Avalon Minerals : Quarterly Activities and Cashflow Report

23 January 2017

AVALON MINERALS LTD DECEMBER 2016 QUARTERLY REPORT

Gold Portfolio, Scandinavia (Avalon earning 80%)

• Large gold system identified at Satulinmäki gold prospect in Finland;
  • 147.0m at 0.8 g/t gold from 73m in SMDD007,
    • Including 23.5m at 3.3g/t from 143m
      • including 9.0m at 7.3 g/t from 147m
        • Multiple intervals of gold mineralisation in other holes drilled by Avalon and GTK
        • Results define a significant near-surface gold system with both narrow high grade intervals and wide lower grade intervals, all within 150m of surface that remains open in all directions;
        • A detailed Induced Polarisation ("IP") program is scheduled to commence in January with follow-up drilling planned once the results of the IP program are known;
• Avalon (100%) is building a strong land position over areas considered to be prospective for gold in Finland.

Viscaria Copper Project, Sweden (Avalon - 100%)

• Low risk copper development opportunity - will add significant value within an increasing copper price environment;
• Environmental and Social Impact Assessment (ESIA) process is progressing, and represents the critical path to final permitting;
• Considerable exploration upside exists and low technical risk extensional drill targets have been defined to increase the resource estimate.

23 January 2017

Lithium Portfolio, Scandinavia (Avalon's 80% subsidiary Scandian Metals Pty Ltd (Scandian) earning 80%)

• Diamond drilling at Kietyönmäki returned 24.2m at 1.4% Li2O, including 9m at 2.0% Li2O (refer ASX Announcement dated 12 September 2016);
• Channel sampling at Kietyönmäki returned 16.25m at 1.72% Li2O;
• Next phase being planned.

  Corporate Highlights

• A$2.7 million in cash at 31 December 2016;
• Placement of approximately $2.5M before fees to new and existing sophisticated investors completed during the quarter;
• Participation in the placement by two directors is subject to shareholder approval at a General Meeting to be held on 14 February 2017.

Figure 1: Project Locations

Exploration and Development Activities

Gold Portfolio Tammela Gold Opportunity, Finland (Avalon earning 80% from Nortec Minerals)

The Nortec earn-in agreement includes two known gold opportunities, Satulinmäki and Riukka, held within the claim areas. All historical drilling is shallow and has only tested to ~70m below surface. Historical assays from diamond drilling by the Finnish Geological Survey (GTK) included 22m @ 3.6 g/t Au from 50 metres (hole 391) at Satulinmäki.

At Satulinmäki Avalon completed seven diamond drill holes during the quarter for 1,401.6m. Results are presented in Table 1 and highlights include (refer ASX Announcement dated 14 November 2016);

• 7.0m at 1.2g/t gold from 9m in SMDD001
• 10.0m at 1.1 g/t gold from 33m in SMDD001 o 1.0m at 15.2g/t gold from 57m in SMDD001 o 42.0m at 0.9 g/t gold from 112m in SMDD002 o 2.0m at 2.1 g/t gold from 237m in SMDD003
• 13.4m at 2.0 g/t gold from 15.6m in SMDD004
• 0.8m at 3.5 g/t from 170.5m in SMDD004
• 2.0m at 10.5 g/t gold from 7m in SMDD005
• 147.0m at 0.8 g/t gold from 73m in SMDD007,
  • Including 23.5m at 3.3g/t from 143m
    • including 9.0m at 7.3 g/t from 147m

The results from Avalon's drilling, together with the historical drilling results of the Finnish Geological Survey, clearly show a large gold system of broad mineralised zones and sub-parallel narrow veins. The system is open in all directions, and has a length of at least 400m, a vertical extent of at least 150m, and ranges up to approximately 50m thick. There is clear evidence of likely extensions to the northeast and southwest, and an historic working from the 1980's was found in the southeast corner which has seen only one historic drill hole as follow-up.

The deepest hole drilled by Avalon, SMDD003, explored to only 200m below surface and was still in anomalous gold levels at that depth.

Historical diamond drilling by the Geological Survey of Finland (GTK) was undertaken from 2001 to 2005. GTK drilled 60 holes for 4727m but did not explore below 70m. Detailed review of results has highlighted multiple intervals above 1 g/t, and other highly anomalous intervals in areas of very limited drilling. Additionally, not all intervals were sampled by GTK and Avalon has completed a sampling program to test these other structures.

Within the main system, gold mineralisation has been identified as narrow high grade zones within quartz veins and breccias, and as wide low grade intervals within veined and altered rock. Figures 3 and 4 illustrate the currently interpreted structures and assay results at two different elevations. Figure 4 shows very clearly the sparsity of drilling below 55m depth, and hence the opportunity to expand the gold mineralised area with further drilling.

The area shown in figures 3 & 4 represents only a portion of the Satulinmäki Prospect, with the broader Satulinmäki Prospect and the zone between Satulinmäki and Riukka (Figures 5 & 6) requiring exploration.

The combination of thick lower grades and narrow higher grades at Satulinmäki represents significant opportunities for follow-up drilling and consideration of development options.

A detailed geophysical Induced Polarisation ("IP") program will commence in January. Follow-up drilling is expected to commence following the results of this IP program.

At Riukka, located 4km to the south-east, Avalon has completed 3 diamond drill holes.

The holes intersected quartz veins at depth below quartz vein hosted gold mineralised intervals drilled by the Finnish Geological Survey and containing up to 2m at 16.6 g/t gold. GTK drilled 41 diamond drill holes for 3,404 meters during the period 2001-2005 in the broader Riukka area.

Assay results from Riukka received to date are shown below in Table 4. Mineralisation was weak but was targeted on a narrow sub-vertical plunge. This interpretation has now been modified based on these results, and work at Satulinmäki, with further drilling at Riukka planned for 2017 to explore the historical high grade results to depth once the structural geology is clarified.

Other Gold Opportunities (Avalon 100%)

Based on Avalon's regional assessment of gold prospectivity in southern Finland, several applications have been lodged for Exploration Reservations covering known gold occurrences. These areas are held 100% by Avalon and will be explored systematically.

Lithium Portfolio

Kietyönmäki Lithium Project (Avalon's 80% subsidiary Scandian Metals Pty Ltd (Scandian) earning 80%)

The Nortec earn-in agreement area includes the Kietyönmäki lithium occurrence which was discovered by the Finnish Geological Survey (GTK) in the mid-1980's. Lithium mineralisation at Kietyönmäki is hosted in a spodumene-bearing pegmatite dyke swarm. The Kietyönmäki lithium pegmatite deposit was drilled by GTK during the period 1987 and 1988. Seventeen shallow diamond drill holes were completed to test down to 70m below surface across three traverses, including one traverse of very shallow holes to identify bedrock.

A total of six diamond drill holes for 1,171.9m have been drilled by Avalon at Kietyönmäki and have confirmed a high grade spodumene-bearing pegmatite dyke swarm. Assay results for the six holes drilled are shown in Table 2.

Channel sampling has also been completed on 7 traverses - 3 over the main dyke, and 4 over smaller dykes and has returned up to 16.25m at 1.72% Li2O (see table 3 below, and figure 9).

The results suggest continuation of a thickened pegmatite dyke to the south-east and this trend is expected to be tested with future drilling. Further work is required to better understand the geology,