ACTIVITIES REPORT

For Period Ended 31 December 2015

ASX: AUZ 29 January 2016

HIGHLIGHTS

Doolgunna - Marymia Project

Dixon gold prospect

• Discovered a high-grade gold zone within an underexplored Australian gold province

  • 10 metres @ 8.79 g/t gold from 130 metres downhole in MMRC016, including

    • 1 metre @ 29.11 g/t gold from 133 metres downhole

    • 1 metre @ 14.85 g/t gold from 134 metres downhole

    • 1 metre @ 29.22 g/t gold from 136 metres downhole

      
      

• Increased footprint of gold mineralisation indicated by geophysics

  • 200 metre long chargeability anomaly detected by IP survey at Dixon

  • IP anomaly coincident with gold-bearing sulphidic quartz veins intersected by recent drilling

    
    

• Repetitions of Dixon-style gold mineralisation possible across project area

  • IP survey identified a second anomaly proximal to known gold mineralisation

  • Less than one-third of the prospective geology currently surveyed by geophysics

    
    

• Targeted RC drill program scheduled to commence in March 2016

  
  

  Cash position

• Maintained sound financial position

  • $1 million raised this quarter through share placements to professional investors

  • Funds ongoing drilling and exploration programs at Doolgunna - Marymia

Australian Mines Limited ("Australian Mines" or "the Company") is pleased to provide shareholders with its Quarterly Activities Report for the period ended 31 December 2015.

Doolgunna - Marymia Project

The Doolgunna - Marymia Project is situated approximately 900 kilometres north of Perth and within 50 kilometres of Northern Star's Plutonic Gold Mine.

The Project is being explored under a Joint Venture Agreement with Riedel Resources Ltd (ASX: RIE) under which Australian Mines has the right to earn to up an 80% interest by spending $3 million on exploration by May 2018. To date, Australian Mines has spent an unaudited $1.8 million on exploration and in May 2015 the Company announced that it had subsequently earned a majority interest in the project1.

Considered the northern continuation of the Norseman-Wiluna greenstone belt, the Archaean stratigraphy within the Doolgunna - Marymia Project is acknowledged as being prospective for bedrock- hosted primary gold mineralisation2,3.

Much of the targeted greenstone sequence within the project area, however, is obscured by an extensive but shallow layer of transported sand. This has resulted in a complete reliance on geophysics and drilling to identify and test prospective areas.

Dixon gold prospect

Australian Mines commenced a reconnaissance reverse circulation (RC) drill program over a number of priority gold and base metal targets within the Doolgunna - Marymia Project in September 2015.

Included in this first-pass drilling program was a single RC hole at the Company's Dixon prospect. This drill hole, namely MMRC016, was designed to test the thesis that high-grade gold mineralisation may be present within a dolerite unit of probable Archaean age at Dixon, and that the mineralisation is potentially associated with the regional north-northeast trending shear zone running along the eastern contact of this mafic intrusive.

As announced by Australian Mines on 6 November 2015, drill hole MMRC016 successfully intersected 10 metres @ 8.79 g/t gold from 130 metres down hole, including two intervals grading at almost 1 ounce per tonne.

The Company's exploration team observed that this mineralisation was hosted within sulphidic (pyrite + arsenopyrite) quartz veins that occurred along the lithological contact between a magnetite-rich dolerite and a low magnetic intrusive dolerite.

1 Australian Mines Limited, Australian Mines secures majority ownership of Marymia Project, released 29 May 2015

2 Galtrad Pty Ltd, Annual Report - E52/594, received by the WA Department of Mines and Petroleum 16 September 1996

3 Riedel Resources Limited, Prospectus, released 23 November 2010

Magnetic susceptibility work completed on the Dixon drill hole during the quarter confirmed this relationship between the lithological contact and the presence of gold mineralisation.

Preliminary analysis of the drill samples by Australian Mines similarly indicated that the higher-grade gold mineralisation at Dixon is associated with increased sulphide and quartz content. Consequently last month Australian Mines commissioned a gradient array induced polarisation (IP) survey over the immediate Dixon prospect area, which was designed to map the strike continuity of the disseminated sulphides associated with, but not bound to, the high-grade gold mineralisation.

As reported earlier this week4, this IP survey detected a significant chargeability anomaly coincident with the primary mineralisation at Dixon. Based on its geophysical characteristics and geological position, this anomaly is likely to be attributable to sulphide alteration such as gold-bearing pyritic quartz veining, indicating that the strike length of the primary gold mineralisation at Dixon could be at least 200 metres long.

Inversion modelling of the complementing pole-dipole IP data similarly suggests that the Dixon gold mineralisation has significant depth continuity.

Having determined via geophysics the location and potential size of the primary gold target at Dixon, and noting the impressive grade and thickness of the gold intersection returned from its initial reconnaissance drill hole, Australian Mines is seeking to commence its follow-up drill program as soon as practicable. The Company presently anticipates that this drilling will commence in early-mid March following receipt of the standard statutory approvals.

Ned's Creek Joint Venture

During the quarter, Australian Mines advised that it had withdrawn from the Ned's Creek Farm-in and Joint Venture Agreement with Lodestar Minerals Limited5.

Over the past six months, Australian Mines had completed a comprehensive assessment of the prospectivity of the Ned's Creek joint venture tenements, including undertaking a series of geophysical and drill programs across the interpreted priority targets.

Based on the results of this work, the Company subsequently determined that the joint venture tenements appeared to have limited potential to host a significant base metal deposit and confirmed that the most prospective ground held by Australian Mines remains its core Doolgunna - Marymia Project, which hosts the promising Dixon gold prospect.

4 Australian Mines Limited, IP survey expands gold prospectivity at Dixon, released 27 January 2016

5 Australian Mines Limited, Withdrawal from Ned's Creek Joint Venture, released 7 December 2015

Figure 1: The Dixon gold prospect is situated within 50 kilometres of Northern Star's Plutonic Gold Mine. This emerging Western Australian gold play is located within Australian Mines (AUZ) and Riedel Resources (RIE) joint venture tenement E52/2394 where Australian Mines is currently earning an 80% interest.