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Quarterly ReportFor the three months ending June 2012

Vital Metals Limited

ASX Code: VML

ACN: 112 032 596

64 Churchill Avenue,Subiaco, WA 6011

PO Box 1276, Subiaco WA 6904

Tel: +61 8 9388 7742Fax: +61 8 9388 0804

Email: [email protected]

www.vitalmetals.com.au

Capital Structure

241.3 million shares

4.7 million unlisted options

Cash at 30 June

$0.44 million

Board & Management

David MacoboyChairman

Mark StrizekCEO and Managing Director

Peter CordinNon-Executive Director

Andrew SimpsonNon-Executive Director

Doug StewartNon–Executive Director

Graeme SmithCompany Secretary

HIGHLIGHTS

Watershed Tungsten Project, Queensland Confidence in Watershed mineral resource estimate

increased following completion of updated Independent

resource estimate which has been classified and reported

using JORC Code and Guidelines.

Measured, Indicated and Inferred Resources now total

20.6Mt at 0.25% WO3 for 50,700 tonnes WO3 at a 0.10%

WO3 cut off.

Metallurgical test work progressing towards completion by

end of Q3 2012.

Project Environmental Management Plan submitted to the

Department of Environment and Heritage Protection and

undergoing assessment.

Doulnia Gold Project, Burkina Faso Four new gold prospects have been identified from

geochemical soil sampling.

A program of trench sampling at Boungou South on the

Zeko tenement has returned some good widths of gold

mineralisation with a best result of 12m @ 2.2 g/t Au from

trench BT01.

Project Locations

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Report for the Quarter Ended 30 June 2012- 2 -

Cash BalanceVital Metals Ltd had a cash balance of $0.44 m at 30 June 2012, but this has since beenreplenished with a $3M funding facility from Macquarie Bank Limited (Macquarie).

CorporateIn July, Vital Metals Ltd secured a 2 year, $3 Million convertible loan facility fromMacquarie. Funds will be used for the Watershed Definitive Feasibility Study (DFS) andthe Burkina Faso Gold project as well as general working capital purposes. The Board ispleased to obtain the support of Macquarie and views this arrangement as a verypositive endorsement of the company and its projects.

The funding facility with Macquarie will enable Vital to complete all work necessary todeliver the DFS and progress permitting for the Watershed project. The JOGMECcommitment to fully fund the DFS is based upon specific budget amounts beingavailable to the Company within a specified timeframe. This would have restrictedexpenditure this year and could have delayed the targeted completion of the DFS in2012. At time of writing JOGMEC has remitted $3.27M (including $800K payment) intotal to Vital for costs incurred for the Watershed DFS since committing to the farm-inAugust 2011. Within the current funding period $1.13M remains available and the final$1M scheduled to be available from April 2013.

Operations

Watershed Tungsten Project – Queensland (Vital 100%)H & S Consultants Pty Ltd completed an updated resource estimate for the WatershedTungsten deposit that has been classified and reported using JORC Code and Guidelines.

The resource classification has changed with an increase in the amount of MeasuredResources due to the addition of diamond drilling from the 2011 program and theinclusion of RC drilling data from 2008 and historic trenching data (providing extra datapoints). H & S Consultants concluded that the resource model estimates were robustand suitable for pit optimisation studies.

The exploration database on which the resource estimates are based contains over 243holes and 15 costeans for a total of 54,460 metres of which 47,983 metres are diamondcore. The resource estimates were generated from 26,226 2m composites in sixgeologically defined domains with two sub-domains for partially weathered materialand fresh rock.

Modelling used Multiple Indicator Kriging with a maximum search distance of 26m by52.5m by 52.5m and a minimum number of data points of 8 to generate grades for a10m by 25m by 15m panel size with an SMU of 2.5m by 5m by 2.5m. Classification ofthe resources was based in part on the assumption that Vital plan to selectively minethe deposit via an open pit method. Recoverable resources for Watershed at a varietyof cut-offs are presented in the following table (Table 1 and Figure 3 through to Figure 5).

