Metminco Regulatory News (MNC)

MIRAFLORES GOLD PROJECT - COLOMBIA

Introduction

The Miraflores Gold Project is part of the Quinchia Gold Portfolio and is located in Colombia's Middle Cauca Belt, which hosts several multimillion ounce gold discoveries (Annexure 1). The Middle Cauca Belt is a north-south geological trend that takes its name from the Cauca River that runs through it, and represents the area of focus where explorers are looking to make new porphyry gold and gold-copper discoveries.

The district extends roughly from Ibague in Tolima at the southern extremity to Medellin at its northern extremity, and it has resulted in a number of significant greenfield and brownfield discoveries. These discoveries have made the belt the most prolific in Colombia in terms of discovered ounces to date and remains highly prospective for additional discoveries.

Geology

The Miraflores deposit comprises a magmatic-hydrothermal breccia pipe located within a fertile hypabyssal porphyry cluster breccia-pipe. The breccia pipe is sub-vertical and cylindrical with surface dimensions of 250m x 280m with a known vertical extent of 500m to 600m, but open at depth, with clear contacts with the adjacent basalts of the Barroso Formation. A NNW - SSE fracturing system appears to control the formation of the breccia.

Four types of breccia have been distinguished, namely a Red Breccia, a Green Breccia, a Grey Breccia and a White Breccia. The contacts between the different types of breccias are gradational or transitional. The White Breccia occurs in irregular, elongated vertical zones or pockets, surrounded by Green or Grey breccia's, and is interpreted to have formed later than the other breccias. Furthermore, hydrothermal fluid appears to have washed out the rock flour matrix within the White Breccia, or replaced it, with deposition of gangue and sulfide minerals. Of the four breccia types, the Red Breccia contains the highest gold grades with grades of up to 429g/t gold in the vicinity of fault / vein zones.

Steeply-dipping, high-grade veins are present, which represent the youngest mineralizing event at Miraflores. Three groups of veins have been identified based on strike direction, namely Group 100 comprising 3 veins with an average strike/dip of 293°/-87°; Group 200 comprising 5 veins with an average strike/dip of 308°/-82°; and Group 800 comprising 13 veins with an average strike/dip of 340°/-82°. Of these veins, Group 100 is the oldest, and the Group 800 is the youngest.

The main mineralization trends of the high-grade veins vary in strike from 325° to 10° and 280° to 60°, and vary in dip from being vertical to dipping 70°E. The veins are defined by a narrow mineralized core (10cm to 60cm) and a wider mineralized halo (1m to 5m). The narrow core consists of increased amounts of sphalerite, galena, pyrite, chalcopyrite, and fine clay. The wider mineralized halo is defined by weak to moderate mineralization along the margins of breccia fragments. The intensity and width of the mineralized halo is controlled by the porosity and permeability of the wall rock. Assay values as high as 429g/t Au have been reported for the veins, with numerous sample values ranging from 10g/t Au to grades exceeding 100g/t Au.

The younger sub-vertical, northeast dipping veins, that cross-cut the breccia are characterized by the development of argillized material that contains large quantities of pyrite, chalcopyrite, sphalerite and galena, with occasional visible gold. The sulfides are present as coarse particles ranging from 100 to 200μm (occasionally greater than 200μm). The lateral continuity of the NNW-SSE structures is important, and is clearly recognized in prior exploitation workings, where high gold grade mineralization can be followed over a strike length in excess of 150 metres (and more than 80 metres in height), with limited displacement by younger structures. Intersection points of cross-cutting structures (veins) form high gold grade 'shoots' of variable dimensions, which can be observed in the underground workings.

Mineral Resource Estimate

General

Three diamond drilling programs have been carried out at Miraflores over the period 2006 to 2013 consisting of 73 drill holes totalling 25,884m.

· Kedahda (4 drill holes totalling 1,415m)

· B2Gold (6 drill holes totalling 2,210m)

· Minera Seafield (63 drill holes totalling 22,259m)

The modelling of the Miraflores deposit has been undertaken using Vulcan™ and Leapfrog™ Software. All of the exploration sampling has been used in the geological modelling process. The drill hole database was de-surveyed, transformed and validated in the Vulcan™ software, which was then used for the modelling of the mineral resource.

