MMG : Announcements and Notices – First Quarter Production Report for the Three Months Ended 31 March 2019

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MMG LIMITED

五礦資源有限公司

(Incorporated in Hong Kong with limited liability)

(HKEX STOCK CODE: 1208)

(ASX STOCK CODE: MMG)

FIRST QUARTER PRODUCTION REPORT

FOR THE THREE MONTHS ENDED 31 MARCH 2019

This announcement is made pursuant to Rule 13.09 of the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited (Listing Rules) and the Inside Information Provisions (as defined in the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

The board of directors (Board) of MMG Limited (Company or MMG) is pleased to provide the First Quarter Production Report for the three months ended 31 March 2019.

The report is annexed to this announcement.

By order of the Board

MMG Limited

GAO Xiaoyu

CEO and Executive Director

Hong Kong, 17 April 2019

As at the date of this announcement, the Board comprises nine directors, of which two are executive directors, namely Mr Gao Xiaoyu and Mr Xu Jiqing; three are non-executive directors, namely Mr Guo Wenqing (Chairman), Mr Zhang Shuqiang and Mr Jiao Jian; and four are independent non-executive directors, namely Dr Peter William Cassidy, Mr Leung Cheuk Yan, Ms Jennifer Anne Seabrook and Professor Pei Ker Wei.

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FIRST QUARTER PRODUCTION REPORT

FOR THE THREE MONTHS ENDED 31 MARCH 2019

		1Q 19	1Q 19		YTD 19
	1Q 19	Vs	vs	YTD	Vs
		1Q 18	4Q 18		YTD 18
COPPER CATHODE (tonnes)
Kinsevere	12,539	-37%	-32%	12,539	-37%
Total	12,539	-37%	-32%	12,539	-37%
COPPER (contained metal in concentrate, tonnes)
Las Bambas	101,452	17%	-9%	101,452	17%
Rosebery	378	-7%	-8%	378	-7%
Total	101,830	16%	-9%	101,830	16%
ZINC (contained metal in concentrate, tonnes)
Dugald River	38,665	35%	-7%	38,665	35%
Rosebery	18,486	-1%	0%	18,486	-1%
Total	57,151	21%	-15%	57,151	21%
LEAD (contained metal in concentrate, tonnes)
Dugald River	5,076	261%	-4%	5,076	261%
Rosebery	5,910	-25%	-3%	5,910	-25%
Total	10,986	19%	-4%	10,986	19%
MOLYBDENUM (contained metal in concentrate, tonnes)
Las Bambas	512	-3%	14%	512	-3%
Total	512	-3%	14%	512	-3%

KEY POINTS

•Total recordable injury frequency (TRIF) of 1.33 per million hours worked for the first quarter in 2019.

•Total copper production of 114,369 tonnes was down 10% compared to first quarter 2018, with a strong quarter from Las Bambas offset by a 37% reduction in Kinsevere copper cathode production.

•Las Bambas copper in copper concentrate production was up 17% to 101,452 tonnes compared to the prior corresponding period. Production recovered following the localised wall slippage in late 2017 which impacted mining rates and ore grade during the first quarter of 2018.

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•Las Bambas outbound and inbound logistics were affected by community blockades from 4 February and 26 March respectively. As a result of depleting supplies, production was progressively impacted from the beginning of April. With logistics restored progressively from 10 April, operations are now returning to normal. Production is now expected to be at the lower end of 2019 guidance range of 385,000 and 405,000 tonnes.

•Kinsevere produced 12,539 tonnes of copper cathode during the quarter. Production was impacted by lower ore mined grade and tonnes from the lower levels of the satellite Mashi pit and reduced plant throughput. Kinsevere production is now expected to be between 65,000 - 70,000 tonnes with C1 costs of US$2.05-2.15/lb.

•Total zinc production of 57,151 tonnes is 21% higher than the corresponding period.

•Dugald River production of 38,665 tonnes of zinc in zinc concentrate for the first quarter was 35% above the prior corresponding period despite the extreme wet weather and flooding events in Queensland. Notwithstanding the temporary disruption of mining and logistics, Dugald River is still expected to achieve annual production guidance of 165,000 to 175,000 tonnes of zinc production. C1 costs are expected to be between US$0.70 and US$0.75/lb due to materially higher benchmark zinc treatment charges (TC's) in 2019 and additional logistics costs associated with the floods.

•Rosebery produced 18,486 tonnes of zinc in zinc concentrate, in line with the prior corresponding period. Mining and milling rates remained at near record levels; above 1 million tonnes on an annualised basis.

•2019 production of copper is now expected to be around 450,000 tonnes (Las Bambas lower end of 385- 405kt and Kinsevere 65-70kt) and zinc production is expected to be between 250,000 and 270,000 tonnes (Dugald River 165-175kt and Rosebery 85-95kt).

SAFETY, HEALTH, ENVIRONMENT AND COMMUNITY

MMG's first value is safety. For the first quarter in 2019, MMG recorded a TRIF of 1.33 per million hours worked.

MMG was accepted as a member of the Voluntary Principles on Security and Human Rights Initiative during their Annual Plenary meeting in March.

