Hexagon Resources : Quarterly Activities Report 29 October 2018

ASX ANNOUNCEMENT

29 October 2018

SEPTEMBER 2018 QUARTERLY ACTIVITIES & CASH FLOW

REPORT

Hexagon Resources (ASX: HXG, Hexagon or the Company) has continued to make significant progress at both its "upstream" McIntosh Joint Venture project as well as on the "downstream" material processing. The Company is focused on shortening paths to cash flow and profitability so aligning all parts of the business to be able to come on line without delays is a key focus.

The downstream flow sheet is aimed at producing ultra-high purity graphite materials into the premium priced energy storage and industrial applications. Both sectors have high-growth segments; lithium ion batteries as a core for energy storage and in industrial applications Hexagon is targeting substitution of synthetic graphite by its highly crystalline natural flake into the large scale electrodes market, amongst other uses.

In keeping with these strategic objectives, the Company is pleased to report on the following activities and achievements for the September 2018 quarter as outlined below.

1. HIGHLIGHTS

Upstream - the McIntosh Project:

• • Drilling Results

  • i. 90 metres of shallow graphite mineralisation intersected at the new Mahi Mahi target.

  • ii. 20 metres of shallow graphite mineralisation intersected at the new Threadfin target.

  • iii. Drilling at the Emperor Mineral Resource indicates mineralisation occurs at shallower levels than previously interpreted - highlighting potential for improved open pit mining economics.

• • Min Res JV

i.

Finalisation of the Joint Venture agreement between Mineral Resources and Hexagon in progress to replace the current binding Heads of Agreement.

Downstream - Processing of the McIntosh flake graphite concentrates:

• • Major Advancement of the Downstream Strategy, comprising:

  • i. Identification of target market segments and specific range of products in each of those segments (Figure 9). Test work on each of those products currently in progress.

  • ii. Configuration of innovative downstream purification, leveraging off Hexagon's ability to purify to very high levels (+ 99.99 wt. % carbon) at low cost to target premium end markets via a variety of downstream processes such as spheroidisation, classification, ultrafine milling/micronisation, intercalation/expansion and substitution of synthetic graphite.

• • Highly Encouraging Cell Cycling Results for McIntosh Graphite

  • i. Cell cycling tests using McIntosh graphite achieved results that exceed benchmark reversible capacity levels of 350mAh/g, attaining reversible capacity of up to 363.1mAh/g and 357.5mAh/g - results typical of synthetic graphite and advanced grades of natural crystalline spheroidised flake graphite.

  • ii. Results indicate McIntosh produces a high-quality material suitable for lithium ion batteries and is capable of surpassing high-quality synthetic materials used in Li-ion battery production.

Corporate

• • Chief Commercial Officer appointed to build-up team with added commercial skills to implement the commercialisation strategy.

• • Closing cash balance of $6.3 million, with $0.3 million debtor payment made after 30 September 2018.

• • Hexagon presented at several investor and industry specific conference events, meeting with existing and potential investors as well graphite end users. Further investor relations events are planned for the December quarter.

2. COMMENTARY

Hexagon's focus on the downstream processing of its high-grade natural flake graphite concentrate advanced strongly during the quarter. By concentrating its efforts on the downstream opportunities, the Company is pursuing its own path as Mineral Resources Limited (ASX:MIN, MinRes) commences site activities on the Upstream, McIntosh Joint Venture project.

The Company's commercialisation strategy is to establish its refining and downstream qualification plant for testing of McIntosh concentrates to generate specific graphite products for qualification by specific customer groups. Different target markets have varying qualification requirements, with the battery material segment likely having the longest stage-gate process, which has already commenced and generally takes around 18 months, hence the need to progress this process.

Serious, committed off-take agreements arise near the end of this qualification process. Hexagon is already in discussions with a variety of parties interested in its materials. Hexagon's sales program will likely utilise all of its share McIntosh Joint Venture concentrate for its own downstream facilities.

The supply of graphite concentrate to the downstream facilities relies on a high quality graphite resource, such as the McIntosh Project, where MinRes is earning a 51% interest by funding all development through to Commercial Production, subject to completion of a positive Feasibility Study. Hexagon is also assessing other projects with similar technical attributes as its McIntosh flake material and amenable to its unique downstream strategy, located in similar "Tier-1, jurisdictions close to major markets.

MinRes commenced drilling in August with positive initial results achieved, including a 90 m thick intercept of graphite mineralisation from surface at the previous undrilled, Mahi Mahi target. Graphite intercepts were also recorded at the new Threadfin target and at the Emperor Mineral Resource where graphite mineralisation was intercepted at shallower depths than expected which might support improved mining economics to those in the May 2017 Prefeasibility Study. The program will be completed in late October 2018 and assays will likely take several months for final results.

In addition to testing new targets and upgrading the existing mineral resources, the drilling program is designed to generate a large mass of sample for metallurgical testing to optimise the stage 1, upstream flowsheet and to provide concentrate for downstream testing. Michael Chan, Hexagon'sChief Development Officer, has been in discussions with MinRes supporting their test work program and flow sheet design.

