Metro Mining : Dec Quarter 2016 Quarterly Activities and Cashflow Report

Metro Mining Limited (ASX:MMI)

Quarterly Activities Report | December 2016

H i g h l i g h t s

• Metro Mining Gained Control of Gulf Alumina Limited and moved to acquire 100%
• Final Environmental Approval gained for Skardon River Project and Bauxite Hills Supplementary EIS submitted
• Binding Bauxite Off-take Agreement Signed with China's Xinfa Group
• Metro Farms-Out interest in Myanmar

Metro Moves to Control of Gulf Alumina Limited

Refer ASX Announcement 20 December 2016 Metro currently owns 99.92% of Gulf Alumina. Metro has now proceeded with compulsory acquisition of the remaining Gulf shares. This process is expected to be complete by end February 2017.

Metro will combine Gulf's Skardon River Bauxite Project with Metro's Bauxite Hills Project to create a long life, low capital cost and high margin Australian bauxite project. This project has been renamed Bauxite Hills Mine.

Metro's offer to Gulf was fully funded via a funding arrangement with Metro's cornerstone shareholder Greenstone Resources.

The combination of the two projects doubled Metro's Reserve of direct shipping ore (DSO) bauxite from

48 to 96.5 million tonnes* - creating one of the largest independent projects within the internationally acclaimed Weipa bauxite producing region.

Metro director George Lloyd was immediately appointed to the Gulf Alumina Board as a

non-executive director together with Barry Casson who was also appointed acting Company Secretary. They joined existing Gulf Alumina director Stephen Lonergan.

Acquisition of Gulf has given Metro control over Gulf's mining leases and infrastructure including airstrip, haul roads and port location.

*Refer MMI ASX Release 18 January 2017

Bauxite Hills Mine

Metro also confirmed work had commenced on a Bankable Feasibility Study (BFS) of the combined project. Metro will also be looking closely at increasing the production rate.

The BFS is expected to confirm a number of synergies and benefits of combining Bauxite Hills and the Skardon River project including:

• Increased levels of production with potential to increase to 10Mtpa under environmental approvals being sought;
• Longer mine life;
• Capital savings arising from:

  • Having one set of infrastructure versus construction of two separate projects,

  • More favourable location for construction of Barge Loading Facility (shorter jetty and conveyor required),

  • Utilising existing infrastructure acquired from Gulf Alumina including the port area which will be used for the delivery of mine construction materials, the airstrip, the haul roads and cleared land plus access to the existing camp.

• Early presence on the ground to carry out early works of the construction program

• Operational savings arising from:

  • Economies of scale,

  • Reduced transhipment distance,

  • Shared corporate costs and administrative services for a single project.

• Intangible benefits such as:

  • Reduced environmental footprint,

  • Greater presence in the bauxite market and single company negotiation with customers (eg no competition between Metro and Gulf),

  • No competition in employment between Metro and Gulf.

    RESERVES*	Dry DSO Tonnes (Mt)	Al2O3%	SiO2%	Available Al2O3 % (THA)	Reactive SiO2 %
    Metro Reserves1.	48.2	50.5	11.2	38.4	6.4
    Gulf Reserves.	48.4	49.4	14.7	40.3	6.1
    Total	96.5	49.9	12.9	39.4	6.3
    1. Includes 41.8Mt Proved and 6.4Mt Probable Reserves from BH1 and BH6 deposits announced to the ASX on 2/6/2015.

    RESOURCES*	Dry DSO Tonnes (Mt)	Al2O3%	SiO2%	Available Al2O3 % (THA)	Reactive SiO2 %
    Metro Resources1.	65.3	50.3	12.4	38.4	6.4
    Gulf Resources2.	63.5	49.6	14.3	40.4	6.1
    Total	128.8	49.9	13.3	39.4	6.3
    1. Includes the combined 41.8Mt Measured, 20Mt Indicated and 3.4Mt Inferred Resources from BH1, BH2 and BH6 deposits announced to the ASX on 2/6/2015 and 9/12/2015. The Resources are inclusive of Reserves. The Resources are inclusive of Reserves.

    *Refer MMI ASX Release 18 January 2017 "Bauxite Hills Mine Reserve Doubles to 96Mt"

    Bauxite Hills Mine

    Skardon River Project Gains Final Environmental Approval Refer ASX Announcement 22 December 2016 Final Environmental Approvals were received for the Skardon River Bauxite Project owned by Metro Mining's 99.92% controlled subsidiary Gulf Alumina Limited.

    Queensland Department of Environment and Heritage (DEHP) approval for the Skardon River Project followed Commonwealth Environmental approval received on 21 September 2016.

    The approval completed the extensive and detailed environmental assessment and community consultation process that commenced in 2013.

    Construction and operational phases of the Project can now commence.

    Metro Mining announced it is in the process of aligning the approved Skardon River Project with its adjoining Bauxite Hills Project. This includes combining mining activities and transhipping infrastructure, significantly reducing the environmental impacts of both projects and optimising social, environmental and economic returns for shared infrastructure versus construction of two separate projects.

    Bauxite Hills

    On 20 December 2016 Metro Mining submitted its updated Supplementary EIS for Bauxite Hills incorporating the combined infrastructure approach.

    It described a project that utilises the existing road network, the airstrip and the port location and that greatly reduces the environmental footprint.

    Bauxite Hills Mine

    Refer ASX Announcement 13 October 2016 Metro announced a binding off-take agreement with China's Xinfa Group.

    Xinfa is one of the largest integrated aluminium Companies in China with significant refining and smelting operations in Shandong, Shanxi, Guangxi and Xinjiang Provinces. Xinfa is also a 4.3% shareholder in Metro.

    The agreement features a four-year term and provides for contract tonnage of 1 million tonnes in the first year of operation and 2 million tonnes per year for each of the following three years .

    Key Terms include:

• Fixed annual contract tonnage for a Term of 4 years with 1 million tonnes in the first year, followed by 2 million tonnes in each of the following three years, for a total of 7 million tonnes;

  Binding Off-Take Agreement signed with China's Xinfa Group

• The contract tonnage can vary up or down by 10% in a Contract Year;

• CIF pricing determined subject to an agreed percentage of an established alumina index and bauxite quality;

• Quality within defined parameters has been agreed with bonus / penalty arrangements in place;

• Payment for each shipment to be made by irrevocable Letter of Credit;

• Take or Pay provisions applicable to both parties through Liquidated Damages clauses;

• Shipping schedule to be agreed by the Parties annually in advance;

• Conditions precedent: grant of mining lease, Metro Mining final investment approval, first shipment ready;

• Force Majeure and other customary clauses for an agreement of this nature are also included.