Mineral Deposits : 3Q 2016 Operations Review

3Q 2016 OPERATIONS REVIEW

MDL's primary asset is a 50% interest in the TiZir joint venture ('TiZir'), which owns the Grande Côte mineral sands operation ('GCO') in Senegal, West Africa and the TiZir Titanium & Iron ilmenite upgrading facility ('TTI') in Tyssedal, Norway. ERAMET of France is MDL's 50% joint venture partner in TiZir.

KEY POINTS

• Positive signs for titanium feedstocks continue with pigment demand in North America and Europe remaining strong

• Key mineral separation plant optimisation projects completed and successfully commissioned

• Mine optimisation team established to focus on productivity and efficiency gains

• Repairs to TTI furnace surroundings completed on time - subsequent decision to drain and reline the furnace taken by the TiZir Board

GCO

Production of heavy mineral concentrate ('HMC') of 140.0kt was consistent with both 1Q and 2Q 2016. However, unplanned downtime associated with certain equipment underperformance together with a planned mine path crossover combined to restrict tonnage throughput during the quarter. It is not anticipated that these issues will continue to have an ongoing effect on the operation.

Efforts continued to focus on improving productivity and efficiency across the mining operations with the goal being operational consistency. To this end, during the quarter the mining division was restructured and a new mine optimisation team established with the primary objective of eliminating events which negatively impact the key operating variables of runtime and throughput.

In the mineral separation plant, key optimisation projects, which have positively impacted zircon quality, yields and recoveries, were successfully completed and commissioned.

GCO production volumes

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GCO sales volumes

GCO exceeded its quarterly record for zircon, rutile and leucoxene sales for a second successive quarter.

Ilmenite sales for 3Q 2016 were in line with production volumes. Shipments to both TTI and external customers occurred during the quarter. Further shipments are planned for 4Q 2016 in accordance with expected production levels.

GCO was cash flow positive for the quarter. The impact of cost reduction initiatives along with record sales volumes for zircon, rutile and leucoxene were the main contributors to this result.

Grande Côte Operations, Senegal, West Africa

TTI

On 15 August 2016, an operational incident occurred at TTI resulting in damage to the surrounds of the furnace. No injuries were sustained by TTI personnel as a result of the incident and safety procedures operated successfully.

Repairs to the furnace surrounds were completed on time and at a lower than previously announced cost (refer ASX Release: 23 September 2016). However, during the repair period it became evident that some sections of the furnace lining had been damaged due to water ingress. A decision has now been taken by the TiZir board to drain and reline the furnace. It is expected that the reline process will be completed by mid-January 2017 with a ramp up of production over the ensuing four weeks.

TTI and its insurance company are making good progress towards concluding the investigation of the incident and determining the final amount of the settlement. To assist with financing requirements since the incident, the insurance company has to date advanced US$12 million to TTI.

Prior to the operational incident in August, the ramp up of operations had progressed well with July production being the highest recorded year to date and with quarterly titanium slag production expected to exceed 50.0kt. Despite the operational incident, TTI will continue to deliver product to contracted customers until such time as inventory levels are depleted.

TTI physical volumes

TiZir Titanium & Iron ilmenite upgrading facility, Tyssedal, Norway

MARKETS

The titanium dioxide market continued its positive movement throughout the quarter, with pigment demand in North America and Europe remaining strong. As previously announced, titanium dioxide pigment inventory has been reported by several producers to have reached normal levels for the first time in four years. Sales volumes of pigment are recovering and several rounds of global price increases have been accepted. New legislation recently introduced in China in respect of mining, energy and the environment is also likely to lead to a reduction in pigment overcapacity. In addition, the market for high grade titanium feedstocks has benefited from a strong supply side response to the prevailing market conditions including idled capacity, significant cutbacks in development expenditure, delayed production and inventory de-stocking by major producers. As a result, the outlook for chloride slag continues to improve.

Zircon prices remained flat. While North American zircon markets are stable and there are positive signs from the European tile market, decreased outputs of steel and glass in China have negatively impacted demand for zircon used in refractory applications. Reports indicate that several Chinese producers are under pressure to upgrade equipment to reduce emissions.

Activity in the pig iron market remained subdued throughout 3Q 2016 which has put pressure on pricing, although markets have been stable since 2Q 2016.

TIZIR

As announced (ASX Releases: 11 December 2015, 21 January 2016), MDL and ERAMET have established a US$60 million committed facility in favour of TiZir (US$30 million from each of ERAMET and MDL) for the payment of interest and principal under the TiZir bond issue. The entire US$60 million facility is underwritten by ERAMET.

In respect of the interest payment due to Bondholders at the end of September 2016, TiZir drew down US$12.4 million under this facility (funded US$6.2 million by each of MDL and ERAMET) to enable the payment to be made. ERAMET funded MDL's contribution on similar terms to those announced previously (ASX Release: 6 January 2016).

At 30 September 2016, the balance of the amount owing to ERAMET (including accrued interest) was US$13.5 million. Of this balance, US$7.3 million is payable by MDL on or before 31 December 2016 whilst the remaining balance is payable on or before 31 March 2017. As previously announced, should MDL not repay either of these amounts by their due dates, ERAMET will have the option to increase its share of the joint venture. Any dilution of MDL, if applicable, would take place based on a formula that calculates the equity value of TiZir using valuations contained in the most recent TiZir balance sheet.

At 30 September 2016, external borrowings (excluding shareholder loans) by TiZir amounted to US$351.5 million, comprising the senior secured bonds (including accrued interest) due September 2017 and amounts drawn under TTI's and GCO's working capital facilities.

TiZir's cash and cash equivalents at 30 September 2016 were US$5.9 million, giving external net debt of US$345.6 million.

OUTLOOK

The joint venture will focus on optimising production from mining operations at GCO and the reline and ramp up of TTI.

A number of mine optimisation projects will be delivered in 4Q 2016. Previously announced cost reduction initiatives, to ensure product competitiveness and operational sustainability, will also remain ongoing at both operations.

MDL CORPORATE

MDL corporate position as at 30 September 2016:

• issued shares were 103,676,341

• unlisted, unvested performance rights totalled 1,170,000

• cash was US$5.9million (approx. A$7.2 million)

• secured debt of US$13.5 million