Rey Resources Limited : Quarterly Activities Report

June 2011Quarterly ReportHIGHLIGHTS

Canning Basin Coal Project, WA

Duchess Paradise reserves established DFS confirms good project returns Resource upgraded

Resource extension drilling commenced

Optimisation studies started

Active community engagement

Other

Funding secured for next stage

Thermal coal market remains robust

Rey Resources Limited

ABN 84 108 003 890

ASX Code: REY

For further information, contact: Phone: [phone]

Email: [e-mail]

Web: www.reyresources.com

Rey Resources Limited (“Rey” or “Rey Resources”; ASX: REY) is focusing on the development of its Duchess Paradise thermal coal project. It also owns coal, oil and gas tenements in north- west Australia that have excellent potential for development.

Canning Basin CoalStrategy

Rey’s coal projects are located in the Fitzroy Trough of the Canning Basin (refer Figure 1 below). The company’s strategy is to develop its Duchess Paradise Project by way of a slot highwall mine, on which a positive DFS was completed at the end of June 2011, and to examine underground mining of the adjacent deeper resource. The basin is well situated to feed the strong Asian demand for Australian export thermal coal for power generation. In the initial stage Rey is concentrating on near surface coals, which can be extracted by low-impact slot highwall mining.

Figure 1: Rey Resources’ mineral exploration leases in the Canning Basin

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Reserve Established and Resource Upgraded

As part of an extensive Definitive Feasibility Study, Rey completed an initial reserve estimate for the Duchess Paradise thermal coal project. This was in conjunction with the resource up-date of the upper (P1) seam at Duchess Paradise.

Rey engaged Marshall Miller & Associates, Inc. (MM&A) to prepare a coal resource estimate for the P1 coal seam in the Duchess Paradise area in the northwest of Western Australia, which was released in April 2011. Subsequently, they were also engaged to prepare a statement of coal reserves based on the resource, consistent with JORC guidelines.

Resource Upgraded

The resources are based on detailed modelling of data from 381 geophysically logged holes drilled in 2008 and in 2010, of which 60 have been analysed for raw coal quality. Only the P1 seam was re-estimated in this process, the P2 resource estimate remains as per the 2009 JORC statement.

The P1 coal seam is part of the Upper Permian Lightjack Formation of the Liveringa Group. The coal seams have a 7° to 10° dip towards the south in the Duchess area and a 2° to 5° dip to the east in the Paradise area. The depth of overburden to the P1 seam within the resource areas ranges from around 20 meters at the limit of oxidation to approximately 400 meters at the down dip end of the Inferred area in Duchess. Overall, the P1 total seam thickness ranges from less than one to over three meters, but it is very often in the range of 2.0 to 2.25 meters in both the Paradise and Duchess areas. The P1 seam JORC coal resource estimate for Duchess Paradise is presented in Table 1.

Table 1: Duchess Paradise P1 Seam JORC Resources Estimate by category as at 6 April 2011

In-situ (million tonnes)
Measured	Indicated	Inferred	Total
Paradise area	34.6	30.3	81.9	146.8
Duchess area	25.6	48.2	85.1	159.0
Total	60.2	78.5	167.0	305.8

Reserve Established

The Coal Reserve estimate is based on part of the Measured and Indicated coal resources in the P1 seam. A detailed mine plan using a combination of slot excavation and highwall mining (HWM) methods is projected to produce approximately 20.5 million (gar) marketable tonnes, over an approximate 10 year mine life from the

shallow part of the resource. The reserve is presented in Table 2 below:

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Table 2: P1 Seam Reserve Estimate for Duchess Paradise Mine Plan as at 30 May 2011

Type	Average Mine Recovery (%)	Total Run- of-Mine Coal (ar) (Mt)	Wet Yield based on Expected Total Moisture (%)	Marketable Cleaned Coal (gar) (1) @ 17.3 % Total Moisture (Mt)
Slot Excavation	95	2.5	67.6	1.7
Highwall Mining	51	23.8	67.7	16.1
Total	26.3	67.7(2)	17.8(3)

(1) gar gross as received.

(2) A&B Mylec calculated a 67.3% wet yield based on coal quality data from 60 cored holes and seam thickness data from 381 available drill holes, as supplied by Marshal Miller & Associates.

