Hillgrove Resources : Results for the Half Year Ended 30 June 2017

Monday, 28 August 2017

HIGHLIGHTS RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2017 Operations - Giant Pit cutback nearing completion with a remaining strip ratio as at 30 June 2017 of below 1.8 to 1 (compared to the average project strip ratio of 5.5 to 1).

• Midlife rebuilds to both primary excavators were brought forward and successfully completed but resulted in lower than planned mining production.

• Despite operational challenges including equipment unavailability, the need to undertake east wall buttressing and downtime due to wet weather during the second quarter, the improved average daily mining production rates seen since December 2016 were maintained.

• Quarterly mining unit costs decreased for the third consecutive quarter.

  Cash management - although the Company's short term liquidity position remains challenging, the following underlying improvements have been achieved in the half year:

• Creditors - improved terms with major suppliers and creditors.

• PetroBond - a $2.7 million bond established for fuel supply.

• Electranet bond - Swiss Re provided a $1.64 million non-cash backed security bond.

• Revenue - copper revenue for 6,000 tonnes now locked in at an average price of A$7,893 after margins.

  HALF YEAR FINANCIAL PERFORMANCE

• Underlying EBITDA of $8.0m was down $11.5 million from the corresponding half year due mainly to the reduced amount of pre-stripping and other mine costs deferred to the balance sheet.

• 7,119t of copper and 2,160oz of gold produced in concentrate (June 2016: 6,756t and 7,015 ozs).

• Revenue of $62.0 million at an average cash realised copper price of A$7,519/tonne (June 2016: A$6,731/t).

• A statutory net loss after tax of $9.6 million (June 2016: a loss of $102.7 million) including a $5.7 million charge for the fair value uplift in convertible notes issued to shareholders (so that the convertible note liability is recorded in the balance sheet at market value).

  Results for the period ($ million)	6 months to 30 June 2017	6 months to 30 June 2016	Change
  Revenue	62.0	58.8	(3.2)
  Statutory (loss)/profit	(9.6)	(102.7)	93.1
  EBITDA	8.0	19.5	(11.5)
  Underlying (loss)/profit	(3.9)	(35.6)	31.7

  IIII

  HILLGROVE RESOURCES LIMITED ACN 004 297 116 www.hillgroveresources.com.au

  5-7 King William Road, Unley SA 5064, Australia T [phone] F [phone]

  HILLGROVE RESOURCES LIMITED

  GROWTH

  Organic growth opportunities exist, utilising Kanmantoo's infrastructure, including:

• potential to extend the current mine life through an underground mining operation at Kanmantoo (ASX release 25 May 2017),

• regional exploration projects at Kanappa with a 3.7km long, 600m wide, copper-gold zone and Mt Rhine, gold zones of 6m @ 15.9g/t Au in channel sampling of surface outcrops (ASX release 14 Dec 2006), and

• the possibility to use the Kanmantoo Pit for a pumped hydro electricity generation project at the cessation of open-cut mining. The Company is working with a highly experienced engineering group to further investigate the viability of this option.

  OUTLOOK

  On top of the operational challenges confronted during the first half of this year as noted above, significant rain in the latter part of August has limited access to the pit and resulted in lower mining movements. This now means completion of the cut-back of the Giant pit is being pushed back to the end of the third quarter of 2017. In consequence, access to higher grade ore and the opening up of multiple ore sources are being delayed with the result that the planned "step change" in copper production from less than 1,200 tonnes per month to approximately 2,000 tonnes per month is also delayed until the fourth quarter. It is likely therefore that a portion of the higher grade production which had been scheduled for the second half of 2017 will be deferred into 2018.

  The Board is lowering the annual copper production guidance to 16,000 to 18,000 copper metal tonnes. All other guidance remains unchanged.

  It is to be noted that the expected reduction in copper production this year is not lost production for the mine, merely a timing difference in production of copper. For this reason, the expected future value of the mine is not diminished - the copper not mined this year will be mined during the remaining mine life. At the same time, the prevailing higher copper prices enhances the value of the mine.