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Measured Indicated Inferred Combined

WO3%Cut off

Mt WO3% Mt WO3% Mt WO3% Mt WO3%WO3%Tonnes

0.05 9.47 0.16 28.36 0.14 11.49 0.15 49.32 0.14 70,400

0.1 4.42 0.25 11.51 0.24 4.73 0.26 20.66 0.25 50,700

0.15 2.69 0.34 6.66 0.32 2.83 0.35 12.18 0.33 40,400

0.2 1.93 0.41 4.56 0.39 2.05 0.41 8.53 0.4 34,100

0.3 1.09 0.53 2.4 0.52 1.17 0.54 4.66 0.53 24,600

Table 1: Watershed Mineral Resource Estimates

Vital is working on the Watershed DFS and Project Permitting in parallel. Progress wasachieved in a number of areas during the quarter with many tasks now set up forcompletion and final reporting due by the end of the next quarter.

Vital is optimising two metallurgical processes as part of the DFS:1. A standard flowsheet which involves ore sorting with down-stream gravity +

float processing (G+F)2. Whole of Ore (WOO) flotation which involves up-front milling to provide float

feed at a specified sizeThe processes are being assessed to determine which will provide the most cost-effective dollar per mtu option with regards to both capital and operating costs.

The following provides a summary of achievements and progress during the quarter:

The Environmental Management Plan was submitted to the Department ofEnvironment and Heritage Protection (DEHP) towards the end of June. TheDepartment has acknowledged receipt of the document and advised that thefirst comments will likely be received towards the end of July;

Optimisation of the gravity program (G+F) which involves the last stages ofsulphide flotation and magnetic separation is almost complete. The programhas been delayed by slow laboratory turn-around and an extended program ofoptimisation based on continual up-date of results. It is anticipated that theprogram will be completed by September;

WOO flotation work underway at GZRINM in China is progressing well with thework moving beyond the rougher stages into optimising the cleaner stages toproduce a clean 65% WO3 concentrate. The program remains on budget and ontrack for completion in September;

CONSULMET, a specialised technology company serving the mining industry inEurope, Africa and Australia has been commissioned to undertake the designand cost assessment of the two process options (G+F and WOO). Preliminaryfront-end design has commenced on the G+F processing option with indicativeprocess plant design layout, process flow diagrams, process & instrumentationdrawings and inclusive of equipment and power requirements, costs and overalldesign criteria. Completion of this work is on track for the end of September andthe results will be used for pit optimisation studies;

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The Indigenous Land Use Agreement (ILUA) has been lodged for registrationwith the National Native Title Tribunal.

Vital is pursuing an aggressive schedule and while there have been some delays of up toa month on some tasks the DFS remains on schedule for completion by the end of 2012(Figure 1). Project permitting which is running in parallel with the DFS is likely to befinalised sometime in 2013.

Figure 1: Watershed DFS Gantt chart

Tungsten prices remain at economic levels and with JOGMEC as a strong and committedpartner provides increased security for the eventual development of the project.

JOGMEC has a mandate to secure supplies of ores and metals for Japanese Companiesand is the reason for their involvement in the Watershed project. JOGMEC providesupdates on Watershed to interested parties in Japan and has organised for Vital tomeet with Japanese Companies in Australia to discuss the progress of the project.

Tungsten MarketTungsten prices have retreated slightly during the last quarter as world events andholidays in the northern hemisphere dampen demand. Tungsten prices (APT EU)retreated from a high of around US$440 at the start of the quarter to range betweenUS$405 per mtu to US$395 per mtu currently.