(3) An additional 2.7 million marketable cleaned tonnes (gar) derived from inferred resource are included in the mine plan, which totals 20.5 million marketable cleaned tonnes (gar).

Positive Definitive Feasibility Study

Under the leadership of Rey’s project director Mr Ron Hite, the DFS was successfully completed on time and demonstrating a positive economic outcome for the project. The study was undertaken by leading international experts, Marshall Miller and Associates and the economic modelling has been independently audited and assessed. Subject to environmental, native title and other regulatory approvals, this would allow mining operations to commence at the end of 2013.

The result confirmed an economically robust and technically viable operation:

Net present value (NPV) of A$176 million: based on discounting real free cashflows (no inflation and a discount rate of 10% p.a.) ungeared, after tax (including the proposed Mineral Resource Rent Tax) and assuming exchange rates of A$/US$: $1.05 declining to 85c in 2015. The related internal rate of return

(IRR) is 27% p.a. and the payback is 3.4 years; and

NPV of A$112 million; based on discounting nominal free cashflows (applying inflation and a discount rate of 13% p.a.) ungeared, after tax (including the proposed Mineral Resource Rent Tax) and assuming exchange rates of A$/US$:$1.05 declining to 85c in 2015. The related IRR is 25 % p.a. and payback is

3.6 years.

The mine plan envisages exports of 2.0 to 2.5 million tonnes of thermal coal per year for a 10 year life from the initial slot highwall mining operation. This is a larger annual tonnage and longer life operation than originally planned and does not reflect the substantial potential to significantly extend the mine life.

Coal is to be washed in a preparation plant, with expected yields of approximately 67 per cent. The product is to be transported by 100 tonne road trains on the highway to Derby for export through Rey’s existing Derby port facilities. The system proposed to tranship the coal at Derby port is widely used by other coal companies and was used previously at Derby to tranship metal concentrates.

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Export product is a bituminous coal with an energy content of 5,500 kcal/kg gross as received (gar). It is expected that by 2020, bituminous coals with contained energy content similar to Rey’s will account for more than 50 per cent of total seaborne thermal trade.

Cash operating costs are A$70 per tonne including royalties.

Strong cashflows- EBITDA is estimated at $504 million over the first five years of sales.

Capital costs to production, including wholly owned equipment fleet are estimated to be $199 million (2011 dollars). This reflects conservative assumptions including the assumption of owning all major equipment apart from road haulage; (previous studies assumed all earthmoving activities to be contracted).

No critical environmental impediments to development were identified. The operation will use existing port and highway facilities.

Optimisation studies Commenced

Work to capture upside returns includes:

sourcing capital equipment from overseas - the DFS assumes Australian manufacture of the wash plant, camp and local purchase of all mobile equipment;

contractor versus owner operator analysis, to provide the opportunity of reducing the capital requirement for the project;

ability to mine additional P1 coal to the north of Paradise;

potential to mine parts of the lower P2 seam by slot highwall miners; wash plant optimisation to increase yield and reduce moisture; and further refining design of site and port infrastructure

Permitting and Approvals

An application for a mining lease has been submitted to the Western Australian Government. Environmental permitting has commenced. Rey is in ongoing detailed discussions with native title holders to obtain required agreements and to ensure the benefits from the project, such as employment and contracting businesses and payments provide maximum value to local communities.

The project is capable of rapid development with a period of less than 12 months from commencement to first mine production. Actual development timing will depend on permitting and approvals but construction is expected to commence in 2013, with first mining in late 2013 and first sales in early 2014.

Financing of the project development is expected to be aligned with the grant of permits in 2013. Early discussions with project financiers and potential strategic investors are underway.

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2011 Resource Drilling

In June Rey commenced its 2011 drilling program following the wet season. Following the release of a maiden reserve statement for the planned Duchess Paradise thermal coal project, the initial focus is on expanding resources along strike to extend the 10 year life of slot highwall mining.

New exploration will then focus on areas of sub-crop that are closer to the port, subject to Heritage and other approvals. Drilling will then focus on upgrading the large coal resources identified in the P1 coal resource statement.

