Beadell Resources : December 2018 Quarterly Report

Quarterly Report

As at 31 December 2018

DECEMBER 2018 QUARTERLY REPORT - TUCANO UPGRADE COMPLETE

Beadell Resources Limited (Beadell or Company) is pleased to announce results for the quarter ended 31 December 2018 and the outlook for 2019.

Dr Nicole Adshead-Bell, CEO & Managing Director of Beadell, stated: "2019 will be a pivotal year for Tucano. Our Brazilian team delivered a successful transition in mining contractor and completion of the Tucano Plant Upgrade in 2018 in very challenging circumstances. We have laid a strong foundation for Tucano's future, which requires additional investment to manage our working capital deficit, debt repayment schedule and a 2019 mine plan that delivers ~64% of forecast annual gold production in the second half of the year. We remain convinced that a combination with Great Panther Silver Limited (Great Panther) offers significant benefits and synergies. It is the best option for Beadell and its shareholders. Great Panther's management team has the Brazilian operating experience and, importantly, Great Panther has the balance sheet strength to support Tucano's transition to a fully optimised gold mine and to evaluate the identified but untested resource growth potential. Work programs will be designed to expand the value-per-share for the combined company's shareholders; Beadell shareholders will own ~38% of the enlarged and more robust company. The transaction will result in a new growth-oriented precious metals producer focused on the Americas, offering geographic and operating diversity plus demonstrable organic growth opportunities. Beadell shareholders will benefit from the increased size of the new company, which will result in increased exchange-traded fund demand, and also increased liquidity on stock exchanges in Toronto and New York."

HIGHLIGHTS

OPERATIONS

•  Gold Sales and Production - Gold sales and production for the December 2018 quarter were 38,422 ounces and 43,365 ounces respectively, a decrease of 15% and 11% respectively compared to the same quarter in 2017 and an increase of 39% of gold sold and 45% in gold recovered compared to September 2018 quarter. For CY2018, gold sales totalled 122,472 ounces and gold recovered totalled 123,296 ounces, 1.4% below the low end of the revised guidance of 125,000-135,000 ounces. NOTE: ASX Announcement 9 January 2019 overstated 2018 gold production by 40 ounces with '123,336 ounces of gold produced in 2018, 1.3% below the low end of the revised guidance of 125,000-135,000 ounces.'

•  Costs - Cash costs for the December 2018 quarter were US$832 per ounce. All-in Sustaining Costs (AISC)1 for the December 2018 quarter were US$893 per ounce, representing a decrease of 4% compared to the same quarter in 2017 and a decrease of 7% compared to the September 2018 quarter. CY2018 cash costs were US$880 per ounce and AISC were US$1,073 per ounce, 2% below the high end of the revised guidance of US$1,000 to US$1,100 (June 2018 Quarterly Report). CY2018 AISC were 9% below CY2017 AISC of US$1,180. Average US dollar (USD) to Brazilian Real (BRL) exchange rate for the December 2018 quarter and 2018 were 3.81 USD/BRL and 3.65 USD/BRL, respectively.

•  Mobilisation of New Mining Contractor - U&M Mineração e Construção (U&M) has fully mobilised to site and has successfully integrated into Tucano operations. The Company expects to realise the benefits of the improved performance-based cost structure combined with an ability to deliver to plan in 2019.

•  Tucano Plant Upgrade (Project) - Completed and commissioned in November 2018.

•  Annual Resource & Reserve Statement - A depletion only resource and reserve update was released on 4 December 2018.

GUIDANCE

 Production - Tucano is forecast to produce between 145,000 and 155,000 ounces of gold in CY2019.

Gold production will vary from quarter to quarter, with ~18% of gold production forecast for each of the March and June quarters, 23% in the September quarter and 41% in the December quarter. The quarterly

1 AISC has been calculated in accordance with the World Gold Council's Guidance Note on Non-GAAP metrics released 27 June 2013.

production profile is due to mining sequence grade variability, strip ratio and pronounced rainy season in the first half of the year.

 Costs - AISC are forecast to be in the range of US$1,000 to US$1,100 per ounce. Production and cost forecasts are based on a gold price of US$1,275 per ounce and the Brazilian Central Bank 2019 US Dollar (USD) to Brazilian Real (BRL) exchange rate forecast of 3.62. Tucano costs are ~85% BRL denominated so the AISC in US dollars is very sensitive to the USD/BRL exchange rate.