The statistics have been completed using a combination of Vulcan™, Microsoft Excel™ and Sage™ 2001. Geostatistics have been completed in Vulcan™ and Sage™ 2001 and grade interpolation has been undertaken in Vulcan™. Compilation of the final model was undertaken in Vulcan™. Vulcan™ software is similar to other mining software systems and relies on a block modelling approach to represent deposit as a series of 3-D blocks to which grade attributes, and virtually any other attributes can be assigned. The software provides numerous means by which attributes can be assigned, and optimization routines are provided that allow block splitting, such that complex deposit outline details are not lost or smoothed out by regular size blocks.

Drill hole assays for Miraflores were composited using 2m down the hole composite lengths. A total of 13,194 two-metre composites were constructed, starting at the collar of the drill hole. Composite intervals less than 0.75m in length were merged with 2m composites however; some composites less than 2m do exist, as the composites were constrained by geological boundaries.

Basic statistics were compiled for both gold and silver grades in each mineralized lithology and all 21 veins developed within the Miraflores deposit. Capping statistics were determined using histogram and log probability plots of all gold composites in the breccia. A capping value of 45g/t was determined for the breccia, whereas it varied from 0 to 17g/t for the veins. Silver grades were not capped as the silver grades at Miraflores are very low.

Block Model

The resource model for Miraflores was constructed with Vulcan™ software using a block model. All of the required information about the deposit is stored in each individual block. This includes estimated characteristics of gold and silver and statistical characteristics such as number of samples used in an estimate, distances to the nearest sample and the number of drill holes used. Geological triangulations were also used to identify the rock type of each block, and these structures also controlled the sub-blocking in Vulcan™ along their boundaries. Geological codes stored in the block model were also used to assign the density within specific geological boundaries.

Grade Estimation

The Inverse Distanced cubed (ID3) grade estimation methodology was used to estimate gold and silver grades. For the breccia, basalt and saprolite, the variography was modelled to determine appropriate search ellipsoid orientation and search distances, whereas for the 21 veins, the search orientation varied depending on the orientation of the vein.

Density

A total of 2,100 specific gravity measurements were used to define the density of each lithological block in the model.

Mineral Resource Estimate

As of 02 April, 2013, Metal Mining Consultants (based in Denver, USA) ("MMC") estimated a Measured and Indicated Mineral Resource for the Miraflores gold deposit of 72.6Mt at a gold and silver grade of 0.78g/t and 1.52g/t respectively using a cut-off grade of 0.27 g/t gold. The mineral resource, which was based on 25,884 m of drilling in 73 diamond drill holes and 236 metres of underground channel samples, was reported in accordance with NI 43-101. The mineral resource estimate provided for both an open pit and an underground mining operation.

On 21 July 2016 the Company announced that it had received an updated mineral resource estimate for Miraflores that had been prepared by MMC in accordance with the guidelines of the JORC Code (2012 Edition) for an underground only mining operation. This mineral resource estimate replaces the previous NI 43-101 statement that was released to the market on 7 March 2016. The updated mineral resource estimate is summarized in Tables 1 and 2 below.

Table 1: Mineral Resource Estimate - Miraflores Gold Project (MMC July 2016).

Note:

i) Based on a gold cut-off grade of 1.2g/t.

ii) Rounding-off of numbers may result in minor computational errors, which are not deemed to be significant.

iii) Table 1 requirement in support of the JORC Code (2012 Edition) released by Metminco on 21 July 2016.

Table 2: Sensitivity of Mineral Resource to varying gold cut-off grades.

Mine design and production schedule

The Company engaged the services of SRK Consulting (U.S.) Inc. (SRK) to complete a Gap Analysis of the work completed on the Project to-date (in terms of the requirements to complete a Feasibility Study [Refer Annexure 2]), as well as to develop a revised (indicative) mine plan and schedule for an underground only mining scenario.