Thermal Coal Market Studies

Rey appointed internationally recognised consultants, Wood Mackenzie, to examine the markets for the thermal coal product as part of the DFS.

The DFS used the consultant’s prediction that all thermal coal prices will fall in 2012 with real price increases

from 2013. The financial model assumes a real terms price for Duchess Paradise coals of US$99 per tonne in

2014 rising to US$103 per tonne in 2023. This compares with a mid-2011 market price estimate for Duchess Paradise coal of US$104 per tonne, and a 2014 estimate for the Newcastle benchmark price of US$121 per tonne. The Newcastle benchmark is based on 6,322 kcal/kg gar coal whilst the Rey prices are based on Rey’s average coal quality of 5,500 kcal/kg gar.

India is identified as a key market, with new power stations designed for coals of similar energy content. India is a country keen to geographically diversify supply sources and lock in a medium cost supplier. Marketing discussions have commenced with potential customers.

The Duchess Paradise project has a freight advantage compared to non-Indonesian suppliers to south Asia, in particular India. The project offers security of supply advantages against Indonesian suppliers and is believed to be cost competitive against non-Indonesian suppliers into the region.

The spot thermal benchmark price out of the port of Newcastle at the beginning of July 2011 traded around

US$122 per tonne.

Other Projects within Canning Basin

In January 2008, Gujarat NRE Mineral Resources Ltd paid $275,000 to Rey and must spend $4.85 million over six years to earn a 90 per cent interest in the two Petroleum Exploration Permits (EP 457 and EP 458). Rey retains a 10 per cent interest in the permits, which is free carried until the grant of a petroleum production license.

CorporateFunds Raised

At the end of the quarter Rey had received firm commitments for 40 million fully paid ordinary shares at $0.20 per share to raise $8 million before costs. The placement was strongly supported by new and existing investors. The placement was made in two tranches to clients of Euroz and Sinonew Capital:

Tranche 1: comprising 6.7 million Shares to raise $1.34 million to be issued immediately under the

Company’s 15% capacity; and

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Tranche 2: comprising 33.3 million Shares to raise a further $6.66 million to be issued subject to shareholder approval.

To approve the issue, Rey has called an Extraordinary General Meeting of shareholders on 5th August in Perth.

Mineralogy applications

As previously advised, Blackfin Pty Ltd (“Blackfin”), a wholly owned subsidiary of Rey Resources Limited, received applications from Mineralogy Pty Ltd (“Mineralogy”) in October 2009 for forfeiture affecting certain exploration licences (the “ELs”) held by Blackfin. While the ELs cover areas of strategic interest to Rey, they do not relate to Rey’s current JORC resource or DFS in relation to the Duchess Paradise Project.

The applications claim that Blackfin has failed to comply with the expenditure conditions for the 2009 expenditure year and that the ELs should be forfeited in favour of Mineralogy. These applications, to be handled by the Mining Warden, have been listed for mention in September. Under the Mining Act, the Mining Warden may recommend the forfeiture of an exploration licence, impose a penalty not exceeding $10,000 as an alternative to forfeiture, or dismiss the application. Rey has expended significant capital on progressing its tenements, including exploration, development and furthering relationships with local stakeholders including indigenous groups, their advisors and the Shire of Derby/West Kimberley. Rey intends to vigorously defend this matter.

Board Changes

Rey Resources appointed Ms Maree Arnason as Executive Director – Strategy to the Board in April. Ms Arnason has over 25 years’ experience working across the resource, energy and manufacturing sectors in Australia and has worked with Rey Resources in an advisory capacity over the last three years. Maree has held senior leadership roles in remote and corporate environments with BHP Iron Ore, BHP Billiton, Carter Holt Harvey, SCA, Wesfarmers Energy, CITIC Pacific Mining and has recently operated a strategy consultancy business advising several resource projects in Western Australia.

Mr Bruce Preston and Mr William McIntosh resigned as directors. Mr Preston will for a transitional period,

continue to be Rey’s executive representative in the Derby region, Western Australia.

Cash Balance

The cash balance as at 30 June was $3.3 million.

Outlook for 2011

Now that the DFS demonstrated the economic viability of the project, Rey will work to secure production as soon as practicable. It is progressing negotiations with native title holders and regulatory bodies with a view to meeting the timetable for production in late 2013.

