Greenland Minerals and Energy : Leading Rare Earth Company Shenghe Resources Holding to Acquire 12.5% Interest in Greenland Minerals and Energy Ltd, and Commence Strategic Working Relationship

Company Announcement, September 23rd, 2016

ASX:GGG Leading Rare Earth Company Shenghe Resources Holding to Acquire 12.5% Interest in Greenland Minerals and Energy Ltd, and Commence Strategic Working Relationship Highlights:

• Shenghe Resources Holding Ltd (Shenghe) has agreed, through a 99.99% owned subsidiary, to subscribe for 125 million ordinary shares in GMEL to take a 12.5% holding, subject to shareholder and Foreign Investment Review Board (FIRB) approval being obtained prior to November 30th, 2016
• Shenghe is:
  • a leading rare earth company with experience in all parts of the rare earth (RE) industrial chain, including mining, beneficiation, metallurgy, separation and downstream processing, and marketing with extensive financial investment background and solid capital strength
  • listed on the Shanghai Stock Exchange, with a market capitalisation of approximately AUD $3 billion, and is solely focussed on the rare earth sector
• Shenghe has an extensive international customer base, and has downstream processing facilities of substantial capacity
• Both parties are looking to commence a strategic relationship that aims to initially enhance the Kvanefjeld Project and integrate with downstream processing and then jointly develop the project
• Initial technical discussions have identified areas where significant cost‐savings can be achieved through Shenghe's leading processing technology, particularly in the area of project infrastructure that accounts for a substantial proportion of overall capital costs
• Potential has also been identified to recover further products from the unique Kvanefjeld polymetallic ore‐type
• Both parties have conducted extensive due diligence across all relevant jurisdictions (Greenland, Denmark, China, Australia), prior to entering a binding agreement
• Shenghe has anti‐dilution rights with respect to all capital issues, and has the right to nominate a non‐executive director to the board of Greenland Minerals and Energy Ltd
• GMEL board strongly recommends the investment by Shenghe and the commencement of a strategic working relationship

  PERTH: Unit 6, 100 Railway Road, Subiaco Western Australia 6008POSTAL: PO Box 2006, Subiaco WA 6904 Telephone: [phone] Facsimile: [phone]

  GREENLAND: PO Box 156, Narsaq, Greenland 3921

  WEB:www.ggg.glEMAIL:[e-mail]: 85 118 463 004

  Greenland Minerals and Energy Ltd ('GMEL" or 'the Company') is pleased to announce that it has entered into a subscription agreement (SA) with leading rare company Shenghe Resources Holding Ltd, and its 99.99% subsidiary Le Shan Shenghe Rare Earth Co., Ltd (Leshan Shenghe). Leshan Shenghe is focussed on rare earth downstream processing.

  The SA provides for the investment of Leshan Shenghe of $4.625 million (AUD) for 125 million ordinary shares in GMEL at 3.7 cents/share, subject to shareholder and FIRB approvals, which are to be sought prior to November 30th, 2016. The price of 3.7 cents per share represents a 5% discount to the 60‐day volume weighted average price (VWAP) as of September 19th, 2016.

  Shenghe unconditionally and irrevocably guarantees the obligations of Leshan Shenghe under the SA.

  Once the SA becomes unconditional Shenghe will have the right to nominate a non‐executive director to the board of GMEL, and will have anti‐dilution rights to maintain a 12.5% position in GMEL.

  The fundamental objective of both parties is to develop the Kvanefjeld Project ('Project') as a cornerstone to new supply networks. With the permitting process underway, the partnership with Shenghe will help to ensure that the Project is optimised to integrate with downstream processing, and that customer networks are established. Shenghe's leading technical expertise, processing capacity, and strong international customer base make Shenghe an ideal strategic partner for the Project.

  The two parties commenced a dialogue in late‐2015, and recognised a strong alignment of strategy, and complementary strengths at different ends of the rare earth value chain. Shenghe's experience and skills provide the means to maximise the core strengths of the Kvanefjeld Project, which include scale, processing advantage, and direct shipping access. Nowhere else in the world does such a confluence of attributes occur.

  GMEL will continue to work toward establishing off‐take agreements across projected by‐products (uranium, zinc, and fluorspar) from the Kvanefjeld Project, and looks forward to updating the market on further commercial developments.

  Dr John Mair, Managing Director of GMEL commented:

  "The commencement of a strategic relationship with Shenghe represents a major landmark for both Greenland Minerals and Energy, and future rare earth supply. It is widely known that Shenghe has been assessing rare earth projects globally for a number of years, so their participation is a very strong endorsement of the Kvanefjeld Project and our company strategy.