The objective of the revised mine plan was to provide the Company with an underground only mining scenario, which effectively translates to adding the material, previously planned to be mined as open pit, into the underground mine plan. The mine plan furthermore assumes the use of a paste backfill as opposed to waste backfill. The basis for the work conducted by SRK is the resource model developed by MMC in 2013, using only Measured and Indicated Mineral Resources. Where appropriate, the previous mine design developed in support of a Technical Report completed by SRK for RMB Resources ("RMB") in 2015 was used (SRK Technical Report, dated February 24, 2015).

Cut-off Grade Calculation

The cut-off grade assumptions remain unchanged from the RMB work, with the cut-off grade calculation summarized in Table 3.

Table 3: Underground Cut-off Grade Calculation.

Source: SRK

At the time of the RMB work, the model was evaluated at various cut-off grades. It was determined that a mining cut-off of 2.2 g/t was optimal with the addition of 2.0 g/t stope areas which are immediately adjacent to the 2.2 g/t areas and require limited additional development. A similar approach was used to determine economic underground stopes in the areas which were previously planned to be mined as open pit.

Mine Design

The stope optimization shapes were used as a basis for the mine design. These optimized stope shapes were viewed on screen and those that were low grade, geographically isolated, or otherwise sub-economic when considering development costs, were eliminated from the design. Typically, a crown pillar of 25 m or greater is used; however, there is one instance where an up-stope is mined to within 5 m of the surface.

Main development ramps are in the same locations as the prior RMB work. The opportunity exists to change the layout and modify the portal locations since the open pit no longer limits portal locations and since it is likely that surface infrastructure locations (e.g. stockpiles) may also change.

The updated mine design is shown in Figure 1 below, with blue shapes being the same as the RMB design and pink showing the new (additional) mining areas. With the additional tonnage on upper levels, the ventilation layout/concept needs to be re-evaluated.

Figure 1: Mine Design.

In addition to the completed mine design, dilution and recovery as shown below in Table 4 have been included.

Table 4: Mine Design Dilution and Recovery.

Source: SRK

*Stopes already include 0.25 m of dilution on each side of the stope wall (0.5 m total/stope) included in the stope optimization shape (~10% planned dilution). This planned dilution is included in the 3-D shape and received grade information based on the block model.

The underground mine design process resulted in a mineable quantity for the >1.2g/t Au mineralized tonnes of 3.82 Mt grading 3.66 g/t Au and 2.91 g/t Ag. Total waste/low grade development tonnage in the mine plan is 559 kt. Additional detail summarizing the material in the mine plan in summarized in Table 5 below.

Table 5: Underground Only Mine Plan Summary.

Source: SRK

A breakdown by rock type of the mineralized tonnes >1.2g/t Au is shown in Table 6 below.

Table 6: Mine Design Tonnages/Grade by rock type.

Source: SRK

Production Schedule

The production schedule is based on the rate assumptions shown in Table 7 below. These are the same as used for the RMB work. The backfilling rate has however not been updated from the previous waste rock backfill rate. It is assumed that a paste system would provide similar rates.

Table 7: Mining Rates*.

Source: SRK

*All rates are per face. Multiple areas/faces are mined together to generate the production schedule.

The mining schedule is based on 365 days/year, 7 days/week, with 2 shifts of 12 hrs each day. A production rate of approximately 1,300 t/d, or approximately 50,000 oz. of Au per year, was targeted from the underground. The yearly production schedule was generated using iGantt software and is summarized in Annexure 3.

The schedule shows rock backfill and cemented backfill as consistent with what was used in the RMB work, albeit that the nomenclature presented here is to show the volume that requires a higher strength paste (cemented fill) versus lower strength paste (rock fill). The assumed rate of backfill placement for paste needs to be developed and checked in future work. Backfill is sequenced in the schedule; however, multiple backfill activities occur at once if required by the schedule. Backfill is an integral part of the mining cycle and any delays would affect the schedule. Currently, the scheduled backfill requirements in Year 2 are quite large. Some of this could likely be moved into Year 3; however, it would take more detailed scheduling. Overall there are multiple faces/stopes available and typically only a single stope is mined at once.