  While the operation continues to be focussed on completing the cut-back of the Giant pit at Kanmantoo, liquidity has been and continues to be the priority issue for the Company. It is anticipated that the Company's liquidity position will improve by early in the fourth quarter through the aforementioned step change in average monthly copper production and upon the exercise of options by holders (expiry date of options is 21 September 2017).

  The value of the Kanmantoo operation is driven by four primary drivers:

  Copper Grade

  In May 2016, following an extensive review, the company announced an updated Mineral Resource Estimate. This resource model has been accurate over a sustained period with the combined Measured, Indicated and Inferred categories reconciling positively during the last sixteen months and providing confidence for future mine production.

  Copper Price

  The Australian dollar copper price has significantly improved in the past year, by more than thirty percent. With its improved financial position and creditworthiness, the Company has fixed the copper price on future sales for 6,000 tonnes at an average price of A$7,893/tonne after margins (which are above the Company's budget

  HILLGROVE RESOURCES LIMITED

  levels). This mitigates any downside copper price risk in the critical near term period and allows the Company to remain highly exposed to movements in the copper price in the longer term.

  Mining Productivity

  Increased mining productivity allows more material to be mined with waste moved faster to expose ore and more ore trucked out of the pit to stockpiles. The availability of stockpiled ore allows the mill to preferentially feed higher grade material for processing which significantly enhances resilience. The year to date has been challenging with equipment rebuilds and reliability, east wall instability and wet weather disruptions with rain most recently in the second half of August. To overcome these issues and improve mining movements, an equipment reliability project has been implemented with the full co-operation of the equipment supplier, a buttress and a ramp bypass have been established on the eastern wall instability area, and the pit will be progressively flattened and become more efficient in the fourth quarter.

  Input Costs

  Lower mining movements impact on liquidity by extending the cash constrained period, but it is important to note they do not significantly impact the value generated from Kanmantoo, as the equipment is predominantly charged on a usage basis and mining of the copper ore is deferred, not lost. However, additional time-based fixed overhead costs may be incurred in time. The other notable cost increase has been electricity cost. The Company is aggressively pursuing a return to traditional pricing levels through a large ACCC approved consortium of users, which aims to enter long term contracts commencing in 2018.

  Steve McClare, the CEO & Managing Director said "I'm extremely pleased with the resilience and tenacity of everyone involved with Kanmantoo, continually meeting the many recent challenges including prolonged weather interruptions, geotechnical issues and poor equipment availability. Whilst the cutback has been delayed, it is nearing completion and with it the strip ratio reduces, feed grade fed to the mill will increase and revenue will increase. With the Mineral Resource Model continuing to reconcile positively over a sustained period the project value remains intact. I would like to sincerely thank all employees, suppliers, contractors, community members, SA Government and all other stakeholders, for their unwavering support. "

  For more information contact:

  Mr Steven McClare Mr Paul Kiley

  CEO & Managing Director CFO & Company Secretary

  Tel: [phone] Tel: [phone]

  Appendix 4D Interim Report Half year ended 30 June 2017

  Name of entity	Hillgrove Resources Limited
  ABN	73 004 297 116
  Half year ended	30 June 2017
  Previous corresponding reporting period	30 June 2016

  Results for announcement to the market Revenue from ordinary activities	up	5.5%	to	$62,050,000
  Loss from ordinary activities after tax attributable to the owners of Hillgrove Resources Limited	down	90.7%	to	$9,554,000
  Loss for the period attributable to the owners of Hillgrove Resources Limited	down	90.7%	to	$9,554,000

  Dividends

  No dividends were paid or proposed to members during the half year ended 30 June 2017 or in the previous period.

  Brief explanation of results

  A net loss after tax of $9,554,000 is reported by the Group for the half year (30 June 2016: loss of

  $102,694,000).

  Refer to the directors' report, financial statements and supporting notes in the attached Interim Report for the half year ended 30 June 2017 for additional detail.

  Statements

  The following statements are included in the attached Interim Report for the half year ended 30 June 2017:

  • income statement

  • statement of comprehensive income

  • statement of financial position

  • statement of changes in equity

  • statement of cash flows.

Dividend reinvestment plans

There are no dividend reinvestment plans in operation.