  "Shenghe were quick to recognise the processing advantages offered by the unique Kvanefjeld ore‐ type, and the potential for Kvanefjeld to be an important cornerstone to future rare earth supply.

  "We have been looking to identify the right strategic partner for a number of years, and with Shenghe, we rapidly identified not just complementary assets and skillsets, but a fundamental alignment of strategy and timing. Shenghe has a strong international customer base, and is looking to continue to grow this area of their business.

  "Together we aim to integrate Kvanefjeld's rare earth output with existing and new downstream rare earth processing capacity, to generate an extremely cost‐competitive and highly scalable rare earth business."

  "On behalf of the Board, I would like to thank staff, Greenlandic stakeholders, and company shareholders. This stands to be a transformative event for the company, and of genuine significance to Greenland's emerging minerals industry."

  Background

  GMEL and Shenghe commenced a dialogue in 2015 that aimed to explore synergies and potential co‐ operation with respect to integrating Kvanefjeld's rare earth output with Shenghe's substantial rare earth processing capacity and international marketing network. Following a series of meetings conducted through the first half of 2016, the two parties entered into a non‐binding Letter of Intent (LoI) on July 11th, 2016, in order to commence an extensive due diligence process to meet the regulatory requirements of both the Shanghai and Australian securities exchanges.

  Between executing the LoI and the binding subscription agreement, GMEL share price has undergone notable appreciation. In response to an ASX price and volume query (August 23rd, 2016), GMEL was required to disclose to the ASX that the Company was conducting a comprehensive due diligence process in relation to a potential transaction with an industrial entity (August 25th, 2016).

  As a result of the increase in GMEL's share price during the due diligence period, Shenghe agreed to increase the placement price by 20% to 3.7 cents, from what was originally considered in the LoI. This price is above the last two capital raisings conducted by the company, and represents a 5% discount to the 60 day VWAP, as of September 19th, 2016.

  Once the subscription agreement becomes unconditional, both parties will jointly commence technical work programs to further improve the cost‐structure of the Kvanefjeld Project, ensure the Project is optimised with respect to downstream rare earth processing, and identify further value add opportunities, including the recovery of additional products. This will be conducted in parallel to GMEL working through the permitting steps for Kvanefjeld that are currently underway in Greenland.

  GMEL will look to update the market in the coming days on the timing of a General Meeting.

  About Shenghe Resources Holding

  Shenghe Resources Holding Co. Ltd (SSE 600392), (Shenghe) is a public company exclusively focused on mining and processing rare earth ores, and producing high purity rare earth oxides, metals and alloys along with a range of rare earth products. Shenghe has been listed on Shanghai Stock Exchange since

  2012 and, as at 20 September, 2016 had 941M shares on issue and a market capitalization of approximately RMB14.3 billion or AUD $3 billion.

  Shenghe has three major shareholders. The Institute of Multipurpose Utilization of Mineral Resources (IMUMR), a state owned scientific research institute specializing in mineral resources, holds just over 20%, Mr Quangen Wang, former engineer of IMUMR holds ~10% and the Sichuan Giastar Enterprise Group, a private company involved in natural resources holds ~8%.

  Shenghe is headquartered in Chengdu, Sichuan Province and is a single industry company with mining and processing activities in a number of Chinese centres, and has commenced the strategy of extending business outside China to increase the focus on international markets. Shenge is involved at all levels of the rare earth industry, from mining through processing to the production of end products.

  The Shenghe group;

  • controls domestic sources of rare earth ores and concentrates

  • controls significant rare earth separation capacity in China

  • produces rare earth metals and alloys to the highest purities

  • produces "end use" rare earth products - polishing powders, catalysts, molecular sieves

  • has an established international customer base for its products

Significantly, Shenghe also holds Chinese production quotas for the mining and separation/refining of rare earths.

International Strategy

Shenghe has also commenced the path of international orientation since 2013. In 2013 Shenghe established Sheng Kang Ning Mining Investment (SKN) as the platform for overseas investments in rare earths and rare and precious metals. In 2015 Shenghe established Shenghe Resources (Singapore) PTE.LTD as the platform for trade and investment. In 2016 Shenghe announced the agreement with a Japanese company of acquiring 100% equity in a rare earth metal and separation plant in Vietnam.

Shenghe/SKN has been actively involved in an extensive international search for suitable opportunities to secure supplies of rare earths outside of China. This has involved an assessment of many of the world's emerging rare earth projects. Shenghe's investment in GMEL is its first investment on an equity level of an overseas listed company since that international search commenced.

For Shenghe, investment in the Kvanefjeld Project secures access to rare earth intermediate products outside of China which are capable of supporting a range of downstream rare earth businesses for the long term, facilitating long term growth opportunities.