The production schedule is shown graphically in Figure 2 below, colored by mining period.

Figure 2: Mine Production Schedule, colored by year (rotated view, looking northward).

Conclusions

Following the completion of the mine planning work, SRK concluded the following:

· All mine planning work is based on the 2013 MMC resource model. Additional geology review was completed by SRK (Miraflores Resource Report, dated July 19, 2016), however, this information was not used.

· Including the material previously planned to be mined as open pit material in the underground mine plan adds approximately 370 kt at a grade of 3.84 g/t Au and 4.29 g/t Ag.

· To produce approximately 50,000 oz Au per year the plant would need to have a capacity of approximately 1,300 t/d.

· To achieve 1,300 t/d from the underground mine, considerably more development needs to be completed upfront. The productivities used and development required show approximately three development crews in the first few years of production. This is currently not optimized in the production schedule and should be re-evaluated with potential changes to the development design at the next level of study.

· The schedule reporting shows rock backfill and cemented backfill as that is what was assumed previously. The updated concept is to utilize a paste backfill system. The assumed rate of backfill placement for paste needs to be developed and checked. The strength characteristics and cure time will be critical elements of future work. Backfill is sequenced in the schedule; however, multiple backfill activities occur at once if required by the schedule. Backfill is an integral part of the mining cycle and any delays would affect the schedule. Currently the scheduled backfill requirements in Year 2 are quite large. Some of this could likely be moved into Year 3; however, it would take more detailed scheduling. Overall there are multiple faces/stopes available and typically only a single stope is mined at once.

· The plan generates low grade stockpiles of material that has to be mined and removed in the development activity in the current plan. This material would likely be fed through the mill at the end of the underground mine life.

· The development drifting should be re-sequenced and optimized in future studies. With the addition of more tonnage on the upper levels of the deposit the ventilation plan should be re-evaluated.

· Productivities used for the rescheduling are identical to those used in the RMB work and should be revisited in future optimizations.

· No updated costing or revision of the productivities has been conducted as this scope of work but should be completed if future planning occurs.

SRK notes that at this time it has not conducted work on tailings, milling, backfill, environmental or updated the costing of any of the past or existing models. The SRK scope of work reported herein only includes an updated mine plan and associated production schedule.

Way Forward

The Company is working with SRK to update the operating and capital costs of the 2015 Technical Study with a view to understanding the potential capital cost savings identified by the Company in relation to the underground only mining option.

LOS CALATOS PROJECT - PERU

During the June 2016 Quarter, the Company has focussed solely on the completion of the agreement with CD Capital with respect to their equity funding of the Los Calatos feasibility study.

MOLLACAS PROJECT - CHILE

The Company holds title to 21 Exploitation Concessions covering the Mollacas deposit and surrounding area, and owns 179 ha of land adjacent to the proposed open pit operation.

In addition, Metminco also owns water rights to approximately 175 litres/sec from two canals, albeit that the estimated water usage for the mining operation will only be 40 litres/sec.

CORPORATE

Placement

In early April 2016 a placement of 250,000,000 new fully paid ordinary shares ("Shares") was completed by SP Angel and RFC Ambrian at a issue price of A$0.004 (£0.002) to raise approximately A$1.0 (£0.5) million.

Rights Issue Options Expiring 15 May 2016

During the quarter the Company also received notices of exercise of 9,420,587 Rights Issue Options granted in 2015 at an issue price of A$0.005 (£0.0026) per Share, prior to expiry, raising a total of A$47,103. Of the Rights Issue Options granted in 2015, 54,654,492 were exercised raising A$273,272. The remaining 510,977,194 Rights Issue Options lapsed on 15 May 2016.

SPP Offer

The Company raised approximately A$0.9 million before costs from a Share Purchase Plan Offer ("SPP Offer") to shareholders with a registered address in Australia, United Kingdom or New Zealand to purchase up to a maximum of $15,000 (or £7,875) of Shares in the Company at an issue price of A$0.004 (£0.0021) per Share. The SPP Offer closed 29 April 2016 raising approximately A$0.6 million before costs by the issue of 151,785,724 fully paid ordinary shares in the Company ("New Shares"). Under the shortfall provisions of the SPP Offer an additional 82,750,000 New Shares were placed raising a further approximately A$0.3 million before costs.