Figure 2: Average Tungsten APT (EU) Prices

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Doulnia Gold Project – Burkina FasoResults from soil geochemical sampling conducted during the quarter have confirmedthe prospectivity of four areas:

Final results were received from the Kampala geochemical sampling during thequarter with encouraging results received over the ADB and Cassava prospects;

Geochemical sampling completed over the Mousse prospect on the Doulniapermit has extended and confirmed continuity of the gold in soil anomaly. Theanomaly is situated on the northern edge of an E-W trending magnetic highwhich is caused by a band of sediments on the limb of a tight anti-form fold withclosure to the West;

A large low level anomaly has been identified near the village of Tangassougouon the 100% Vital owned Zeko Permit. The anomaly is located undertransported cover and is thought to be the strike extension of the Kollo trendassociated with Birimian greenstones. The gold in soil anomaly was identifiedfrom first pass mapping and wide spaced reconnaissance geochemical.

Additional geochemical sampling (auger sampling) is being planned over theseprospects in order to refine the definition of the gold in soil anomalies in preparationfor first pass drilling which will commence as soon as the wet season has ended (Figure

7).

Field mapping and trenching over the 100% Vital owned Boungou South prospect wascompleted during the quarter with a total of 198m of trenches dug, mapped andsampled during the quarter. Assay results from the trench samples are encouragingand confirm the prospectivity of Boungou South with BT01 returning an intersection of12m @ 2.2 g/t Au and BT02 returning an intersection of 5m @ 0.7g/t Au (Figure 8).Gold mineralisation is shear and vein hosted in sub vertical structures and a follow updrill program has been planned to commence when conditions allow (Figure 10).

Mapping and geochemical sampling was completed on the 100% owned Mediga permitduring the quarter. While the mapping reported a prospective high priority north easttrending high strain structural corridor which contained shearing and quartz veiningwith sulphides assay results from the geochemical sampling have not been encouragingto date and are being reviewed.

Samples from the Kollo South prospect have been sent to Australia for metallurgicalassessment of gold recovery. The diagnostic leach program will be conducted byNAGROM and is expected to be completed in the 3rd Quarter. Preliminary cyanideleach test work completed in Burkina Faso indicates encouraging recoveries above 90%.

Further work is recommended on the Kollo gold project before a JORC Code resourcecan be estimated. Drilling is being planned to follow up gold mineralised structureswhich have reported gold intercepts such a project best gold intercept of 5m @ 60.36g/t gold from 75m (including 2m @ 128.50 g/t gold from 76m) for hole KRC2601, 18m@ 2.95 g/t gold from 37m (KRC001)2, 31m @ 3.19 g/t gold from 34m (KRC019)2 and

1Reported Previously 29/3/2012


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44m @ 6.39 g/t gold from 8m which included 4m @ 58 g/t gold from 24m (KRC210)3

(Figure 8 and Figure 9).

The work completed during the quarter has confirmed the potential for Vital’stenements and prospects to host shallow gold mineralisation.

Four new gold prospects have been added to the portfolio and Kollo and BoungouSouth gold prospects remain attractive targets requiring further exploration. Drilling,auger sampling and field mapping are being planned to commence once the wet seasonhas ended.

Looking ahead to the Next QuarterWatershed

A full work program is mapped out for the next quarter with significant activity inmetallurgy with the two metallurgical processes - ore sorting with down-streamgravity and float processing (G+F) and the alternative of Whole of Ore (WOO)flotation being scheduled for completion the end of the next quarter.

Finalisation of this metallurgical work will allow Vital to determine which processingoption provides the most cost-effective dollar per mtu option with regards to bothcapital and operating costs and this will be determine the cost inputs for pitoptimisation studies.

On the permitting side Vital expects comment from DEHP following their review ofthe EM Plan.

Burkina Faso

In Burkina Faso, planning is well underway for the next drilling season withprograms planned for Kollo and Boungou South. Auger sampling will be used torefine targeting of first pass drilling at ADB, Cassava, Mousse and Tangassougou.

ENDS


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Competent Person’s Statement

The information in this announcement that relates to exploration drilling data, explorationresults & mineralisation is based on information compiled by Mr Mark Strizek, who is a Memberof The Australasian Institute of Mining and Metallurgy. Mr Strizek is a full time employee of theCompany and has sufficient experience which is relevant to the style of mineralisation and typeof deposit under consideration and to the activity which he is undertaking to qualify as aCompetent Person as defined in the 2004 edition of the “Australasian Code for Reporting ofExploration Results, Mineral Resources and Ore Reserves”. Mr Strizek consents to the inclusionin the announcement of the matters based on the information in the form and context in whichit appears.

