Hillgrove Resources : Activity Report for Quarter Ended 30 June 2022

For personal use only

QUARTERLY REPORT

Hillgrove Resources Limited (ASX: HGO) report for the quarter ended 30 June 2022

SUMMARY

Kanmantoo Development

• Following the successful drilling campaigns in Nugent and Kavanagh, updated Mineral Resource Estimates (MRE) have been compiled in both areas, increasing total copper metal at Kanmantoo by 13.4kt (21%) to 75.9kt.
• The proportion of Resources classified as Indicated and Measured increased from 67% to 76%.
• The updated MRE is expected to increase the mining inventory and geological confidence within the Stage 1 mine plan1.
• The underground development decline advanced to the first underground drill platform position.
• A further drilling campaign into the Spitfire lode from the underground drilling platform was completed during the quarter and will be released once assays have been returned.
• The underground mining equipment, including the Komatsu continuous miner, have been demobilised. The remaining $1.2m of grant funding for the continuous miner trial was received from the South Australian Government during the quarter. In total $2.0m of grant funding was received for the project, enabling the development of two portals, a portion of the exploration decline and the first drilling platform for modest cash outflow.
• Funding discussions for the Kanmantoo Underground restart remain ongoing. The Board is paying close attention to the recent volatility of the copper price and will consider the impact on the project economics in any investment decision.

Updated Mineral Resource Estimate2,3

For personal use only

"The opportunity at Kanmantoo continued to grow with the compilation of the Kavanagh and Nugent drilling programs which added a further 1.3M tonnes to the Resource base. As this information is brought into the mine plan it is expected that the mining inventory in the Stage 1 Mine Plan will increase. Furthermore, over 5.2Mt of resources are now classified as either Indicated or Measured (up from 3.7Mt), which materially improves the geological confidence of the resource estimate that underpins the Stage 1 Mine Plan.

The mineral resource estimates in both areas remain limited by the extent of the drilling and remain open along strike and down dip. Importantly, Kavanagh and Nugent are only two of nine deposits that have either been drilled or mined on the permitted mining lease. The next planned stage of exploration includes depth and strike extension drilling of the Kavanagh and Nugent lodes as immediate extensions of the plan, and to commence exploration on five of the other lodes within the permitted lease. Pending exploration success, we will seek to bring these lodes into the mine plan as additional work areas to increase annual throughput. The latent capacity in the process plant and tailings dam enables this to occur, without further processing capital expenditure or permitting.

The Komatsu continuous mining trial has been completed. Although we would have liked to see the technology cut more in the time it was on site, the underground development has been largely underwritten by the $2m government grant and Komatsu, enabling us to get a better look at the geotechnical conditions, establish services at the portals, and commence early stope definition drilling, all of which de-risks the project and further reduces what is a very quick and low cost capital development. During the quarter, the Spitfire lode was drilled from the underground exploration drilling platform and I look forward to releasing these results once all assays have been returned.

Finally, as you will be aware, the copper price has decreased markedly in recent months and is yet to stabilise. Like all copper mining projects, we acknowledge current market conditions may affect financial and operational decisions. Even at the current prices the Kanmantoo Underground project remains robust due in large part to the established and permitted infrastructure which keeps the capital development very low relative to other copper projects. However, the copper price does impact the project economics and will be a key consideration in any investment decision."

High grade mineralisation only 13m in from portal of the ventilation drive

Page 2

For personal use only

Kanmantoo Underground Decline

The decline advanced to the first drilling platform and the initial 13m of the ventilation drive was completed during the quarter. The mining equipment, including the Komatsu MC51, was demobilised from site. The remaining $1.2m of grant funding for the continuous miner trial was received from the South Australian Government during the quarter. In total $2.0m of grant funding was received for the project, enabling the development of two portals, a portion of the exploration decline and the first drilling platform for modest cash outflow.

Advancing the exploration decline

Underground drilling platform

For personal use only

The Nugent surface drilling program was completed, and assays received during the quarter, with 23 of 24 holes intersecting the Nugent Cu-Aulode system and demonstrating the continuity and Cu-Auendowment of the system.

Highlights include:

The Nugent system is now drilled over 280m in strike length and:

• extends over 200m below the previously mined Nugent open pit, and
• is still open to depth and along strike to the south-east.

The 2021-2022 drilling has successfully infilled the drill density across the 2020 Inferred Resources and extended the mineralisation beyond the limit of the previous Inferred Resources.

Nugent Resource Estimate

The completion of the Nugent surface drilling program enabled an updated Nugent Mineral Resource Estimate to be undertaken and reported post quarter end.

The updated 2022 Nugent MRE has:

• a 70% increase in the estimated total copper metal compared to the 2020 Nugent resource.
• 68% of the Nugent Resources now classified as Indicated, compared to 31% classified as Indicated in the 2020 Nugent MRE.
• There are significant Cu-Au intercepts that have not been included in the 2022 resource estimate due to uncertainty on their geologic controls and continuity. For example, 14.5m @ 1.60% Cu, 0.34 g/t Au from 175m downhole in KTDD230 which continue to offer upside to the resource estimate.
• The resource estimates are still constrained by the extent of the drilling and not by the geology, in both the along-strike and down-dip directions.

Kavanagh Resource Estimate Update

The Kavanagh deposit Mineral Resource estimate was updated with the previously announced drill results from 2021-2022. The updated MRE has:

• A 13% increase in the estimated total copper metal compared to the 2021 Kavanagh resource.
• 77% of the Kavanagh Resources are now classified as Measured and Indicated, including 14% of the Mineral Resource now classified as Measured.
• The resource estimates are still constrained by the extent of the drilling and not by the geology, in both the along-strike and down-dip directions.

Page 4