Mount Gibson Iron : March Quarter 2019 Activities Report

MOUNT GIBSON IRON LIMITED QUARTERLY REPORT FOR THE PERIOD ENDED 31 MARCH 2019

29 April 2019

Key Points*

∙Mid-Westdirect shipping ore (DSO) sales of 0.4 million wet metric tonnes (Mwmt) in the March quarter, for quarterly sales revenue of $29 million Free on Board (FOB).

∙Mid West sales for the nine months to 31 March 2019 totalled 2.6 Mwmt, above guidance. Shipments of low grade stockpiled material are now being prepared to commence in June 2019 and continue for approximately six months, depending on market conditions.

∙Mid-Westcash costs** of $33/wmt FOB for the quarter, well below guidance.

∙At Koolan Island, ore production commenced at the end of the quarter and the first high grade 65% Fe shipment occurred in April.

∙Sales of high grade ore from Koolan Island are expected to total 0.6-0.7Mwmt in the June quarter.

∙Operating cashflow for the March quarter was $16 million before Koolan Island restart expenditure which was in line with the previous quarter at $41 million. Based on current prices for high grade ores, it is expected that Koolan Island will be cashflow positive from May 2019 onwards.

∙Cash and liquid investments of $394 million at 31 March 2019.

∙Mount Gibson admitted to the S&P ASX-300 Index effective 18 March 2019.

*Sales revenue and cost figures are unaudited. All figures are presented in Australian dollars unless stated otherwise.

**Cash costs are reported FOB and include operating costs, royalties, sustaining capital expenditure and allocated corporate costs.

Comment

Mount Gibson Chief Executive Officer, Peter Kerr, said: "The March quarter was important for Mount Gibson as we successfully completed our final Iron Hill shipments in the Mid-West and commenced high grade ore production at our flagship Koolan Island mine in the Kimberley, where the first shipment has just occurred.

"The commencement of high grade ore production at Koolan Island followed the completion of Mid-West ore shipments in February. Sales from the Mid-West totalled 0.4 Mwmt in the quarter, taking the total for the first nine months of this financial year to just under 2.6 Mwmt, and above our guidance.

"Although our Mid-West business is transitioning to closure, the recently improved market conditions have enabled us to commit to recommence crushing and transport activities to monetise some of the remnant low grade ore stockpiles at the Extension Hill mine site. Low grade shipments are expected to commence in June this year and be undertaken for approximately six months, subject to market conditions.

"The successful recommencement of ore sales from Koolan Island has established Mount Gibson as the supplier of Australia's highest grade direct shipping hematite iron ore at a time of strong pricing for high grade products. We are excited by the significant value-creation opportunity this presents for the Company."

PERFORMANCE AT A GLANCE

		Unit			Mar-2018			Jun-2018			Sep-2018			Dec-2018			Mar-2019			2018/19
				Quarter			Quarter			Quarter			Quarter			Quarter			YTD
Standard DSO product sales		kwmt	917		845		1,149	1,012	402	2,563
Low Grade material sales^		kwmt	59		118		-	-	-	-
Total Ore Sales		kwmt	977		963		1,149	1,012	402	2,563
Ave. Platts 62%Fe CFR price		US$/dmt	74		65		67	72		83	74
MGX FOB avge. realised fines price#		US$/dmt	35		26		28	41		44	36
MGX FOB avge. realised lump price#		US$/dmt	64		52		56	70		58	61

Minor discrepancies may occur due to rounding.

^Refers to spot sales from crushed low grade material at the Extension Hill mine site.

#Mount Gibson's realised FOB prices are for standard DSO fines and lump product from Iron Hill, after adjustments for shipping freight, grade, provisional invoicing adjustments and penalties for impurities.

kwmt = thousand wet metric tonnes. US$/dmt = USD per dry metric tonne.

OPERATIONS

Ore sales totalled 0.4 Mwmt in the March quarter, all from the Company's Mid-West operations. Sales comprised 254,000 wmt of standard DSO (Direct Shipping Ore) lump and 148,000 wmt of standard DSO fines from the Iron Hill mine. No low grade sales were undertaken in the quarter. Sales in the nine months to 31 March 2019 totalled 2.6 Mwmt, above the full year guidance for the Mid-West of 2.0-2.3 Mwmt.

Operating statistics are tabulated in Appendix A.

Mid West Operations - Extension Hill/Iron Hill

The focus of activity during the quarter was on the completion of remaining DSO sales from the Iron Hill deposit stockpiled at the Extension Hill mine site. Trucking of ore to the Perenjori rail siding, and subsequent railing to Geraldton Port was concluded in late January 2019. The final shipment from Geraldton Port was made in late February 2019.

