Mineral Deposits : Business Review 2016

BUSINESS REVIEW 2016

CONTENTS

2016 HIGHLIGHTS 1

CHAIRMAN'S REPORT 2

MDL AT A GLANCE 4

PRODUCTION PROCESS 5

PRODUCTS & APPLICATIONS 6

PRODUCTION & SALES 8

FINANCIAL SUMMARY & STRATEGIC OUTLOOK 10

SUSTAINABILITY REPORT 12

CORPORATE DIRECTORY 16

FORWARD-LOOKING STATEMENTS

Certain information contained in this report, including any information on MDL's plans or future financial or operating performance and other statements that express management's expectations or estimates of future performance, constitute forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking words, such as 'expect', 'anticipate', 'likely', 'intend', 'should', 'could', 'may', 'predict', 'plan', 'propose', 'will', 'believe', 'forecast', 'estimate', 'target' and other similar expressions. Indications of, and guidance or outlook on, future earnings or financial position or performance are also forward- looking statements. Forward-looking statements are provided as a general guide only and should not be relied on as an indication or guarantee of future performance.

Forward-looking statements are based on a number of estimates and assumptions that, while considered reasonable by management at the time, are subject to significant business, economic and competitive uncertainties. MDL cautions that such statements involve known and unknown risks, uncertainties and other factors that may cause the actual financial results, performance or achievements of MDL to be materially different from the Company's estimated future results, performance or achievements expressed or implied by those forward-looking statements. These factors include: the inherent risks involved in mining and mineral processing operations, exploration and development of mineral properties, financing risks, changes in economic conditions, changes in the worldwide price of zircon, ilmenite

and other key inputs, changes in the regulatory environment and other government actions, changes in mine plans and other factors, such as business and operational risk management, many of which are beyond the control of MDL. There can be no assurance that actual outcomes will not differ materially from these statements.

Past performance information given in this report is given for illustrative purposes only and is not necessarily a guide to future performance. No representation or warranty is made by any person as to the likelihood of achievement or reasonableness of any forward-looking statements, forecast financial information or other forecast. Nothing contained in this report is, or shall be relied upon as, a promise, representation, warranty or guarantee as to the past, present or future performance of MDL.

Except as required by applicable regulations or by law, MDL does not undertake any obligation to publicly update, review or release any revisions to any forward-looking statements to reflect new information, future events or circumstances after the date of this report.

Nothing in this report should be construed as either an offer to sell or a solicitation to buy or sell MDL securities.

Expressed in United States dollars unless otherwise stated.

2016 HIGHLIGHTS

INTEGRATION OF OPERATIONS

TTI producing from GCO ilmenite

SUCCESSFUL IMPLEMENTATION

of expansion and upgrade project at TTI

GCO

LTI FREE

POSITIVE EBITDA

for TiZir of $24.1 million

Record utilisation

& production levels at GCO

1

ST

year

positive cash flows at GCO

MDL BUSINESS REVIEW 2016 1

CHAIRMAN'S REPORT

'...your company is competitively positioned to take advantage of any commodity price recovery'

Fellow Shareholders,

While it has been a productive year for your company, with significant milestones achieved at both the Grande Côte mineral sands operation ('GCO') in Senegal and the TiZir Titanium & Iron ilmenite upgrading facility ('TTI') in Tyssedal, Norway, the year has not been without challenges.

The severe downturn in the prices of the commodities we sell and the incident at TTI impacted our operations and our cash flows. As I write this letter, however, the outlook across the commodity spectrum and, in particular, the

mineral sands space has improved significantly. In addition, I am pleased to report that TTI is again operational after completion of repairs and ramp up to full capacity is underway.

Our teams performed at a pleasing level under considerable pressure in 2016 and it is great to see their efforts rewarded with positive

operational achievements. At GCO, we focused on areas that would deliver enhanced operational performance and, as a result, the operation is now performing to expectations. In Norway, the team performed well under challenging circumstances, bringing the facility back on line ahead of schedule and ramping up as planned.

TiZir recorded a positive EBITDA for 2016 of

$24.1 million - an acceptable result given the commodity price weakness that prevailed during the year and TTI's production status. Further, 2016 represented the first full year of positive cash flows for GCO. These results provide a platform from which your company

can grow future profitability through increasing cost efficiencies and realisation of synergistic benefits between GCO and TTI. It is notable that the operations achieved a positive financial result during a severe commodity price downturn and in doing so confirmed to us their status as world class assets.