CORPORATE

•  Great Panther to Acquire Beadell Update - On 21 December 2018, Beadell announced that the Supreme Court of Western Australia had made orders approving the dispatch of the Scheme Booklet and the convening of a meeting of Beadell shareholders in relation to the proposed scheme of arrangement under which Great Panther will acquire all of the issued shares in Beadell (Scheme). The Australian Securities and Investments Commission (ASIC) also registered the Scheme Booklet in relation to the Scheme.

  The independent expert appointed by Beadell to review the Scheme, Deloitte Corporate Finance, concluded that the Scheme is not fair but reasonable in the absence of a higher offer, and therefore in the best interests of Beadell shareholders.

  Directors of Beadell unanimously recommend that shareholders vote in favour of the Scheme in the absence of a superior proposal and have provided support agreements confirming that they will vote the shares they own or control in favour of the Scheme subject to the same condition.

  Shareholders holding in aggregate 18.06% of Beadell agreed to vote in favour of the Scheme, in the absence of a superior proposal, and not to dispose of their Beadell shares, except in respect of a superior proposal. Those shareholders include funds associated with Equinox Partners holding 9.84%, Donald Smith & Co. holding 7.15%, other smaller shareholders, directors and management.

  A full copy of the Scheme Booklet, which included the Independent Expert's Report (IER) and Notice of Scheme Meeting, was sent to Beadell shareholders on 11 January 2019.

•  Great Panther's Non-Revolving Term Loan - On 7 December 2018, Beadell announced that Great Panther had entered into a loan agreement with the Company with a principal amount of US$5 million. Following the announcement of the receipt of BRL$37.9 million (~US$10.3 million) of COFINS on 10 January 2019, Great Panther agreed to accept partial repayment of US$3 million of the principal loan amount, plus interest and fees accrued to date, and to extend the maturity date of the remaining US$2 million to 18 March 2019, in order to provide Beadell with additional funds for general working capital and operating requirements.

•  Gold Sales - Gold sales for the December 2018 quarter totalled 38,422 ounces at an average cash price received of US$1,221 per ounce.

•  Cash and Bullion - Cash and bullion as at 31 December 2018 was A$17.4 million (as at 30 September 2018 was A$13.8 million) (bullion valued at AUD/USD = 0.72 and US$1,282 per ounce). Working capital was negative A$11.3 million.

•  Debt Repayment

  • o Santander - Itaú: US$2.5 million scheduled loan repayment; and a US$5 million dollar scheduled repayment after the period end.

  • o Working Capital Facilities: US$1.8 million repaid.

December 2018 Quarterly Review

OPERATIONS

Production

Gold production in the December 2018 quarter totalled 43,365 ounces, a decrease of 11% over the December 2017 quarter (Table 1). This resulted from a 13% decrease in gold ore milled and 4% decrease in the plant recovery, offset by 6% increase in gold grade. Gold production for the CY2018 totalled 123,296 ounces, a reduction of 5% over CY2017. This was due to the delay in completion of the Tucano Plant Upgrade Project, which restricted processing of higher volumes of sulphide ore, with a 6% reduction in gold ore milled. Insufficient oxygen injection into the leach tanks impacted recovery resulting in a 3% decline in the plant recovery rate, offset by a 3% increase in gold grade through the plant. Comparing the December 2018 quarter to the September 2018 quarter, production was up 45%. This was due to a 39% increase in head grade and 3% in the recovery rate.

Table 1: Tucano 2018 Production Summary

Mining

The Tucano site team made the decision to focus U&M efforts on infrastructure works and reduce material movement due to a build-up in run of mine (ROM) stockpiles and to manage working capital constraints in the December 2018 quarter.

In the December 2018 quarter, 768,996 tonnes of gold ore were mined, a decrease 35% over the December 2017 quarter and 24% increase over the September 2018 quarter related to the mobilisation and commissioning of U&M's mining fleet, which was completed in November 2018. Total material mined was 4,868,173 tonnes, a decrease of 36% over the December 2017 quarter and an increase of 5% over the September 2018 quarter (Table 1). Despite the reduced material movement capacity during the transition between mining contractors there was only a 3% year on year decrease in the total material mined. Unit mining costs have improved due to the step-change in the performance-based cost structure of U&M compared to the previous mining contractor. In addition, Beadell has now greater flexibility in managing the mining contract as the new contract is purely variable and denominated in cost per cubic meter delivered. Productivity improvements are notable when comparing actual to budget performance with the full mobilisation of the U&M fleet in January 2019 to the performance in the January 2018 (Table 2).