Acquisition of Miraflores Compania Minera SAS (formerly Minera Seafield SAS)

The Company completed the acquisition of Miraflores Minera from RMB late June 2016 by the issue of 350 million Shares (at a deemed price of A$0.5 cents per Share) and reimbursement of approximately A$165,000 in Miraflores Minera's operating costs from date of signing the binding term sheet to 30 April 2016. A further payment of approximately A$250,000 is payable for the period from 1 May 2016 to 20 June 2016 (date of settlement) once the reconciliation of Miraflores Minera's expenditure is completed. RMB was issued 50 million shares in March 2016 in respect of an exclusivity fee. Miraflores Minera is the owner of the Quinchia Gold Portfolio more fully described above.

As a result of the issue of the 350,000,000 Shares, RMB became a substantial shareholder of Metminco, holding 400,000,000 Shares, equivalent to 10.3% of the Company.

Under the purchase agreement, Metminco will make cash payments to RMB as follows:

(i) Initial payment of A$1.0 million on 20 June 2017;

(ii) Second payment of A$1.0 million on 20 June 2018;

(iii) Third payment of A$3.0 million on the earlier of (a) a decision to mine at the Quinchia Gold Portfolio; and (b) on 20 June 2019;

(iv) Fourth payment of A$2.0 million on the earlier of (a) a decision to mine at the Quinchia Gold Portfolio; and (b) 20 June 2020; and

(v) A maximum of A$7million in royalty payments to RMB from operating cashflows.

The timing of consideration for the acquisition, which is in total approximately A$16.5 million with minimal payable upfront, is structured to allow Metminco to focus on the development of Miraflores and the drilling of Tesorito.

Shares Issued in lieu of fees

A total of 7,662,759 Shares were issued to LinQ Corporate Pty Ltd in settlement of corporate consulting fees.

Los Calatos Funded

In June 2016 the Company entered into a binding term sheet with CD Capital whereby CD Capital committed an equity investment of up to US$45 million in relation to the Los Calatos Project. The equity contribution will be applied in 3 tranches over the next 3 - 4 years to complete the planned Pre-feasibility and Feasibility Studies on the Los Calatos Project.

CD Capital will subscribe for US$16 million worth of new shares in Los Calatos Holding Ltd equivalent to 51% of the company ("Tranche 1"). Under the subscription agreement CD Capital will have the option to subscribe for additional shares in the company over two additional Tranches of US$ 14.5 million each, which subject to being exercised in full would increase CD Capital ownership of Los Calatos Limited to 65% after Tranche 2 and 70% after Tranche 3.

It is anticipated that Los Calatos Limited will receive Tranche 1 equity funds in August 2016 following execution of the Equity Investment Agreement and completion of the conditions precedent. Once the conditions precedent to the investment have been completed (which include reorganisation of the Metminco interests in the Los Calatos Project into Los Calatos Holding Ltd, and other steps generally undertaken to complete an investment of this nature). The Equity Investment Agreement is close to finalisation and full details of the agreement are expected to be announced shortly.

The Company's Strategy

The focus of the Company is now two-fold, firstly, in Colombia to optimise the economics of the prior (incomplete) Feasibility Study on the Miraflores Project, which forms part of the Quinchia Gold Portfolio and the recently completed acquisition of Miraflores Minera. The Miraflores Project represents a near term gold development opportunity for Metminco, whereas the wider Quinchia Gold Portfolio provides for substantial upside potential that includes the significant gold porphyry system target of Tesorito. Secondly, in Peru the Company and CD Capital will work together to progress of the Los Calatos Project through completion of Pre-feasibility and Feasibility studies.

Cash Position and Funding

As at 30 June 2016 Metminco had cash reserves of A$0.6 million.

