In July 2015, Metallica Minerals was granted Exploration Permits for Minerals (EPMs) 25779, 25806 and 25807, which make up the Esmeralda graphite project. The project, located near Croydon in north Queensland (see Figure 3), covers a combined area of more than 500 km² and is held 100% by Metallica’s wholly–owned subsidiary, Touchstone Resources Pty Ltd.

Metallica has identified significant graphite occurrences within the Esmeralda granites in the project area. These occurrences were first identified in 2006 by Metallica during a drilling program that targeted well–defined airborne and ground–defined intense electromagnetic (EM) anomalies. At the time, the drilling focused on base metal and gold–bearing massive sulphide mineralisation. Instead of sulphides, Metallica identified significant graphite mineralisation. The discovery was unexpected because graphite is rarely associated with igneous rocks, such as granite.

Subsequently, a literature review of graphite occurrences in the Esmeralda granites and Croydon volcanics indicated large suites of potentially graphite–bearing igneous rocks. Metallica has identified targets where magmatic differentiation or structural controls could concentrate graphite into significantly higher percentages.

Previous percussion drilling, including the 2006 Metallica program, recorded significant zones of observable graphite mineralisation (>10% graphite visually) while exploring for metals and other types of mineralisation. Fourteen historic percussion exploration drill holes were identified intersecting significant graphitic granite.

Igneous or hydrothermal–style graphite deposits, such as Esmeralda, are rare. The more common metamorphic–style graphite deposits make up 95% of the world’s known graphite deposits. Unlike the metamorphic–style deposits, hydrothermal–style graphite deposits are typically of high purity graphite in either flake or crystalline form. Examples of this style of mineralisation include the high–grade, narrow–vein Sri Lankan deposits and the Albany graphite deposit in Canada. The carbon source is non–organic and the carbon is thought to be from deep carbon dioxide (CO2) or methane (CH4) gaseous injection into the magma chamber, which later crystallises out as pure or near–pure carbon (graphite) crystals.

Metallica has developed a hydrothermal mineralisation model for the Esmeralda granite based on work completed by the Bureau of Mineral Resources (BMR) in 1988 and the 2013 discovery of the Albany graphite deposit.

The Company mobilised a drill rig to site in October 2015 to carry out an initial drilling program on the project. The assay results confirmed thick graphite (graphitic carbon – Cg) mineralised intervals in the first two exploration holes.

The core was assayed for graphite content and total carbon. In summary, both drill holes (in a vertical two–hole drilling program) intersected significant broad graphite mineralisation (using a 3% Cg cut–off) with continuous intercepts of:

WD001 – 95m @ 6.5% Cg from 71m

WD002 – 29.1m @ 7.8% Cg from 71.9m

An independent petrology study has also been completed on six representative samples from the mineralised zones. The petrology study identified the same distinctive alteration and mineralisation style present in both holes and which is associated with consistent grades, indicating that the graphite mineralisation may be continuous for 1.2 km or more.

These results add strong support to the Company’s belief that the Warrior deposit, that makes up a part of the Esmeralda graphite project, is very large and would be uniquely amenable to large–scale bulk mining. WD001 ended in significant graphite mineralisation (4.1% Cg), with mineralisation open in all directions.

Metallurgical results, including those from the Mineral Liberation Analysis, show that 97.8% TC purity product can potentially be even further improved by removing impurities via conventional processing methods, including additional purification stages.

The test work followed standard procedures that involved crushing and preparation of representative drill core samples for bench scale floatation testwork. With the addition of standard floatation reagents, a concentrate grade of 91.5% TC (90.6% Cg) was able to be produced at a 91% recovery.

Further purification testwork using an additional single stage caustic bake and wash process, produced an even higher concentrate grade of 97.8% TC.

The Company completed an electromagnetic (EM) geophysics program in October 2016 to identify near surface graphite mineralisation for follow up testing. Data from this program is being analysed to identify walk–up drill targets. These targets are planned to be drilled during 2017.

Metallica remains excited that Esmeralda hosts a very large mineralized system. The project will be developed methodically. However, the Company’s priority focus remains on delivering cash flow from the Urquhart bauxite project.