Metro Mining : Bauxite Hills Bankable Feasibility Study Confirms Excellent Financial Returns

ASX ANNOUNCEMENT

15 March 2017

Bauxite Hills Bankable Feasibility Study Confirms Excellent Financial Returns Highlights Key Financial Results:

• Initial capital cost of A$35.8 million (including 10% contingency);

• Average annual EBITDA of A$145 million;

• After tax NPV10 of A$601 million;

• After tax IRR of 81%;

• Life of mine revenue of A$5.7 billion and life of mine EBITDA of A$2.5 billion.

  17-year initial mine life with production to commence in April 2018 at an initial rate of 2Mtpa ramping up to a steady state 6Mtpa over the first four years.

  Key benefits of an enlarged and integrated development made possible by the Gulf acquisition include:

• Construction of single infrastructure to minimise the environmental footprint;

• Use of existing infrastructure during development phase;

• Additional flexibility to blend from the larger reserve base;

• Existing environmental approval for Gulf tenements and mining lease to allow early works and facilitating commencement of construction in mid-2017;

  

• Enhanced Reserves of 92.2Mt and total Resources of 144.8Mt*.

Next Steps

Final environmental approvals are expected by mid-2017 with construction planned to commence shortly thereafter, subject to finance being in place. All construction is expected to be completed during the dry season of 2017.

Ordering of long lead time items will commence over the next two months.

*Refer Resources & Reserves Table on page 8

Summary

Metro Mining Limited (ASX:MMI) is pleased to announce completion of the Bankable Feasibility Study (BFS) for the Bauxite Hills Mine, confirming strong financial returns from the project and demonstrating the benefits from acquiring Gulf Alumina Limited (Gulf). The BFS was completed by MEC Mining, an independent and highly reputable Mining Consultancy firm, supported by a number of specialist consulting firms.

It is a significant milestone in Metro's strategy to become a leading independent bauxite producer. The BFS confirms the ability to complete construction during 2017 and commence bauxite production and sales exports in Q2 2018, as soon as possible after the end of the wet season.

The key financial results and underlying assumptions used are outlined in the following table:

Key Results & Assumptions
Description	Result
NPV (10% DR, Real, after tax)	A$601M
IRR	81%
Payback Period of Initial Capital	1.7 years
LOM Revenue	A$5.6B
LOM EBITDA	A$2.5B
LOM Average Annual EBITDA	A$145M
LOM on-site Average OPEX	A$16.42/t
LOM Average OPEX including Royalty	A$23.00/t

Assumption	Result
Annual Production Rate (Steady State)	6.0Mt
LOM Production	92.2Mt
Mine Life	17 years
Bauxite Price (CIF) Range	US$36.36-53.88/t
Exchange Rate (AUD/USD)	0.75
Discount Rate	10%
Initial Capital Expenditure	A$35.8M
LOM Average Operating Margin	A$26.69/t

Both the NPV and IRR have been calculated at the time mine development first commences. The NPV has been calculated using project related costs only and does not consider Metro's corporate costs. However, Metro has approximately A$56.0M available in tax losses relating to the project which have been applied in the NPV calculation.

The Operation Consists of:

A simple mining operation where free-dig bauxite is mined by front end loaders and hauled by truck to a port infrastructure area with a haul distance between 6 and 22km.

At the port, bauxite will be screened to a maximum product size of 100mm and then fed into a Barge Loading Facility (BLF) which will load awaiting barges.

Tugs will then tow the barges down the Skardon River and out to an anchorage point beyond the river mouth where awaiting freight vessels will be loaded with bauxite.

The mine plan is based on the integrated Metro/Gulf reserves of 92.2Mt giving a 17-year mine life. There is potential to extend the mine through conversion of the existing Bauxite Hills resources to reserves, as well as from possible exploration success in regional tenement holdings of 2,500km2.

*Refer ASX Release 15 March 2017 "Bauxite Hills Mine Ore Reserve 92.2 Million Tonnes"

The low initial capital requirements reflect the strategic intent of Metro to fast track first production with a four- year ramp-up to steady state production of 6Mtpa. The planned production ramp-up will require further capital expenditure in the early years of the operational phase. This primarily relates to systems that will provide operational efficiencies at higher production rates, including:

the introduction of offshore loading platforms to allow loading of larger ocean going vessels; and additions to the BLF to reduce re-handling of material.

A range of options are available to fund these costs, including leasing and use of contractors, however the BFS has considered these on a capital expenditure basis, to be funded out of cash flows.

Capital and operating costs used in the BFS are supported by estimates and commitments from suppliers, providing a high degree of confidence in the financial projections.

Further value engineering and continuous improvement studies are ongoing to identify strategies to further enhance project economic returns.

Capital Cost Estimates
Capital Cost Item	Amount	Capital Cost Item	Amount
Initial Capital	Expansion Capital (in years 2 and 3)
Site establishment and haul roads	A$3.1M	Integrated Truck dump and screens and upgraded haul roads	A$13.9M
Key infrastructure including BLF and camp	A$25.8M	Transhipment upgrades	A$19.5M
Other supporting infrastructure	A$1.6M	Contingency @ 10%	A$3.3M
Logistics and other owner's costs	A$2.1M	Expansion Capital Total	A$36.7M
Contingency @ 10%	A$3.2M
Development Capital Total	A$35.8M

Whilst the BFS has been completed for steady state production of 6Mtpa, environmental approvals will allow production of up to 10Mtpa. Metro will continue to evaluate the benefits of increasing production further as it moves through the pre-development and operational phases.

The operating costs displayed in the table below are LOM averages. During the initial ramp-up period, forecast operating costs will be higher, with the full benefit of economies of scale only realized when production reaches steady state of 6Mtpa.

Operating Cost Estimates
Operating Cost Item	BFS LOM Average
Mining, haulage and operation of BLF	A$7.07/t
Transhipment activities	A$6.71/t
Site and administrative costs	A$2.65/t
Total Operating Costs (ex-royalties and ocean freight)	A$16.42/t
Royalties	A$6.57/t
Ocean freight	A$11.71/t
Total Operating Costs	A$34.70/t

Bauxite Pricing

Metro has previously announced a binding offtake agreement with Xinfa Group, a leading Chinese company with extensive interests in alumina refineries and aluminum smelters. The offtake agreement covers 1Mtpa in the first year of operations, increasing to 2Mtpa for each of the following 3 years. The bauxite price payable by Xinfa Group under this contract is linked to the underlying spot price of alumina in China, which is based on a Chinese spot price index.

To estimate the forward price of alumina, Metro has adopted forward price estimates provided by industry analysts.

For the balance of production, Metro has used forward price decks supplied by CM Group specifically for Bauxite Hills' bauxite product specification. CM Group is a reputable industry analyst with extensive experience in bauxite.

Extensive mineralogical assessment of the bauxite within the resource shows it is possible through mine scheduling, to produce bauxite suitable for both high temperature and low temperature alumina refineries. Importantly, this allows Metro to sell products to a broader range of refineries in China, and elsewhere.

Next Steps

Metro now intends to increase its marketing and sales activities to broaden its customer base prior to mine commissioning.

Metro has commenced its financing activities to ensure sufficient funding through to receipt of first revenue expected during Q2 2018. Discussions have commenced with potential debt providers and current expectations are that financing will be sourced through a combination of debt and equity.