Turning to each operation:

GCO

Our mineral sands operation in Senegal achieved an excellent safety result, completing 2016 without recording any lost time injuries ('LTI') - an outstanding achievement which reflects the approach that the operation takes to workplace safety and the dedication of the workforce to promoting a safety first culture and ensuring a safe working environment.

GCO achieved a number of sales and production records in 2016:

• Dredge throughput for a month (3.98 million tonnes), quarter (11.3 million tonnes) and year (39.2 million tonnes)

• Heavy mineral concentrate production for a quarter (194.1 thousand tonnes)

• Zircon production for a month (6.1 thousand tonnes), quarter (16.5 thousand tonnes) and year (52.6 thousand tonnes)

• Zircon sales for a month (7.3 thousand tonnes), quarter (16.0 thousand tonnes) and year (53.1 thousand tonnes)

  These safety, production and sales records are the direct result of a number of key projects established by your company and its joint venture partner ERAMET, in conjunction with TiZir and GCO management. These projects, outlined below, focused on improving all aspects of the operation in order to allow GCO to achieve its potential to operate as a Tier 1 asset.

  Safety - The joint venture partners completed a safety audit in February 2016 which resulted in a number of recommendations that were actioned in 2016. Operations - A systematic review of the operating parameters of the dredge, wet concentrator plant ('WCP') and mineral separation plant ('MSP') was undertaken. At the mining operations, activities focused on increasing operational utilisation and consistency to maximise throughput and recovery of valuable heavy minerals. During

  the year a mine optimisation study focused on maximising cash flow and the efficient recovery of resources was completed. At the MSP, capital was spent on various initiatives including an

  up-current classifier and a belt filter to improve zircon recoveries. The strong operational result in the final quarter of 2016 is a reflection of the success of these projects.

  Cost efficiencies - Various initiatives aimed at significantly decreasing GCO's operating cost base while maintaining high operational standards were established and implemented throughout 2016. These programs were successful in significantly reducing the cost base of the operation and further initiatives have been identified for 2017. Management incentivisation - During the year GCO revised its remuneration policies. Following a thorough analysis of the key operating drivers, the remuneration structure of employees was revised in order to strengthen the link between operational performance and employee remuneration.

  TTI

  At our ilmenite upgrading facility, the successful restart and ramp up of the furnace following

  the 2015 furnace capacity expansion project

  completion saw first production of chloride slag in early January 2016, followed shortly thereafter by high purity pig iron. Ramp up exceeded expectations, with production rates achieved at the beginning of 3Q 2016 approximating expanded capacity targets.

  However, an incident in August resulted in an extended production shutdown. With respect to this incident, prior to the end of 2016, TTI agreed a full and final settlement with its insurers.

  The financial impact of the shutdown was also softened by GCO successfully selling ilmenite that had been set aside for TTI to external customers, illustrating the competitiveness of GCO's products in the market.

  Furnace repairs are now complete and ramp up to reach expanded capacity production

  targets is underway. Together with the improved operational performance at GCO, your company is competitively positioned to take advantage

  of any commodity price recovery.

  Funding

  While we will continue to focus on operations in 2017, in particular the ramp up at TTI and continued optimisation at GCO, the key focus

  for your company this year will be the financing of TiZir and MDL. TiZir is currently working on its refinancing options with respect to its senior secured bonds due in September 2017.

  During 2016 ERAMET provided your company with short-term financing of $13.8 million (including accrued interest). Should MDL elect not to repay this funding, ERAMET is entitled to dilute MDL's equity in the TiZir joint venture. Any dilution would take place based on a formula that calculates the equity value of TiZir using valuations contained in the most recent TiZir balance sheet. In respect of the payment due on 31 December 2016, ERAMET informed MDL that it would not seek to dilute MDL's interest as a result of non-payment on the due date. As ERAMET did not provide a revised due date in

  respect of this loan, the loan will continue under the same terms and conditions as specified under the Shareholders' Agreement including an effective interest rate of USD LIBOR (three months) plus seven percent.

  Board succession

  As foreshadowed in last year's Annual Report, I stepped down from my role as executive chairman at the 2016 annual general meeting to become non-executive chairman, while retaining my chairmanship of TiZir. Other board succession activities included the:

• retirement of David Isles, a long-serving director and major contributor to your company's successes over the years; and

• appointment of Rob Sennitt to the position of managing director.

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