Table 2: Comparison of January 2019 year to date and January 2018 actual versus budgeted material movement demonstrating improvement in delivering at and above budget under the 100% U&M contract

Processing

During the quarter, CIL plant throughput was 872,137 tonnes, a decrease of 13% over the December 2017 quarter and the process plant recovery for the period was 88.3%, down 4% (Table 1). The mill feed grade was 1.75 g/t gold, 6% higher than the same period last year. The mill feed grade improved due to increased contribution of high-grade ore from both Tap AB and Urucum (Table 3). The year over year recovery rates were negatively impacted by insufficient oxygen injection to process higher-grade, high-pyrrhotite sulphide ore. The Tucano team is focused on managing the sulphide blend based on pyrrhotite content to maximise recoveries until arrival of the modular liquid oxygen supply in March 2019 for a modest capital investment of ~US$110,000 (ASX Announcement 9 January 2019). This will supplement the Tucano oxygen plant. The volume of sulphide ore processed increased by 63% from the September to December 2018 quarters with the sulphide feed comprising 44% of the total ore feed in December 2018 (Table 3).

Table 3: Tucano 2018 monthly plant performance and sulphide ore blend as a percentage of the total plant fee

Costs

Reported AISC per ounce for the December 2018 quarter decreased 4% from the December 2017 quarter due to improved operating costs from the change in mining contractor to U&M and increased grade through the plant (Table 4). Weakening of the Brazilian Real also positively impacted AISC in US dollar terms (Table 4).

The Company has implemented a number of cost reduction initiatives including:

• • Engaging U&M for a life of mine contract that results in ~US$100 million in savings;

• • Reviewed and re-negotiated key supply contracts;

• • 9% reduction in Brazil headcount;

• • 20% reduction in executive headcount; and

• • 52% reduction in CEO and Managing Director salary versus the previous CEO and Managing Director's 2017 remuneration.

Table 4: Tucano 2018 Cost Summary

* AISC has been calculated in accordance with the World Gold Council's Guidance Note on Non-GAAP metrics released 27 June 2013 and in accordance with this Guidance Note, gold ounces sold are used as the denominator in the cost per ounce calculations. Production costs are inclusive of the effects of ore stockpile and GIC inventory movements.

Tucano Plant Upgrade Project

On 22 November 2018, Beadell advised that construction of the pre-leach thickener, CIL tank and oxygen tank that comprised the final stages of the Project were complete and fully commissioned.

As outlined in the 31 July 2018 ASX Announcement, the Project will increase sulphide ore processing capacity and encompasses four key areas including installation of a ball mill, pre-leach thickener, CIL tank and oxygen plant:

1. Ball Mill: Ensures optimal grind of P80 of 75 microns for up to 80% sulphide ore. Completed and commissioned as per ASX Announcement dated 3 September 2018.

• 2. Pre-Leach Thickener: Ensures consistent densities through the leach circuit during cyanide addition

• resulting in increased leaching efficiency. Completed and commissioned 3 November 2018.

• 3. Leach Tank: Additional leach tank, for a total of seven tanks, increases residency time by two to three hours. This will help maintain the current adsorption retention times. Completed and commissioned 15 November 2018.

• 4. Oxygen Plant: The oxygen plant supplies oxygen injection (sparging) into the first four leach tanks and is required when the ore blend is predominantly sulphide to improve leach kinetics, increase recoveries and reduce cyanide consumption. The oxygen plant was commissioned on the 15 November 2018. As highlighted in the 7 December 2018 ASX Announcement, the Tucano plant has processed up to 87% sulphide ore with 92.91% recovery, versus the life of mine plan of 80% sulphide ore at 93% recovery. This demonstrates that the plant is capable of physically processing higher percentage volumes of sulphide ore. The oxygen plant/sparger configuration, as designed by the previous Tucano Plant Upgrade contractor, appears to be a bottleneck for higher-grade, high-pyrrhotite content sulphide ore as it is not supplying sufficient oxygen to achieve design recoveries. This ore type has to be blended at lower volumes otherwise recovery is negatively impacted. The Tucano team continues to evaluate the optimal blend of higher-grade, high-pyrrhotite sulphide ore to maximise metallurgical recovery and minimise consumables. In order to achieve the feasibility target recovery of 93% recovery for all ore types and maximum ore type processing flexibility, the decision has been made to install a supplemental Brazilian modular liquid oxygen supply system at a very modest capital investment of ~US$110,000 and a minimal impact to processing costs of approximately 2%. This will be installed in March 2019 and management believes that this should increase oxygen in the leach tanks sufficient to achieve design recoveries for higher-grade ore with high-pyrrhotite content. High-pyrrhotite, higher grade ore stockpiles are 3,182 ounces at 1.66g/t gold as of 27 January 2019.