Medusa Mining : Half Year December 2016 Results

ABN 60 099 377 849

This report should be read in conjunction with Medusa's Annual Report for the year ended 30 June 2016 and any announcements made by the Company during the interim reporting period, as it does not include all the notes of the type normally included in an annual financial report.

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Appendix 4D

Half year report

For the 6 months ended 31 December 2016

Name of entity

MEDUSA MINING LIMITED

ABN or equivalent company reference

Half yearly (tick)

Preliminary final (tick)

Half year/ financial ended ("current period")

Interim dividend Amount per security Franked amount per security

• current period (half year ended 31 Dec 2016)

• previous period (half year ended 31 Dec 2015)

Nil Nil

Nil Nil

No dividend will be paid in the current period.

Net tangible assets per share:

The net tangible assets per share as at 31 Dec 2016 was US$0.902 (31 Dec 2015: US$1.066)

Change in control of entities:

There has been no change in control, either gained or loss during the current period.

Associates and Joint Venture entities:

The Consolidated Group did not have a holding in any associates or joint venture entities during the current period.

Description of any modified opinion, emphasis of matter or other matter paragraph

con t ained in t h e in d epen d ent aud it o r's rev iew repo rt :

The independent auditor's review report has been modified in relation to comparative balances. The independent auditor's review report is attached to the Interim Financial Report.

Dear Shareholders,

My address to shareholders of Medusa Mining Limited as the Managing Director reflects the ongoing changes and revitalization of the company's core assets. Change is needed to ensure the future sustainability of the Co-O mining operations and a re-focus on the Company's green fields and brown fields exploration activities for future growth. Success is not just measured on short-term production results, but also in adhering to the Company's growth strategy for longer- term results.

The 2016 half-year strategy remains as presented at the start of the year. The Co-O mine infrastructure projects are critical to the mines future performance. Significant progress has been made on the five focus areas or five pillars of development;

• E15 Service Shaft,

• Mine Ventilation Upgrade,

• Mine De-Watering Expansion,

• Level 8 Drilling Stations for resource expansion and

• Prioritized Mine Development.

The impact of some of these expansion projects will start returning results in the H2 period, where other projects will be completed in the next reporting year, like the E15 Shaft.

Production was effected in the half year, mostly impacted by the additional maintenance work required for the L8 Production Shaft, lowering the shaft's overall availability in the December quarter. The shaft guide wear-rates required additional maintenance and for safety reasons Medusa put this work ahead of short-term production goals. This will continue into the March 2017 quarter, thus the necessity to revise the FY 2016-17 guidance. The revised guidance range is between 85,000 to 95,000 ounces at All-In-Sustaining Costs of between US$1,250 to US$1,350 per ounce of gold.

The September 2016 release of the re-estimated resources was 961,000 ounces of gold for the Co-O mine, still a robust number considering its 10-year production history and last year's gold production of 108,578 ounces. The H1 resource drilling of approximately 23,000 metres is a significant investment in expanding the down dip potential at the Co-O mine. This rate of drilling will continue throughout H2 with the intent to re-building the resource and reserve base at the Co- O Mine.

The Company's exploration activities for H1 have been aligned to a new strategy, with the focus now centred on near-mine exploration activities. Regional target areas that have not returned expected results will be rationalized. The regional focus also includes exploration prospects outside of Medusa's tenement position.

During the 6 months' period, the Philippine Department of Environment and Natural Resources ("DENR") conducted audits of all mining operations in the Philippines. Throughout the DENR audit process the Co-O operations have not been effected, and has not been listed by the DENR as an impacted or suspended mine site, with its latest listing as of 14th February, 2017.

The Co-O operations had become ISO 14001 certified and compliant in June 2016, prior to the DENR's audit process.

At the end of the half year, the Company had total cash and cash equivalent in gold on metal account and bullion on hand of US$12.9 million. The commitment to our infrastructure development strategy has made significant progress on the five main infrastructure projects (pillars). This has drawn down the 30 June 2016 cash reserves. Two-thirds of this is attributed to the capital projects and a third to the production shortfall. We expect the L8 Shaft hoisting availability to be resolved in the March quarter, allowing us to deliver to the back-end loaded full- year plan, albeit later than the original guidance.