Lump sales accounted for approximately 63% of total sales, compared with 47% in the prior quarter. Site all-in cash costs1 for Extension Hill averaged $33/wmt for the quarter and $37/wmt for the nine month period, reflecting good cost control.

As previously indicated, the average grade of Iron Hill products declined in the March quarter reflecting the final stage of mine production. Iron Hill lump sold during the quarter averaged 58.5% Fe, compared with 60.1% Fe in the prior quarter, and fines averaged 58.2% Fe compared with 59.9% Fe in the prior quarter.

At the end of March, there were no remaining stockpiles of DSO material at the mine or the Perenjori rail siding. However, approximately 1.5 Mwmt of remnant low grade saleable material grading 50-55% Fe remains stockpiled at Extension Hill and Perenjori. Following recent iron ore price strength and improved market interest in lower grade material, Mount Gibson is preparing to make a number of shipments of low grade stockpiled material, commencing in June 2019 and continuing for approximately six months. Although the resulting cashflow is likely to be modest, these sales will also assist in final site rehabilitation works.

As stated in the Company's December 2018 half-year financial results2, the total closure and rehabilitation cost for the Extension Hill and Iron Hill mine sites is provisioned at approximately $15 million (including site personnel redundancy costs), of which approximately $7 million is expected to be spent during 2018/19.

In addition, as also previously stated, following achievement of a contractual rail volume threshold at Extension Hill last financial year, Mount Gibson has become entitled to receive a partial refund of historical rail access charges from railway leaseholder Arc Infrastructure based upon the future usage by certain third parties of specific segments of the Perenjori to Geraldton railway line. The refund is calculated at various volume-related rates, and capped at a total of approximately $35 million (subject to indexation) and a time

1Site all-in cash costs are reported FOB and include royalties and capital expenditure, but are before corporate cost allocations.

2Refer ASX release dated 19 February 2019.

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limit expiring in 2031. Receipt of the first payment is anticipated to occur towards the end of the September 2019 quarter, and at six month intervals thereafter, with payments dependent on the volumes railed by third parties on the specified rail segments.

Koolan Island Operations

Site activity at Koolan Island progressed significantly during the period ahead of initial ore sales in April. As reported on 24 April 2019, this critical milestone was achieved with the departure of MV S'Hail Al Mafyar carrying approximately 72,000 wmt of 65% Fe iron ore from the Main Pit. All sales from Koolan Island are made on FOB terms, upon shipment loading. Product grade from Koolan Island is expected to average 65.5% Fe over the mine life. At prevailing prices for high grade iron ore, each cargo has a gross market value of approximately $9 million FOB.

The restart plan has progressed reasonably well with a strong safety performance being maintained and a Total Recordable Injury Frequency Rate (TRIFR) at the end of the quarter of 4.8 incidents per one million manhours worked. Subsequent to the end of the quarter, in mid-April, the Company recorded its first Lost Time Injury since late 2016.

Dewatering in the eastern end of the Main Pit is now completed, with the remaining water in the western end of the pit being discharged into the settlement pond in line with usual dewatering practice for the operating phase of the mine. To date, more than 20 million cubic metres of water have been removed from the Main Pit.

All instrumentation and monitoring data continues to demonstrate that the seawall and the installed impermeable seepage barrier, which have been under full tidal loads since November 2018, are performing to design expectations.

Refurbishment of the island-side footwall of the Main Pit involving rock bolting, shot-creting and installation of safety mesh continues according to plan. The works are designed to improve the geotechnical competence of the footwall and protect personnel and equipment working on the floor of the pit.

Drilling and blasting in the Main Pit continues in line with plan. Approximately 4.1 Mt of waste material was moved during the quarter, compared with 2.4 Mt in the prior quarter, with activity focused in the centre of the pit.

Critically, the first high grade ore was exposed in the centre of the Main Pit in late March. Approximately 8,000 wmt of high grade ore was mined in the last few days of the month, with mining and crushing volumes increasing in April. Based on current production schedules, Mount Gibson anticipates high grade sales in the June 2019 quarter in order of 0.6-0.7 Mwmt.

The full mining fleet is now on the island following delivery of four hired haul trucks in April to complement the existing fleet of nine Company-owned haul trucks and three production excavators. The four hired haul trucks will cater for the higher mining movement in the first 2-3 years of the mine life, with Mount Gibson's owned fleet carrying the base production load throughout the mine life.

Refurbishment, maintenance and recommissioning of the crushing plant and the ship-loader were effectively completed prior to the first shipment. Renovation works within the site accommodation camp and recruitment of the +300 site-based employee and contractor positions were also nearing completion by the end of the quarter.

Cash expenditure at Koolan Island totalled approximately $41 million in the quarter, similar to the prior quarter, and related to pre-production mining and crushing, equipment purchases, and infrastructure repairs and maintenance. At current iron ore prices, Koolan Island is expected to be cashflow positive from May 2019 onwards.