The fact that the Company does not have to invest capital in developing the upstream project enables Hexagon to focus on the value-adding, downstream processing of its allocation of graphite concentrates. The Company is pursuing opportunities to supply the energy storage sector, advanced technologies and established industrial applications: all at the high-specification, premium priced end of the market. To this end a comprehensive strategy update was released in late August, 2018 which highlighted the modified downstream flow sheet, specific end-use customers and products as well as product price expectations for various products.

Test work on purification and nine different product specifications spanning battery materials and high-spec industrial applications, such as furnace electrodes, is currently in progress. Highly encouraging battery cycling test work results were achieved for purified, uncoated spherical graphite from McIntosh supporting previous positive battery test results.

The Company is implementing several initiatives on technical collaboration aimed at offtake of downstream materials as well as pursuing existing offtake relationships. To advance these with hard data, namely finished sample material, Hexagon is planning to establish a pilot refining furnace facility with several prototype downstream product lines focused on both batteries and industrial materials.

In developing its downstream business, Hexagon is adhering to the stringent "5-M's" qualification process dictated by leading battery manufacturers which is a regime of consistent source for all material (which requires that there be no change to the source project), process methodology and location and other criteria. Whilst Hexagon has access to a high quality graphite source at McIntosh, the downstream site and process selection needs to be carefully considered and executed before any qualification processes can commence - because changes mid-way will breach the 5-M's qualification criteria and invalidate the qualification process testing completed to date. A key site selection parameter is power availability and price and the Company is currently reviewing sites in Australia and overseas for its downstream pilot and qualification plant.

To support these upstream and downstream technical and commercial processes the Company appointed Lianne Grove to the newly created role of Chief Commercial Officer to focus on business development opportunities and overall financial management and strategy. This is part of the Company's growth strategy of building up the capabilities of the Hexagon team following the appointment of Michael Chan, a Metallurgical Engineer, as Chief Development Officer.

A detailed data compilation program for the Halls Creek tenements which has identifying several targets prospective for high-grade gold and VMS style base metals was recently completed. An airborne aeromagnetic survey is planned to provide detailed geological context for those targets.

However, given the Company's core focus on graphite it is currently seeking expressions of interest for any Joint Venture or Initial Public Offer-style transactions from a serious exploration group.

3. MCINTOSH FLAKE GRAPHITE PROJECT - STAGE 1 PROJECT

Drilling activities commenced on the McIntosh Joint Venture project (MJV) in early August 2018. The MJV is between Hexagon and Mineral Resources Limited (ASX: MIN, MinRes). MinRes has the right to earn a 51% interest in the McIntosh tenements, by funding all feasibility and development activities through to Commercial Production. MinRes is managing the current program and, subject to a positive Feasibility Study, will manage the MJV operations under a separate Mine Services Agreement.

The aim of the current drilling program is to test the resource potential of new exploration targets east of the known resource, confirm and upgrade existing targets and resources and generate approximately 17 tonnes of core samples for metallurgical test work.

Key near-term objectives of the Joint Venture include:

• • Upgrading the existing Mineral Resource base currently comprising 21.3 million tonnes grading 4.5% TGC (as reported by HXG in April 2017);

• • Advancing negotiations with the Malarngowem Native Title claimant group to enable heritage clearance of new targets and potential operational areas, and granting of current Mining Lease applications;

• • Detailed metallurgical test work to enhance and optimise the process flow sheet for the project to ensure maximum possible preservation of flake size and high graphite recoveries whilst also maintaining high concentrate grades; and

• • Develop a "McIntosh" brand to allow marketing of graphite concentrates planned to be produced at McIntosh.

MJV Site Activities

A major drilling program commenced in early August 2018 designed to generate metallurgical samples, underpin a resources upgrade and test several undrilled target zones.

Near the end of quarter, a total 40 drill holes have been completed, comprising 4,888 metres of reverse circulation (RC) and 1,751.1 metres of diamond drill (DD) core over the existing Emperor deposit and the previously untested Mahi Mahi and Threadfin targets; refer Figure 1, Prospect Location Plan.

The program is due for completion at the end of October 2018 and all assay results are pending.

Summary interim observations include:

• a. Mahi Mahi Target

  First drilling at the Mahi Mahi target has intersected thick, up to 90 metres of graphite mineralisation almost from surface as shown in Figure 2. The graphite mineralisation dips 10 to 30 degrees west and plunges gently south. It has been intersected on 4 drill sections extending over 300 metres along strike and remains open to the south and down dip.

  To date, 16 drill holes were completed for a total of 2,058 metres with two diamond drill holes still planned. Drill hole collar locations plotted onto the electro-magnetic (EM) anomaly are presented in Figure 3.

• b. Thread Fin Target

  First drilling at the Threadfin target has intersected up to 20 metres of graphite mineralisation in the first hole, subsequent holes have intersected thinner bands of graphite. The program consisted of 10 holes for a total of 810 metres.

Figure 1: Prospect Location Plan - MJV

Figure 2: Mahi Mahi Schematic Cross Section