period of 7 days after the date of lodgement of this Prospectus, which period may be extended by the ASIC by not more than 7 days pursuant to section 727(3) of the Corporations Act.

General Offer means the public offer of up to 35,000,000 Shares at the Offer Price pursuant to this Prospectus to raise up to $7,000,000 before costs, and includes the IMX Offer.

General Offer Application Form means the Application Form in respect of the General Offer.

General Offer Closing Date means the date that the IMX Offer closes which is 5.00pm (WST) on 2 May 2016 or such other time and date as the Board determines.

General Offer Opening Date means the first date for receipt of completed Application Forms under the General Offer, which is 11 April 2016 or such other time and date as the Board determines.

Graphex or Company means Graphex Mining Limited ACN 610 319 769.

Group means the Company and its controlled subsidiaries.

IMX means IMX Resources Limited ACN 009 129 560.

IMX Offer means a priority offer of Shares to Eligible IMX Shareholders, as described in Section 1.1.

IMX Offer Application Form means the Application Form in respect of the IMX Offer.

IMX Offer Closing Date means the date that the IMX Offer closes which is 5.00pm (WST) on 26 April 2016 or such other time and date as the Board determines.

IMX Offer Opening Date means the first date for receipt of completed Application Forms under the IMX Offer, which is 11 April 2016 or such other time and date as the Board determines.

IMX Offer Record Date means 5:00pm (WST) on the date identified in the proposed indicative timetable.

IMX Shareholder means shareholders in IMX.

Independent Solicitor means East African Law Chambers.

Independent Solicitor's Report means the report contained in Section 7 prepared by the Independent Solicitor.

Independent Technical Assessment means the report contained in Section 6 prepared by the Independent Technical Assessor.

Independent Technical Assessor means CSA Global Pty Ltd ACN 077 165 532.

In-specie Conditions means the following conditions, the satisfaction of which will allow for the In-specie Distribution to occur:

(a) IMX obtaining shareholder approval under the Corporations Act for the proposed In-specie Distribution;

(b) receipt of a draft class ruling from the Australian Taxation Office confirming the availability of Demerger Relief;

(c) Graphex receiving subscriptions for an issue of fully paid ordinary shares in the amount of at least $4.25 million (or such other amount as required by ASX to meet the assets test under Listing Rule 1.3.2) pursuant to a prospectus to be lodged by Graphex in support of its application for listing on the ASX; and

(d) Graphex obtaining a conditional admission letter from ASX on terms satisfactory to the Graphex directors, acting reasonably.

In-specie Distribution means the proposed in-specie distribution of the Consideration Shares by IMX to eligible IMX Shareholders on an approximate 1 for 94 basis.

Investigating Accountant means KPMG Financial Advisory Services (Australia) Pty Ltd ACN 007 363 215.

Issue Date means the date of issue of Shares pursuant to this Prospectus.

Joint Lead Managers means Palladion Partners Pty Ltd (ACN 164 702 005) and RM Corporate Finance Pty Ltd (ACN 108 084 386) (AFSL 315235).

Listing means commencement of quotation of the Company’s securities on the Official List.

Listing Rules means the listing rules of ASX.

Loyalty Options means an option to be issued a Share pursuant to this Prospectus on the terms set out in Section 12.2.

LTI Options has the meaning ascribed in Section 11.6(a).

Maximum Subscription means the raising of $7.0 million pursuant to the Offers.

Minimum Subscription means the raising of $4.25 million pursuant to the Offers.

Ministry of Mines means the Ministry of Energy and Minerals of Tanzania.

MMG means MMG Exploration Holdings Limited.

NPV means net present value.

Offer Price means $0.20 per Share under the Offers.

Offers means the General Offer and the IMX Offer.

Official List means the official list of ASX.

Opening Date means the General Offer Opening Date and the IMX Offer Opening Date, as applicable.

PFS means pre-feasibility study.

Prospecting Licence means the prospecting licences granted by the Ministry of Mines set out in Table 1 of Section 2.3.

Prospectus means this prospectus dated 4 April 2016.

Section means a section of this Prospectus.

Securities means the Shares and Loyalty Options.

Share means a fully paid ordinary share in capital of the Company.

Share Registry means Computershare Investor Services Pty Limited.

Shareholder means a holder of one or more Shares.

STI Options has the meaning ascribed in Section 11.6(a).

Vesting Condition has the meaning given in Section 1.2.

Vesting Date means the date that is 3 months following the commencement of trading of the Company's Shares on ASX.

VWAP means volume weighted average price.

WST means Western Standard Time, being the time in Perth, Western Australia.

Graphex Mining Limited ACN 610 319 769 Prospectus · Graphex Mining Limited . ACN 610 319 769 ....

Documents

Transcript of Graphex Mining Limited ACN 610 319 769 Prospectus · Graphex Mining Limited . ACN 610 319 769 ....