Community roadblocks at the Yavi Yavi farm, 136 kilometres from Las Bambas, and subsequently at the access points to site impacted logistics operations during the quarter. The protest related to requests for compensation for land traversed by a public road and the release of community leaders and legal advisers arrested in relation to extortion allegations. Agreements to cease all roadblocks were reached progressively between 10 and 13 April following dialogue brokered by the Government of Peru with the participation of the Catholic Church. The company remains committed to working together with the Government of Peru and the Communities to resolve community concerns through dialogue.

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COMMODITY PRICES, MARKETING AND SALES

		Quarter - average			Quarter - close
Metal Price*	1Q 19	4Q 18	1Q 18	1Q 19	4Q 18	1Q 18
Copper (US$/lb)	2.82	2.80	3.16	2.94	2.71	3.03
Gold (US$/oz)	1304	1229	1330	1293	1282	1324
Lead (US$/lb)	0.92	0.89	1.14	0.92	0.91	1.09
Molybdenum (US$/lb)	11.79	12.05	12.23	12.13	11.88	12.63
Silver (US$/oz)	15.57	14.55	16.77	15.10	15.47	16.28
Zinc (US$/lb)	1.23	1.19	1.55	1.36	1.14	1.51

*Sources: zinc, lead and copper: LME cash settlement price; Molybdenum: Platts; gold and silver: LBMA.

Copper and zinc prices rallied strongly during the first quarter and ended the period up by 8.5% and 19.3% respectively compared to the close of the previous quarter. More positive sentiment around trade negotiations between the US and China and Chinese government actions to support economic growth lifted general investor confidence. The zinc price strength was aided by further reduction in metal stocks, with LME stocks reaching a historical low of 51,000 tonnes at the end of the quarter, down from 129,000 tonnes at the end of the previous quarter. The drawdown in LME stocks is mainly the result of reduced smelter production, particularly in China where tightening environmental pressures have resulted in some capacity being shut in advance of the ramp up of replacement facilities.

In early April it was reported that Korea Zinc and Teck Resources had settled 2019 headline zinc concentrate treatment charges (TC) at $245/dmt. This marks an increase of $98/dmt from the 2018 zinc TC of $147/dmt (12 year low). Currently spot market TCs are trading above this annual contract level.

The copper concentrate market tightened during the quarter as demand from China continued to grow as new smelting capacity increased. This saw spot market treatment and refining charges trending lower and trading below annual contract levels. In contrast, the weakness in zinc smelter production has created surplus conditions in the zinc concentrate market, pushing both contract and spot market terms higher compared to 2018.

PROVISIONAL PRICING

The following table provides a summary of the metal that was sold but which remains provisionally priced at the end of the first quarter 2019 and the month that final average pricing is expected to occur at the time of provisional invoicing.

Open pricing at 1 April 2019	Apr-19	May-19	Jun-19	Jul-19	Total
Copper (tonnes cathode and copper contained in	695	3,740	26,522		30,957
concentrate)
Gold (ounces)			2,958		2,958
Lead (tonnes)
Molybdenum (pounds)		128,499		63,920	192,419
Silver (ounces)			243,462		243,462
Zinc (tonnes)	17,190	4,076	7,077		28,343

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OPERATIONS

LAS BAMBAS

		1Q 19	1Q 19		YTD 19
	1Q 19	vs	Vs	YTD	Vs
		1Q 18	4Q 18		YTD 18
Copper (tonnes)	101,452	17%	-9%	101,452	17%
Molybdenum (tonnes)	512	-3%	14%	512	-3%

Las Bambas produced 101,452 tonnes of copper in copper concentrate in the first quarter of 2019, 17% above the prior corresponding period which was impacted by a revised mining sequence following the localised wall slip in late 2017. Mining volumes and milling volumes were up by 15% and 6% compared to the prior corresponding period. Milling rates in the first quarter sustained the near record levels of the fourth quarter in 2018, reflecting the improvements implemented last year.

As a result of the disruptions to logistics, copper in copper concentrate production for 2019 is now expected to be at the lower end of guidance of between 385,000 and 405,000 tonnes. Las Bambas outbound and inbound logistics were affected by community blockades from 4 February and 26 March respectively. During this time, critical supplies on site were exhausted, impacting production. Unrestricted road access was reestablished on 13 April 2019 allowing the operations to progressively return to normal. Concentrate shipping from the Port of Matarani is expected to resume later this month. Current stockpiles on site include approximately 59,000 tonnes of copper in copper concentrate which is expected to be progressively drawn down and shipped over the next three to four months. As detailed above, the community roadblocks related to requests from the communities of Fuerabamba and, subsequently, other communities for land compensation, delivery of development commitments and the release of detained legal advisers.

For the remainder of 2019, Las Bambas expects to deliver on further improvements in mill throughput, with average ore grades in line with 2018. Mining and development will also continue to increase to open up additional operating faces consistent with the mine plan.

Given the production impacts due to community road blocks, C1 costs are expected to be at the higher end of the US$1.15-1.25/lb range for 2019. As previously advised, when compared to prior years, costs reflect significant increases in both mining (+10%) and milling volumes (+6%), increased mine development investment and longer haul distances as the depth of the Ferrobamba pit increases. These cost pressures will be partially offset by ongoing cost and efficiency programs. These programs seek to ensure that Las Bambas retains its position as one of the lower cost mines of its scale in the world.

Resource drilling in Chalcobamba continued throughout the quarter. Drilling in Chalcobamba and other areas will begin to ramp up in the next quarter as the dry season commences.

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