MMG : Announcements and Notices – Second Quarter Production Report for the Three Months Ended 30 June 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)

SECOND QUARTER PRODUCTION REPORT

FOR THE THREE MONTHS ENDED 30 JUNE 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 Second Quarter Production Report for the three months ended 30 June 2019.

The report is annexed to this announcement.

By order of the Board

MMG Limited

GAO Xiaoyu

CEO and Executive Director

Hong Kong, 18 July 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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SECOND QUARTER PRODUCTION REPORT

	FOR THE THREE MONTHS ENDED 30 JUNE 2019
			2Q19	2Q19		YTD19
		2Q19	VS 2Q18	VS 1Q19	YTD	VS YTD18
	Copper cathode (tonnes)
	Kinsevere	16,463	-20%		31%	29,002	-28%
	Total	16,463	-20%		31%	29,002	-28%
	Copper
	(contained metal in concentrate, tonnes)
	Las Bambas	84,373	-15%		-17%	185,825	0%
	Rosebery	322	-10%		-15%	700	-8%
	Total	84,695	-15%		-17%	186,525	0%
	Zinc (contained metal in concentrate, tonnes)
	Dugald River	35,850	-7%		-7%	74,515	11%
	Rosebery	21,079	8%		14%	39,565	4%
	Total	56,929	-2%		0%	114,080	8%
	Lead (contained metal in concentrate, tonnes)
	Dugald River	5,563	24%		10%	10,639	80%
	Rosebery	6,186	-27%		5%	12,096	-26%
	Total	11,749	-9%		7%	22,735	2%
	Molybdenum (contained metal
	in concentrate, tonnes)
	Las Bambas	563	32%		10%	1,075	13%
	Total	563	32%		10%	1,075	13%

KEY POINTS

• Total recordable injury frequency (TRIF) of 1.66 per million hours worked for the second quarter in 2019.
• Total copper production of 101,158 tonnes in the second quarter, down 16% due to previously disclosed logistics disruptions at MMG Las Bambas. Stable total zinc production of 56,929 tonnes, in line with prior periods as Dugald River ramp up continues to advance well. All operations are on track to meet production guidance.
• More targeted exploration focus around existing operating hubs is demonstrating considerable early success.
• Las Bambas drilling has intersected mineralisation in the Chalcobamba South West area. It is anticipated that further drilling will demonstrate that the new Chalcobamba Southwest Zone, which is within 300 metres of the current Chalcobamba Ore Reserve pit, is continuous with the main Chalcobamba mineralisation and should drive expansion of the Chalcobamba pit design. Highlights include 126.8m @ 1.39% Cu and 7ppm Mo, including 48.8m @ 2.43% Cu, in drillhole CHS19-012, from 107.0m downhole.

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• At Nambulwa (~30km north of MMG Kinsevere), preliminary interpretations of drilling intercepts indicate a reasonable probability for economic exploitation of oxide ore feed for the Kinsevere Mine. The best intersections included 14.4m @ 6.96% Cu from 30m (NAMDD042) and 54.0m @ 4.10% Cu from 99m (NAMDD060).

SAFETY, HEALTH, ENVIRONMENT AND COMMUNITY

TRIF for the second quarter 2019 was 1.66 per million hours worked.

The TRIF reported in the first quarter was 1.33 per million hours worked. This has now been revised to 1.53 due to an amendment in the controlled activities working hours reported.

Community roadblocks restricted inbound and outbound logistics to the Las Bambas mine in March and April. Refer to the Las Bambas section of this report for additional detail.

MMG released its 2018 Sustainability Report on 20 June 2019.

COMMODITY PRICES, MARKETING AND SALES

		COMMODITY PRICES, MARKETING AND SALES
		QUARTER-AVERAGE				QUARTER CLOSE
		2Q19	1Q19	2Q18	2Q19	1Q19	2Q18
	Metal Price*
	Copper (US$/lb)	2.77	2.82		3.12		2.71	2.94	3.01
	Gold (US$/oz)	1310	1304		1307		1411	1293	1251
	Lead (US$/lb)	0.86	0.92		1.08		0.87	0.92	1.10
	Molybdenum (US$/lb)	12.19	11.79		11.65		12.00	12.13	10.60
	Silver (US$/oz)	14.89	15.57		16.53		15.22	15.10	16.03
	Zinc (US$/lb)	1.25	1.23		1.41		1.17	1.36	1.34

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

Base metal prices retreated during the second quarter, primarily due to the trade dispute between the USA and China. Market concerns over the wider geopolitical and trade issues therefore overshadowed the continuing positive medium-term fundamentals for metals such as copper. The gold price rally to a multi-year high during June reflected similar investor concerns.

China has continued to build new copper smelting capacity with several operations commissioning during the first half of 2019 in anticipation of the country's continued increase in copper requirements across key sectors of the economy including power transmission, building construction, consumer products and transportation. However, global copper concentrate supply is unlikely to increase this year as new mine capacity is limited while output from some existing operations will decline. This will result in mine production constraining growth in refined metal production. This imbalance has been reflected in a steady decline in treatment and refining charges since the start of 2019, with charges paid by smelters on the spot market recently falling to more than 25% below the benchmark level for the year.