The data in this report that relates to Mineral Resources for the Watershed Deposit is based oninformation evaluated by Mr Simon Tear who is a Member of The Australasian Institute ofMining and Metallurgy (MAusIMM) and who has sufficient experience relevant to the style ofmineralisation and type of deposit under consideration and to the activity which he isundertaking to qualify as a Competent Person as defined in the 2004 Edition of the AustralasianCode for Re-porting of Exploration Results, Mineral Resources and Ore Reserves (the “JORCCode”). Mr Tear is a Director of H&S Consultants Pty Ltd and he consents to the inclusion of theestimates in the report of the Mineral Resource in the form and context in which they appear.

For further details, refer to the company’s website, www.vitalmetals.com.au:

Contact:

Mark StrizekMD & CEO+61 8 9388 [email protected]

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mailto:[email protected]


Figure 3: Watershed Project Location

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Figure 4: Watershed Local Geology

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Figure 5: Watershed Resource Model

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Figure 6: Project Location Burkina Faso

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Figure 7: Location of Vital Metals tenements and prospects in Burkina Faso

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Figure 8: Kollo drilling showing reported intersections with interpreted geology

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Figure 9: Cross Section showing intercepts and interpreted mineralisation

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Figure 10: Boungou South Drilling and Trenching Showing Reported Intersections with Gold-in-Soil PPB Contours

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Appendix 5BMining exploration entity quarterly report

+ See chapter 19 for defined terms.

17/12/2010 Appendix 5B Page 1

Rule 5.3

Appendix 5B

Mining exploration entity quarterly reportIntroduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10

Name of entity

Vital Metals Limited

ABN Quarter ended (“current quarter”)

32 112 032 596 30 June 2012

Consolidated statement of cash flows

Cash flows related to operating activitiesCurrent quarter

$A’000Year to date(12 months)

$A’0001.1 Receipts from product sales and related debtors - -

1.2 Payments for (a) exploration & evaluation(b) development(c) production(d) administration

(300)--

(471)

(2,567)--

(1,611)1.3 Dividends received - -1.4 Interest and other items of a similar nature

received4 71

1.5 Interest and other costs of finance paid - -1.6 Income taxes paid - -1.7 Other (provide details if material) 48 119

Net Operating Cash Flows (719) (3,988)

Cash flows related to investing activities1.8 Payment for purchases of: (a) prospects

(b) equity investments(c) other fixed assets

--

(29)

--

(146)1.9 Proceeds from sale of: (a) prospects

(b) equity investments(c) other fixed assets

---

80030

-1.10 Loans to other entities - -1.11 Loans repaid by other entities - -1.12 Other (provide details if material) (40) (37)

Net investing cash flows (69) 6471.13 Total operating and investing cash flows

(carried forward) (788) (3,341)For

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Appendix 5B Page 2 17/12/2010

1.13 Total operating and investing cash flows(brought forward) (788) (3,341)

Cash flows related to financing activities1.14 Proceeds from issues of shares, options, etc. - 6251.15 Proceeds from sale of forfeited shares - -1.16 Proceeds from borrowings - -1.17 Repayment of borrowings - -1.18 Dividends paid - -1.19 Other (provide details if material) Share issue

transaction costs(21) (21)

Net financing cash flows (21) 604

Net increase (decrease) in cash held (809) (2,737)

1.20 Cash at beginning of quarter/year to date 1,325 3,2551.21 Exchange rate adjustments to item 1.20 (78) (80)

1.22 Cash at end of quarter 438 438

Payments to directors of the entity and associates of the directorsPayments to related entities of the entity and associates of the related entities

Current quarter$A'000

1.23 Aggregate amount of payments to the parties included in item 1.2 150

1.24 Aggregate amount of loans to the parties included in item 1.10 -

1.25 Explanation necessary for an understanding of the transactionsItem 1.23 includes aggregate amounts paid to directors including salary, directors’ fees, consultingfees and superannuation.

