Reed Resources acquires 2.5Moz Meekatharra Gold Project for A$28 Million

January 11, 2011

Australian diversified resources company Reed Resources Ltd (ASX: RDR) (“the Company” or “Reed Resources”) is pleased to announce the acquisition, via its wholly owned subsidiary GMK Exploration Pty Ltd, of 100% of the landholdings and assets of Mercator Gold Australia Pty Ltd (“Mercator”), which is currently in Administration.

The Meekatharra Gold Project, centred around the Bluebird processing plant, is located 640km northeast of Perth and 10 km south of Meekatharra, in the Murchison Region of Western Australia. The project comprises more than 800 km2 of tenure covering 100 km strike length of the Murchison Greenstone belt, and has produced in excess of 3.5 million ounces of gold. The Murchison Greenstone belt is a proven fertile greenstone, hosting multi-million ounce deposits at Mt Magnet, Tuckabianna, Reedys, Bluebird and Paddys Flat.

Mercator had delineated 2.5M ounces of gold in JORC Code compliant Resources, and Reserves in excess of 0.42M ounces at the commencement of operations in early 2007 and produced 44,000ounces in the 18 months prior to the suspension of operations in October 2008 (Refer Appendix A: Technical Notes for further information)(download full announcement).

Reed Resources believe that re-estimating and re-optimising the current resources and mine plan at current gold prices, as opposed to an average of less than US$800 for previous reserve calculation purposes, will lead to a significant increase in reserves.

In addition, the Company will also be acquiring significant infrastructure, including a refurbished processing plant capable of up to 3Mtpa, a 200-man camp, offices, workshops and a 7MW diesel power plant (Figures 9-11). The replacement cost has been independently assessed at A$104 million.

Terms and Financing

Under the terms of the acquisition agreement Reed Resources has agreed to make the following payments to Mercator:

• A$2 million within 48 hours of execution of the agreement (completed);
• A$15 million on 31 March 2011; and
• A$8 million at Settlement on 30 June 2011, together with the replacement of statutory environmental bonds (A$2.8 million).

On the Settlement date, Reed Resources will also issue Mercator with the greater of 2 million or A$1.3 million worth of Reed Resources shares based on the 5 day volume weighted average price (VWAP) prior to the Settlement date. The Company will also be responsible for the holding costs associated with the tenements for the period up until the Settlement date (estimated at A$1.7million).

The Company is currently evaluating a number of financing options to fund the acquisition and has commenced discussions with various parties in regards to the provision of equity and/or debt. The Board is confident of securing suitable funding arrangements shortly and will update the market accordingly as discussions progress.

Meekatharra and Gold Business Strategy

It is the intention of the Company to conduct a full geological and mining review of the entire tenement holding aimed at:

• Increasing the reserves through re-optimisation of the existing resources, reducing the risk of being dependent on a single ore source, particularly at the Paddys Flat and Reedys mining centres. The five principal pits at Reedys all have significant intersections beneath the existing workings (Figures 13-17) and cutbacks at both the Jack Ryan and Triton pits were aborted during the last mining attempt in 1997 when the gold price was approximately US$300/oz.
• Increasing the project’s JORC Code compliant resources through a focussed resource expansion and targeted exploration drilling program. The density of drilling is sparse in relation to the size of the land holding, particularly beneath 100m around historical mining centres. An initial review of some of the existing workings has already identified potential for immediate expansion, in addition to known resources.

The Company is currently restructuring its existing gold assets into a specialist gold vehicle, Gold Mines of Kalgoorlie Limited, and building up a dedicated management team for this discrete business unit.

Reed Resources’ Chief Geologist, Mr Craig Fawcett, will assume the role of General Manager – Gold. Craig is a qualified geologist and engineer who has previously held the positions of Chief Mine Geologist at Tanami Gold and Avoca Resources during both of their respective start-up phase of operations. Craig has also held the position of Geology & Mining Manager at Apex’s Wiluna Gold Mine during their re-start of operations.

Further details on strategy and forward work programs can be found in Appendix A (download full announcement).

Management Comment

Reed Resources Managing Director, Mr Christopher Reed, said this acquisition places Reed Resources in a strong position to become a mid-tier gold producer, with the gold price forecast to remain at these elevated levels for some time to come.

The strategic acquisition of this near production ready asset and highly prospective tenement package provides a great opportunity to realise significant value for our shareholders through the development of a gold business capable of delivering a strong sustainable growth profile from multiple production centres in a world class gold province.

A webcast presentation will commence at 8am WST on 12 January 2011, visit reedresources.com.

Download the full announcement for additional details and graphics

COMPETENT PERSONS STATEMENT

Geological aspects of this report have been compiled by Mr Craig Fawcett (MAIMM), a full time employee of Reed Resources Ltd. Mr Fawcett has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which is being reported on to qualify as a Competent Person as defined in the Code for Reporting of Mineral Resources and Ore Reserves (2004). Mr Fawcett consents to the inclusion in this report of the matters in the form and context in which it appears.