At the same time Rey is working to enhance the value of the project by expanding the resource base and examining both operating and financing alternatives for the project that will further improve returns.

Deliverables for the September quarter include:

progress negotiations with native title holders and the environmental permitting authorities progress the drilling campaign

decide on EPCM/ owners team mix for the design of Duchess Paradise project

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Further corporate activity in the coal sector has highlighted overseas interest in companies that have a defined path to production and substantial resource upside. Completion of the DFS means Rey fits these criteria.

Reserve and Resources StatementsP1 Seam Reserve Estimate for Duchess Paradise Mine Plan as at 30 May 2011

Type	Average Mine Recovery (%)	Total Run- of-Mine Coal (ar) (Mt)	Wet Yield based on Expected Total Moisture (%)	Marketable Cleaned Coal (gar) (1) @ 17.3 % Total Moisture (Mt)
Slot Excavation	95	2.5	67.6	1.7
Highwall Mining	51	23.8	67.7	16.1
Total	26.3	67.7(2)	17.8(3)

(1) gar gross as received.

(2) A&B Mylec calculated a 67.3% wet yield based on coal quality data from 60 cored holes and seam thickness data from 381 available drill holes, as supplied by Marshal Miller & Associates.

(3) An additional 2.7 million marketable cleaned tonnes (gar) derived from inferred resource are included in the mine plan, which totals 20.5 million marketable cleaned tonnes (gar).

Reserves are included in the following resource statements.

Competent Persons Statement

The estimation of the Duchess Paradise P1 Seam Coal Reserves has been provided by Messrs Gerard Enigk, B.S.M.E., P.E., Manager of Engineering of MM&A and Peter Lawson, B.S.M.E., M.B.A., Executive Vice President of MM&A. Mr. Enigk has over 34 years of experience in coal-related work, including but not limited to coal reserve/resource estimation, mine planning and design, mine operations, mineral valuation and appraisals, and geotechnical evaluations. He is a Registered Member of the Society of Mining, Metallurgy, and Exploration (SME), which is part of The American Institute of Mining, Metallurgy, and Petroleum Engineers (AIME). Mr. Enigk holds a Bachelor of Science degree in Engineering of Mines from The Pennsylvania State University and a Masters degree in Environmental Science from the West Virginia Graduate College, and is a Registered Professional Engineer in West Virginia. Mr. Enigk has served in the capacity as Manager of Engineering and as a production supervisor for operating coal companies, and has extensive experience with surface and underground mining operations, including the use of highwall mining systems. Mr. Enigk is a certified mine foreman in West Virginia. His education and experience qualify him as a Competent Person as defined in the December 2004 Edition of the “Australian Code for Reporting of Mineral Resources and Ore Reserves” (The JORC Code, 2004 Edition). Mr. Lawson has over 32 years of experience in coal- related work, including but not limited to coal reserve/resource estimation, mine engineering, mine operations, mineral valuation and appraisals, and mergers and acquisitions. He is a Registered Member of the Society of Mining, Metallurgy, and Exploration (SME), which is part of The American Institute of Mining, Metallurgy, and Petroleum Engineers (AIME). He is also a member of the West Virginia Coal Association, the American Society of Mining and Reclamation and the Illinois Mining Institute. Mr. Lawson holds a Bachelor o f Science degree in Mining Engineering from The New Mexico Institute of Mining and Technology and a Masters degree in Business Administration from Ashland University. Mr. Lawson has served in the capacity as Manager of Engineering and as President for operating coal companies, and has extensive experience with surface mining operations, including the use of highwall mining systems. His education and experience qualify him as a Competent Person as defined in the December 2004 Edition of the “Australian Code for Reporting of Mineral Resources and Ore Reserves” (The JORC Code, 2004 Edition). Mr. Enigk and Mr. Lawson consent to the information included in this report of the

matters based on their information in the form and context in which they appear.

