Poseidon Nickel : Black Swan Underground RC Drilling Update

Corporate Directory

ASX Code: POS

Shares on Issue: 2,638M

Market Cap: ≈$150M

Cash and equivalents at 30 June 2019

$60.1M

Board of Directors

Non-Executive Chairman

Geoffrey Brayshaw

Non-Executive Directors

Felicity Gooding

Karl Paganin

Interim CEO

David Riekie

Joint Company Secretaries

Eryn Kestel

Brendan Shalders

Key Shareholders

Black Mountain Metals: 19.8%

Squadron Resources: 17.1%

Key Operating Nickel Assets (100%)

Black Swan/Silver Swan

Lake Johnston

Windarra

Principal & Registered Office

Unit 8 Churchill Court

331-335 Hay Street

Subiaco 6008

Western Australia

1. 1. [phone]
   1. [phone]
2. [e-mail]

1. www.poseidon-nickel.com.au

BLACK SWAN UNDERGROUND RC DRILLING UPDATE

16 SEPTEMBER 2019

HIGHLIGHTS

• 2,500m Underground RC Drilling program below the Black Swan open pit is progressing well, with eight holes (~50% of program) finished successfully
• Drill technique being used is a first for nickel in Australia and offers potential for Research and Development status and support
• Immediate benefit to Poseidon is that this RC technique overcomes Black Swan blebby sulphide "nugget effect" by increasing sample volumes much more efficiently than conventional drilling
• Assay results are due within 2-3 weeks
• Poseidon continues to work on the restart plan for nickel mining operations at Black Swan / Silver Swan

Underground RC drill rig at Black Swan

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Poseidon Nickel (ASX: POS, "the Company") is pleased to announce the successful commissioning of a 2,500m underground RC drilling program from the Gosling Access Drive, 200m below the Black Swan open pit. The program commenced in August and has been designed with a research and development focus. It utilises a Cubex 5200, track mounted long-hole rig supplied by Metres Down Under with gyro survey support and development from Downhole Surveys.

The successful refining of this technology and drill method has the strong potential to provide a more efficient alternative to exploration diamond drilling in the underground environment. In particular it allows for the recovery of large samples for statistical and metallurgical purposes whilst having the flexibility to drill in any direction up or down. The process is anticipated to confirm the added benefit of reducing the number of drill-holes required, improved cost structure and overall program flexibility.

Earlier this year Poseidon successfully located high-grade blebby disseminated sulphides 900m below the Black Swan open pit. The aim of that particular program was to provide information on the continuation of the Black Swan mineralisation at depth and to obtain core for metallurgical testing. Hole PBSD001A intersected 223m @ 1.02% nickel in an interpreted hangingwall position of the deposit (see ASX announcement 6 May 2019 "Successful Phase 1 Drilling Under Black Swan Open Pit").

Aided with these historical drilling results (from both surface and underground into the Black Swan Deposit below the open pit) Poseidon was able to establish the potential for geological continuity of mineralisation from the base of the current pit to the new intersections 900 meters below (Figure 1).

Figure 1 - Deep diamond intercepst in relation to historical drilling and the Black Swan open pit. The RC trial area lies directly below the open pit.

Due to what is known in the industry as, "nugget effect" (a phenomena caused by large, blebby nickel sulphides), there is a need to increase the diameter of a drill hole so that the impact of this feature is reduced, thus improving the representativeness of samples. Diamond core holes are smaller in diameter to RC holes, and are not considered of adequate volume to accurately define the extent or grade of mineralisation, without vastly increasing the number of diamond holes required and the associated cost. Historical drilling below the open pit consisted exclusively of diamond core and therefore historical understanding of potential below the pit remained nebulous. Poseidon envisages the new application of RC drilling to the Black Swan nickel deposit will improve our level of understanding of the deposit.

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Technical Summary

The Company has chosen to utilise a long-hole drilling technique used in underground mines to drill large diameter service and production holes, combined with reverse circulation downhole hammer and sample collection technology specially adapted for underground use more recently by Metres Down Under. The underground RC system has been in development for a number of years and has been used in gold mines (high nugget effect orebodies) for the last 2-3 years, drilling short grade-control holes.

The Company is working with Metres Down Under to develop and adapt the underground technique to nickel exploration in an ultramafic environment, and push hole depths beyond 180m whilst successfully retrieving large-volume, uncontaminated samples of blebby sulphide mineralisation. The large sample volumes are another means to overcoming nugget effect, with the outcome being less drill-holes are necessary to statistically and spatially locate and estimate mineralisation boundaries with confidence.

The technique utilises a traditional long-hole drill rig coupled with RC in-the-hole hammers (ITH) and a purpose-built air and water injection technology to run an underground RC system. The 1.5m RC rods are custom made and the sample is collected in a purpose built rotary cone splitter. The hole diameter yields a 650% increase in sample size from traditional NQ2 sized core.

Figure 2- Underground RC drill rig in use

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Figure 3- Purpose built underground RC rotary splitter

Drilling campaign details

A 2,500m trial program consisting of 2 sections of drilling has been designed from the Gosling access drive below the open pit. The trial area is within a likely extension of the Black Swan mineralisation and will challenge the drill technique with a combination of long up-holes and ultramafic rock-types. The technique has not previously been applied in this environment but is necessary as a fit-for-purpose exploration tool to successfully explore below the Black Swan open pit from the existing underground workings.

To date, eight underground drill-holes have been completed with no sample dilution and no sample loss as the system can be fully flushed between samples. A maximum drill depth of 174m has been achieved and a maximum drill rate of 109m in a 10 hour shift. Estimated drill costs are only half that of a diamond hole of the same length and the drill rates are much faster. In addition, the 140mm hole is of adequate size to alleviate statistical variation seen in sample results from traditional NQ2 core (50mm diameter) meaning that less holes will be required to test mineralisation with higher confidence in the results.

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Figure 4- First trial ring layout in relation to the Open Pit

Figure 5 - Chip results from the first hole showing the metallurgical zonation within the Black Swan mineralisation. The light ultramafic is talc-carbonate altered and the dark ultramafic is unaltered serpentinite.

In addition the Company is working closely with Downhole Surveys (DHS) to implement a novel up-hole surveying technique utilising a recently developed 30mm continuous gyro system, purpose built for RC surveying. Testing of the gyro was completed this week with good results. The novel feeder system will be assembled in coming weeks if required, and further updates will be provided after testing.