As previously reported, Koolan Island is the highest grade direct shipping hematite iron ore mine in Australia, with total Ore Reserves of 21.0Mt grading 65.5% Fe. Full details of the project and key assumptions were reported in the Company's ASX release dated 20 April 2018.

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CORPORATE3

Realised Pricing and Revenue

Ore sales revenue for all products sold totalled $29 million FOB in the March quarter and $168 million FOB for the nine months ended 31 March 2019.

Pricing for all products increased in the period, reflecting generally improved iron ore demand, major supply interruptions in Brazil and weather-related supply interruptions from the Pilbara region in Western Australia.

The March quarter average Platts CFR price (which includes the cost of shipping paid for by the iron ore supplier) for 62% Fe fines delivered to northern China was US$83 per dry metric tonne (dmt) compared with the US$72/dmt average of the preceding quarter. The average price for the nine months to 31 March 2019 was US$74/dmt CFR. The average Platts CFR price index for 65% Fe fines was US$95/dmt in the March quarter.

During the quarter, DSO lump from Iron Hill achieved an average realised price of US$58/dmt FOB after grade, provisional pricing and penalty adjustments, compared with US$70/dmt in the prior quarter and US$61/dmt for the nine months to 31 March 2019. The lower lump price in the March quarter reflected the lower grade of the final lump shipments from the Iron Hill deposit. The average realised price achieved for Iron Hill fines sold during the quarter was US$44/dmt FOB, compared with US$41/dmt in the prior quarter and US$36/dmt for the nine months to 31 March 2019.

The price differential between the Platts 58% Fe and 62% Fe indices continued to have an impact on revenue during the period. However, the recent lift in pricing has contributed to a general reduction in discounts for 58% Fe grade materials (now circa 8%) and in the premium for 65% Fe high grade products (currently circa 11%). Mount Gibson continues to expect the low and high grade differentials to vary in step with iron ore supply and general steel market conditions in China.

Cash Position

The Company's cash and liquid investments totalled $394 million at 31 March 2019, compared with $431 million at 31 December 2018.

The movement reflected a positive cash inflow from the Mid-West business of $16 million, $3 million of interest revenue, $3 million of corporate office costs and $12 million in net working capital outflows, before Koolan Island cash expenditure of $41 million.

Cost Performance and Group Sales Guidance

As noted above, Mid-West cash costs were $33/wmt FOB for the quarter and $37/wmt FOB for the nine month period to 31 March 2019, well below guidance of $38-42/wmt FOB. All-in group cash costs4 were $40/wmt FOB in both the quarter (December quarter: $41/wmt FOB) and the nine months to 31 March 2019.

As previously reported, Mount Gibson expects total sales for the 2018/19 financial year of 2.7-3.3 Mwmt of DSO iron ore at an average all-in group cash cost (excluding Koolan Island seawall construction and restart expenditure) of $52-57/wmt FOB. Guidance does not include any Mid-West low grade sales which are expected to commence later in the June quarter, subject to market conditions.

In the financial year to date, the Mid-West has contributed 2.6 Mwmt at an average all-in cash cost of $37/wmt FOB. Koolan Island is expected to contribute 0.6-0.7 Mwmt of high grade sales in the June quarter based on the current schedule, with site cash costs expected to average $70-75/wmt FOB from the commencement of sales. Costs at Koolan Island are projected to progressively decline over the mine life in line with the mine schedule as the strip ratio progressively reduces.

3Sales, cost and cash movement figures are unaudited.

4All-ingroup cash costs are reported FOB and include cash operating costs, royalties, sustaining capital expenditure and corporate costs, but exclude Koolan Island restart development capital and pre-production costs.

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December Half-Year Profit Result

Mount Gibson released its profit result for the December 2018 half-year on 19 February 2019, announcing a net profit after tax of $45.1 million on sales of 2.2 Mwmt of iron ore.

Admission to S&P/ASX-300 Index

Mount Gibson was admitted to the Standard & Poor's ASX-300 Index on the Australian Securities Exchange effective 18 March 2019.

For further information:
Peter Kerr	John Phaceas
Chief Executive Officer	Empeiros Advisory
Mount Gibson Iron Limited	[phone]
[phone]	[phone]

Mount Gibson will host an analysts/institutions teleconference at 11:00am AEST (9:00am WST) on Monday 29 April 2019. Investors will be able to listen in to the teleconference by dialling 1300 289 804 immediately prior to the scheduled start time and entering the access code 18314558# at the prompts. A recording of the teleconference will also be available via the Mount Gibson website after completion of the teleconference. In case of difficulties, operator assistance can be reached by calling 1300 289 804 (Australian callers) or [phone] (overseas callers).

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