Non-cash financing and investing activities2.1 Details of financing and investing transactions which have had a material effect on consolidated

assets and liabilities but did not involve cash flows

2.2 Details of outlays made by other entities to establish or increase their share in projects in which thereporting entity has an interest

Financing facilities availableAdd notes as necessary for an understanding of the position.

Amount available$A’000

Amount used$A’000

3.1 Loan facilitiesConvertible Loan facility with Macquarie Banksigned 2 July 2012

3,000 Nil

3.2 Credit standby arrangements Nil Nil

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Estimated cash outflows for next quarter$A’000

4.1 Exploration and evaluation 665

4.2 Development -

4.3 Production -

4.4 Administration 500

Total 1,165

Reconciliation of cashReconciliation of cash at the end of the quarter (asshown in the consolidated statement of cash flows) tothe related items in the accounts is as follows.

Current quarter$A’000

Previous quarter$A’000

5.1 Cash on hand and at bank 438 1,009

5.2 Deposits at call - 316

5.3 Bank overdraft - -

5.4 Other (provide details) - -

Total: cash at end of quarter (item 1.22) 438 1,325

Changes in interests in mining tenements

Tenementreference

Nature of interest(note (2))

Interest atbeginningof quarter

Interest atend ofquarter

6.1 Interests in miningtenements relinquished,reduced or lapsed

6.2 Interests in miningtenements acquired orincreased

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Appendix 5B Page 4 17/12/2010

Issued and quoted securities at end of current quarterDescription includes rate of interest and any redemption or conversion rights together with prices and dates.

Total number Number quoted Issue price persecurity (see note3) (cents)

Amount paid up persecurity (see note 3)(cents)

7.1 Preference+securities(description)

7.2 Changes duringquarter(a) Increasesthrough issues(b) Decreasesthrough returns ofcapital, buy-backs,redemptions

7.3 +Ordinarysecurities

241,319,529 241,319,529

7.4 Changes duringquarter(a) Increasesthrough issues(b) Decreasesthrough returns ofcapital, buy-backs

12,501,835 12,501,835

7.5 +Convertibledebt securities(description)

7.6 Changes duringquarter(a) Increasesthrough issues(b) Decreasesthrough securitiesmatured,converted

7.7 Options(description and conversionfactor)

3,500,0001,200,000

500,000

Exercise price9 cents8 cents8 cents

Expiry date30/09/201328/02/201431/03/2014

7.8 Issued duringquarter

7.9 Exercised duringquarter

7.10 Expired/cancelledduring quarter

7.11 Debentures(totals only)

7.12 Unsecured notes(totals only)F

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Compliance statement

1 This statement has been prepared under accounting policies which comply withaccounting standards as defined in the Corporations Act or other standards acceptableto ASX (see note 5).

2 This statement does give a true and fair view of the matters disclosed.

Sign here: Graeme Smith Date: 30 July 2012(Company secretary)

Print name:

Notes

1 The quarterly report provides a basis for informing the market how the entity’sactivities have been financed for the past quarter and the effect on its cash position.An entity wanting to disclose additional information is encouraged to do so, in a noteor notes attached to this report.

2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of interests inmining tenements acquired, exercised or lapsed during the reporting period. If theentity is involved in a joint venture agreement and there are conditions precedentwhich will change its percentage interest in a mining tenement, it should disclose thechange of percentage interest and conditions precedent in the list required for items6.1 and 6.2.

3 Issued and quoted securities The issue price and amount paid up is not required initems 7.1 and 7.3 for fully paid securities.

4 The definitions in, and provisions of, AASB 6: Exploration for and Evaluation ofMineral Resources and AASB 107: Statement of Cash Flows apply to this report.

5 Accounting Standards ASX will accept, for example, the use of InternationalFinancial Reporting Standards for foreign entities. If the standards used do notaddress a topic, the Australian standard on that topic (if any) must be complied with.

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