Some Chinese zinc smelting operations that had been forced to curtail output while making investments to improve environmental performance were able to increase output during the second quarter, adding to demand for zinc concentrate. This resulted in a plateauing of zinc concentrate treatment charges which had been rising steadily over

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previous quarters. Notwithstanding the rise in Chinese smelter production, metal stocks in China and on the LME remain low, at around five days' global consumption.

PROVISIONAL PRICING

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

		OPEN PRICING AT 1 JULY 2019
		JUL-19	AUG-19	SEP-19	OCT-19	TOTAL
	Copper (tonnes cathode and	11,233	7,407		36,356	29,587	84,583
	copper contained in concentrate)	12,310			907		14,084
	Gold (ounces)	867
	Lead (tonnes)	4,522					4,522
	Molybdenum (pounds)	454,766	295,204				749,970
	Silver (ounces)	918,755	62,687		49,792		1,031,234
	Zinc (tonnes)	19,686	13,035		4,279		37,000

OPERATIONS

LAS BAMBAS

		LAS BAMBAS
	2Q19	2Q19	2Q19	YTD	YTD19
		VS 2Q18	VS 1Q19		VS YTD18
Copper (tonnes)	84,373	-15%		-17%	185,825	0%
Molybdenum (tonnes)	563	32%		10%	1,075	13%

Las Bambas produced 84,373 tonnes of copper in copper concentrate in the second quarter of 2019, 17% below the prior period. The lower production was the result of a forced shutdown of the plant in early April 2019, due to the previously announced community road blocks that took place from early February until mid-April and caused critical supplies to be exhausted on site. Planned maintenance activities were brought forward to partly mitigate the impact of these disruptions.

Following these disruptions, unrestricted road access was re-established on 13 April 2019 and operations and concentrate logistics have ramped back up to normal operational levels.

Logistics update

Since logistics restarted on 13 April, Las Bambas has reduced stockpiles on site from a peak of approximately 59,000 tonnes of copper in concentrate to approximately 33,000 tonnes by 30 June 2019. The remainder of these stockpiles are expected to be progressively drawn down and shipped during the second half of 2019.

The community road blocks 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 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. This dialogue process remains ongoing.

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Production update and outlook

Efficiency initiatives continued to deliver benefits during the quarter, with mill throughput in May and June averaging approximately 5% above the prior corresponding period. Mining and development works also continued to increase to open additional operating faces, consistent with the mine plan.

Molybdenum production increased 10% during the quarter (despite lower overall throughput and copper production) to record levels. Engineering works to debottleneck the Molybdenum plant continue and are expected to increase molybdenum concentrate production to the nameplate capacity of 15,000 tonnes per annum by mid-2020.

Consistent with previous guidance, production of copper for 2019 is still expected to be at the lower end of the of the 385,000-405,000 tonnes range, with C1 costs at the higher end of the US$1.15-US$1.25/lb range. As previously advised, when compared to prior years, costs reflect significant increases in both mining and milling volumes, 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.

Third ball mill installation works commenced in the quarter and drilling, permitting and engineering works continued at the Chalcobamba project. Results of the drilling activities are included in the Geoscience and Discovery section below, where drilling has intersected additional near-surface skarn and porphyry copper mineralisation in the Chalcobamba Southwest Zone. It is anticipated that further drilling will demonstrate that the new Chalcobamba Southwest Zone is continuous with the main Chalcobamba mineralisation and should drive expansion of the Chalcobamba pit design.

DUGALD RIVER

		DUGALD RIVER
	2Q19	2Q19	2Q19	YTD	YTD19
		VS 2Q18	VS 1Q19		VS YTD18
Contained metal in concentrate
Zinc (tonnes)	35,850	-7%	-7%	74,515	11%
Lead (tonnes)	5,563	24%	10%	10,639	80%

Dugald River continued its strong ramp up, producing 35,850 tonnes of zinc in zinc concentrate for the second quarter of 2019 (7% below the first quarter). Lower production was primarily due to a planned maintenance shutdown, which took place over 11 days during the quarter.

Mine development works continued to open a higher average number of operating stopes, resulting in a 15% uplift in mined ore compared with the first quarter. The improvement in mine production has enabled mill throughput to be sustained above design capacity for the fifth quarter in a row. Mine development works will continue to be a major focus for the remainder of 2019 to ensure stable feed to the mill with all pre-commissioning ore stockpiles now depleted.

Dugald River also produced 5,563 tonnes of lead concentrate, up 10% from the previous quarter.

The rail line from Mount Isa to Townsville, that was impacted during the flood event in February 2019, has been restored and the transport of concentrate is now fully operational.

Consistent with previous guidance, 2019 production for Dugald River expected to be between 165,000-175,000 tonnes of zinc in zinc concentrate, with C1 costs between US$0.70 and US$0.75/lb.