Expenditure for the quarter was focussed on preparatory work for the planned Miraflores Feasibility Study including an updated JORC 2012 mineral resource, analysis of development options, a gap analysis on the requirements to complete a Feasibility Study and the preparation of a preliminary mine plan and schedule..

The Company also incurred care and maintenance costs fees on its other projects (Los Calatos, Mollacas, Vallecillo and Loica) including annual licence; legal costs in relation to the acquisition of Miraflores Minera and the equity investment by CD Capital in the Los Calatos Project; reimbursement of costs to RMB on settlement as set out above; and costs associated with corporate governance, compliance, and maintenance of ASX and AIM listings.

Now that funding for the Los Calatos Project is secured the Company is currently evaluating funding alternatives to progress the Miraflores Project through to completion of the Feasibility Study.

Annual General Meeting

The Annual General Meeting of shareholders for the year ended 31 December 2015 was held on 17 May 2016. All resolutions put before the meeting were approved by shareholders.

Board Changes

Tim Read, who has held office as a Director of Metminco Limited since 1 April 2010 and as Chairman since 16 March 2011 tendered his resignation from the Company's Board of Directors effective from 27 July 2016.

Mr Read has elected to scale back his business commitments and with that reduce his directorship roles. The Board expresses its gratitude to Mr Read for his outstanding service as a Director and Chairman and wishes him all the best.

Dr Phillip Wing, who was appointed to the Board of Metminco on 17 July 2009, replaces Mr Read as Chairman. Dr Wing is a highly experienced company director and businessman. He has been a non-executive director and chairman of a number of companies in various sectors including resources, technology and venture capital.

The Board has elected not to appoint a replacement director at this time.

This announcement is an abridged version of that which was released on ASX on 1 August 2016. A full copy of the announcement (including annexures) is available on the Company's website at www.metminco.com.au 

William Howe

Managing Director

SRK Consulting (U.S.) Inc.

The information provided in this ASX Release as it relates to mining plan and production schedule for the Miraflores Gold Project is based on information compiled by Mr Jeff Osborn BEng Mining, MMSAQP, on behalf of SRK.  Mr Osborn has consented to be named in this announcement and inclusion of information attributed to him in the form and context in which it appears herein.

SRK have given their consent to be named in this Announcement and to the inclusion of all statements by SRK included in said Announcement that Metminco says are based on a statement by us, in the form and context in which these statements are included.

This consent relates to the Announcement of Metminco in Australia and the United Kingdom in both paper and electronic form.

Apart from as set out above, SRK takes no responsibility for any other part of the aforementioned Announcement.

Forward Looking Statement

All statements other than statements of historical fact included in this announcement including, without limitation, statements regarding future plans and objectives of Metminco are forward-looking statements. When used in this announcement, forward-looking statements can be identified by words such as ''anticipate", "believe", "could", "estimate", "expect", "future", "intend", "may", "opportunity", "plan", "potential", "project", "seek", "will" and other similar words that involve risks and uncertainties.

These statements are based on an assessment of present economic and operating conditions, and on a number of assumptions regarding future events and actions that, as at the date of this announcement, are expected to take place. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of the Company, its directors and management of Metminco that could cause Metminco's actual results to differ materially from the results expressed or anticipated in these statements.

The Company cannot and does not give any assurance that the results, performance or achievements expressed or implied by the forward-looking statements contained in this announcement will actually occur and investors are cautioned not to place undue reliance on these forward-looking statements. Metminco does not undertake to update or revise forward-looking statements, or to publish prospective financial information in the future, regardless of whether new information, future events or any other factors affect the information contained in this announcement, except where required by applicable law and stock exchange listing requirements.

ANNEXURE 1: QUINCHIA GOLD PORTFOLIO

a. Location of Miraflores Gold Project

b. Notable gold mineral resources - Mid-Cauca Porphyry Belt.

Note: The mineral resources summarised above are estimated at different cut-off grades in certain instances.

ANNEXURE 2: Miraflores Project

Level of Study by Discipline - SRK

Source: SRK - February 2015 Technical Report (internal report completed for RMB).

ANNEXURE 3

Annual Mine Plan Production Summary (SRK 2016).

Source: SRK