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Duchess Paradise P1 Seam JORC Resources Estimate by category as at 6 April 2011

P1 Seam	Measured(Mt)	Indicated(Mt)	Inferred(Mt)	Total (Mt)
Total	60.2	78.5	167.0	305.8

For further information on the above summary Resources estimate, please refer to the Company’s ASX announcement dated 6 April 2011

Competent Persons Statement

The estimation of the Duchess Paradise P1 Seam Coal Resources has been provided by Messrs Scott Keim and Ron Mullennex. Mr Keim is a Member of the American Institute of Professional Geologists. He is a full time employee of MM&A which was contracted to provide the JORC estimate. Mr Keim has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the December 2004 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (The JORC Code, 2004 Edition). Mr Keim has over 29 years of coal specific experience including coal exploration, resource modelling, estimation and assessment, and geotechnical assessment and modelling. Mr Keim consents to the inclusion in the report of the matters based on his information in the form and context in which they appear. Mr Mullennex is a Member of the American Institute of Professional Geologists. He is a full time employee of MM&A which was contracted to provide the JORC estimate. Mr Mullennex has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the December 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (The JORC Code, 2004 Edition). Mr Mullennex has over 34 years of coal specific experience including coal exploration, resource modelling, estimation and assessment, and geotechnical assessment and modelling. Mr Mullennex consents to the inclusion in the report of the matters based on his information in the form and context in which they appear.

Duchess Paradise P2 Seam JORC Resources Estimate by category as at 1 June 2009

P2 Seam	Measured(Mt)	Indicated(Mt)	Inferred(Mt)	Total (Mt)
Totals	16.9	41.7	171.0	229.6

For further information on the above summary Resources estimate, please refer to the Company’s ASX announcement dated 1 June 2009

Competent Persons Statement

The estimation of the Duchess Paradise P2 seam Coal Resources is a summary of the information set out in the Company’s ASX announcement on 1 June 2009 and has been provided by Mr Richard Campbell, who is a Member of the Australasian Institute of Mining and Metallurgy and was a full time employee of Blackrock Mining Solutions Pty Ltd which was contracted to provide the JORC estimate. Mr Campbell has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (The JORC Code, 2004 Edition). Mr Campbell has over 10 years of coal specific experience including coal exploration, resource modelling, estimation and assessment, and geotechnical assessment and modelling. Mr Campbell consents to the inclusion in the report of the matters based on his information in the form and context in which they appear.

Coal Quality- Competent Persons Statement

The coal quality information in this report has been compiled under the supervision and reviewed by Mr. Andrew Meyers, who is a Member of the Australasian Institute of Mining and Metallurgy (Member since 1993) and Director of A&B Mylec Pty Ltd, metallurgical and coal technology consultants. Andrew Meyers has more than 20 years’ experience in coal processing for coal projects and coal mines both in Australia and overseas. With this level of experience, he is adequately qualified as a Competent Person as defined in the December 2004 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (The JORC Code, 2004

Edition). Mr Meyers consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Exploration- Competent Persons Statement

The information in this report that relates to Exploration Results is based on information compiled by Bruce C Preston who is a member of The Australian Institute of Geoscientists. Dr Preston has sufficient experience to qualify as a Competent Person for the purposes of the December 2004Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (The JORC Code, 2004 Edition). Dr Preston was previously the Technical Director of Rey Resources Limited and he consents to the inclusion in the report of the matters based on his information in the form and context in which they appear. Dr Preston has a beneficial interest in

6,072,025 shares or 1.85% of the issued capital of Rey Resources Limited.

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Corporate Directory

Board of Directors

Charlie Lenegan Chairman

Kevin Wilson Managing Director

Maree Arnason Executive Director - Strategy

Ronnie Beevor Non-Executive Director Alan Humphris Non-Executive Director James McClements Non-Executive Director

Company Secretaries

Mr Glen Smith

Mr Krishna Kulshreshtha

Capital Structure

Rey Resources is listed on the Australian Securities Exchange (ASX: REY) and had 328.9 million ordinary shares on issue,

4.5 million options at various exercise prices and 3.15 million performance rights as at 29 July, 2011.

Share Registry Boardroom Pty Limited Level 7, 207 Kent Street

Sydney NSW 2000 Australia

Tel: [phone]

Fax: [phone]

Registered Office

Rey Resources Limited

1121 Hay Street, West Perth, WA, 6005, Australia

Mailing address: P.O. Box 1809, Hay Street, West Perth, 6872

Tel: [phone]

Fax: [phone]

www.reyresources.com

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