Carpentaria Exploration : Activities and Cash Flow Report-Period Ended 31 December 2016

We find it. We prove it. We make it possible.

ABN : 63 095 117 981 ASX : CAP

25 JANUARY 2017

ABOUT CARPENTARIA:

Carpentaria is an emerging producer of iron ore in eastern Australia. The company has a majority share in the Hawsons Iron project, in addition to other magnetite interests in the developing Braemar Iron Province.

CARPENTARIA'S AIM:

Build a long lasting, low cost premium iron business

CAPITAL STRUCTURE:

Ordinary Shares 164,596,892

MAJOR SHAREHOLDERS:

Silvergate Capital Group 13.7%

Conglin International Investment Group 8.6%

SG Hiscock 5.2%

FINANCIAL

Cash on hand as at 31/12/2016 A$2,199,710

Level 6, 345 Ann Street

Brisbane Queensland 4000

PO Box 10919

Adelaide Street, Brisbane Queensland 4000

1. ail: [e-mail]

   For further information contact: Quentin Hill

   Managing Director Phone: [phone]

   Quarterly Report For the Quarter ended 31 December 2016

   C A R P E N T A R I A E X P L O R A T I O N L I M I T E D

   Highlights
   • Completion during the quarter of a 5,963m reverse circulation drilling programme comprising 20 holes directed to a JORC* mineral resource category upgrade of the existing resource to enable support of prefeasibility study due Q2 2017
   • Good potential for a successful mineral resource upgrade as observed geology, preliminary assays meet expectations
   • Analyses received from first 16 holes and showed 14 intersections between 102-200m thick and intersection of a proximal new mineralised zone in the north-east (inclusive of results subsequent to quarter end)
   • Best intersection of 200m at 16.8% magnetite mass recovery at 69.9%Fe concentrate grade in RC16BRP062
   • Confidence in mining and processing plans increased as characteristics so far consistent with expectations

     www. carpentariae x . net. au

   • Product marketing attracts more interest from the direct reduction (DR) market
   • Non-renounceable entitlements issue and placement of shortfall result during the quarter in the issue of 24,336,269 shares at $0.049 per share, raising a total of approximately $1.2 million (before costs), with funds used principally for drilling at Hawsons

* Joint Ore Reserves Committee

December Quarter

Hawsons Iron Project

Carpentaria Exploration Limited (ASX:CAP) in December 2016 announced positive results from the drilling programme at its Hawsons Iron Project. The programme, aided by the Company's successful capital raising, was designed to support a resource upgrade and planned new prefeasibility study for the Company's flagship project near Broken Hill.

Drilling comprising 5,963m in 20 reverse circulation (RC) holes and included additional drilling in the Fold prospect (Figure 1). The drilling targets are designed to upgrade

significant portions of the resource from JORC Inferred Resource to JORC Indicated Resource which, if achieved, will boost confidence in the project's economic viability. A resource upgrade is set to form part of a new prefeasibility study for Hawsons, scheduled for completion in the second quarter of 2017.

The work programme carried out, together with results to date, has improved the potential for a resource upgrade as results are broadly in line with expectation, drill spacing has been tightened, Davis Tube analysis has been done on every interval and geophysics collected on 80% of the drilling, consistent with earlier drilling programmes.

The confidence in some of the deposit's key competitive advantages is also increasing as extra drilling supports earlier mining and processing assumptions. This is because:

• there is no expected material change in mining characteristics, including the exceptional mining widths of circa 500m and the depth of overburden as the geological interpretation so far appears robust;

• concentrate quality results received to date are outstanding and consistent with expectations. Pilot plant work (ASX Announcement 14 October 2015) has shown Hawsons can produce amongst the finest quality concentrate in the world, known as Hawsons Supergrade, at 70.3%Fe. While the resource grade determined by DTR concentrate analysis is currently 69.7% Fe, the test work included an additional upgrade stage without materially affecting recoveries.

The drilling has also provided analytical data for Unit 1 and confirmed its presence in the north central part of the deposit, where it has previously been ignored. The magnetite mass recovery and concentrate grades are above the resource cut- off grades, potentially extending the known resource limits (Figures 1 and 3).

Subsequent to the end of the quarter, the Company has announced further drilling results that are also in line with expectations (ASX Announcement 16 January 2017).

Table 2 shows the significant intersections returned thus far and Figures 2 and 3 are representative cross sections of the results.

Product marketing

Carpentaria's Product Marketing Director, Lou Jelenich visited the Middle East during December to strengthen existing relationships with potential direct reduction (DR) customers as well as promoting the project to potential new customers. These discussions are progressing, highlighting the potential to build on the existing list of blue chip offtake customers that have signed letters of intent in the direct reduction market.

Current customers under letters of intent include Bahrain Steel, Emirates Steel, Formosa Plastics, Mitsubishi Corporation RtM Japan and trading house Gunvor Group.

Targeted resource upgrade area

UNIT1

UNIT2

UNIT3

Figure 1 - Drill hole location plan

New mineralisation, Unit 1

Figures 2 and 3 Example cross sections

Corporate

On 1 November 2016 the Company advised that it had raised $792,497 from a Rights Issue. Further, on 15 November 2016 the Company advised it had raised approximately $400,000 in a placement of part of the Rights Offer Shortfall to sophisticated investors all at a price of $0.049 per share.

This is in addition to a placement to sophisticated investors during the previous quarter. In total approximately $2,000,000 has been raised in the past two quarters.

Carpentaria held its Annual General Meeting on 24 November 2017.

Other

EL 6979 (Redan), part of the Hawsons project, was successfully renewed during the quarter for a further 5 years, leaving EL 7504 (Little Peak), the smallest of the HIP licences, the last to be renewed up to and beyond 2020. The Company knows of no reason why this will not occur at the appropriate time.

Cape Clear (Lachlan) Pty Ltd advised that it had met its $100,000 minimum expenditure commitment under the farm- out agreement with Carpentaria relating to the Barellan (EL 7896) and Combaning (EL 6901) projects.

EL 5561 (South Dam), located in the Braemar Province in South Australia was successfully renewed during the quarter for a further 2 years.

Carpentaria continues to seek divestment of its remaining non-ferrous projects.

About Hawsons Iron Project

The Hawsons Iron Project joint venture (Carpentaria 64%, Pure Metals P/L 36%) is currently undertaking development studies based on the low cost, long term supply of a high grade, ultra-low impurity iron concentrate to a growing premium iron market, including the direct reduction (DR) market.

The project has a clear technical and permitting pathway. It is located 60km southwest of Broken Hill, an ideal position for mining operations with existing power, rail and port infrastructure available for a conceptual 10 Mtpa start-up operation. A mining lease application has been lodged.

The project's soft rock is different from traditional hard rock magnetite and allows a very different approach to the typical magnetite mining and processing challenges (both technical and cost-related). The soft rock enables simple liberation of a product of rare quality without complex and expensive processing methods.

The Company is targeting the growing premium high grade product market, both pellets and pellet feed, which is separate to the bulk fines and believes its targeted cost structure is very profitable at consensus long-term price forecasts for this sector. It has secured offtake intent from blue chip companies Bahrain Steel, Emirates Steel, Formosa

Plastics, Mitsubishi Corporation RtM Japan and trading house Gunvor Group.

Figure 1 Location of Hawsons Iron Project and Port Pirie