QUARTERLY REPORT

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PERIOD ENDING 31 DECEMBER 2015

Hillgrove Resources Limited (ASX: HGO) reports for the quarter ended 31 December 2015

HIGHLIGHTS

• Production of 3,997 tonnes of contained copper in concentrates from the Kanmantoo Copper Mine for the quarter

  
  

• 2015 total copper production was 17,306 tonnes, slightly below the revised CY15 guidance range of 17,500 tonnes to 18,500 tonnes

  
  

• The below guidance copper production in 2015 was offset by total gold production (6,790 ozs) which was above CY15 revised guidance range of 5,500ozs to 6,500 ozs

  
  

• Revenue of $31.4 million for the quarter at an average realised price of $3.40/lb (USD2.43/lb)

  
  

• C1 cost for the quarter of USD2.01/lb ($2.79/lb) despite treating significant volumes of oxide stockpiles with high attributed costs (non-cash) and higher processing costs. 2015 C1 cost of USD2.11 was within CY15 guidance range of USD2.00 to USD2.25 per lb

  
  

• A total of 428kt transitional and oxide material was processed during the quarter, with a feed grade of 0.64% and a recovery of 54.8%, to produce 1,504 tonnes of copper in concentrate. Targeted tails grade was repeatedly achieved but grade of historic oxide stockpiles was 32% lower than plan

  
  

• Plant continues to operate at high throughput levels despite CPS processing, at annualised rate of 3.9mtpa

  
  

• Backfilling has continued in Nugent and Valentine, providing an additional short haul option

  
  

• Work on the water pipeline project nears completion with first water to be available on site in January 2016

  
  

• Formal partnership with the South Australian Government with the relocation of the Corporate Office from Sydney to Adelaide during the quarter, which will result in a ~40% reduction in corporate costs

  
  

• Hillgrove's copper hedging continues to support the revenue stream during periods of low copper prices, with significant hedge book cover (16.5kmt of copper hedged at an average price of $7,758/t, 22% above the current spot price of $6,355/t)

  
  

• As at 31 December 2015, cash on hand was $6.1 million, total debt decreased from $20.0 million to $19.2 million (due to the appreciation of the USD AUD exchange rate) and net debt stands at $13.1 million

IIIIIIIIIIIIIIIIIIIIIIIII HILLGROVE RESOURCES LIMITED ACN 004 297 116

EXECUTIVE SUMMARY

There has been a significant improvement in safety, with the Total Recordable Injury Frequency Rate at 12.6 the lowest since operations began in 2011. Production was 3,997t of copper and 2,558oz of gold in concentrate for the quarter, at a C1 cash cost of USD2.01/lb ($2.79/lb). The Giant pit cut back continues to track to the updated plan post implementation of the modified geological model.

The deferral of copper metal production to later in the project resulting from the modified geological model, and the underperformance of historic stockpiles has made it a challenging quarter, but we continue to fund the Kanmantoo mine including the Giant Pit cutback through cashflow from operations. Revenue for the quarter was

$31.4 million at an average realised price for copper of $3.40/lb (USD2.43/lb), with cash on hand at quarter end of $6.1 million. These revenues were supported by Hillgrove's strong hedge book. This hedge book will continue to provide Hillgrove

with strong revenue protection, with 16.5kt of hedging at an average price of $7,758/t ($3.52/lb), amounting to approximately 70% of payable copper until March 2016 and 42% of payable copper from April 2016 until December 2017 still available.

In December I was pleased to announce a formal partnership with the State Government of South Australia to advance the aims of South Australia's long term, comprehensive Copper Strategy, which aims to triple copper production by 2030. As part of the partnership, and in recognition of South Australia's low mining tax and cost environment, we relocated our Corporate Office to Adelaide. The Corporate Office activities, including the vast majority of externally sourced expertise, will now be sourced from South Australia. High quality services are available at very competitive rates from local Adelaide firms including IT, auditors, accounting and legal services, and when coupled with the significant reduction in rent, travel and accommodation we expect this will lead to an approximate 40% reduction in corporate costs. Importantly it has allowed significant resource sharing and the cost focused Kanmantoo culture which has been developed over the last few years to be spread company wide.

The partnership also involved a grant of $850,000 towards the construction of a 5.6km pipeline to deliver untreated water to the Kanmantoo Copper Mine, displacing more expensive drinking water. This pipeline will supplement the existing supply of treated effluent water from the District Council of Mount Barker, which has been extended for the life of mine. Construction of this pipeline has commenced and will be commissioned in January 2016, providing an additional 900ML per annum of water capacity. This will allow a 75% increase in supply, to assist in dust management, ensuring that we can deliver on our commitment to minimise the impact of dust on the Kanmantoo and Callington communities even during abnormally dry weather periods such as has been experienced this year.

Looking ahead, Hillgrove is encouraged by the proactive PACE exploration programme, included in the SA Copper Strategy and will be looking towards it to assist in testing near mine exploration targets as part of our organic growth strategy. Whilst the area to the north of Giant Pit is enticing, we plan to continue to exhibit tight cash expenditure discipline during this challenging price and cutback period.

KANMANTOO COPPER MINE, SOUTH AUSTRALIA

Mining Lease 6345 (Hillgrove 100%) Overview

The Giant Pit cutback continued to produce ore from a series of upper level satellite orebodies within the

cutback. This ore is now all primary sulphide and is being fed directly to the ROM. Backfilling in Nugent enabled an alternate access to be established and ore outside of the reserve was extracted during the quarter utilising backfilled surfaces. Mining of Nugent Pit is now complete and backfilling has resumed, providing a short haul option for the waste. The processing plant again performed well. However, recovery and unit costs were affected this quarter as a result of a larger proportion of the processing of oxide ore in the CPS campaigns.

Safety and Community

The quarter saw the twelve month Total Recordable Injury Frequency Rate (TRIFR) reduce to 12.6, a 43% reduction since the same period last year and the lowest since operations began in 2011.

3

22.4

TRIFR

25.0

21.2

20.3 20.5

19.3

4

18.7

19.2

20.0

FIGURE 1. TOTAL RECORDABLE INJURY FREQUENCY RATE

TRI

5

Total Recordable Injury Frequency Rate (TRIFR)

16.5

15.2 15.2 15.3

3

12.6

15.0

2

10.0

1

5.0

1

1

1

1

1

1

0 0.0

Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Jul 2015 Aug 2015 Sep 2015 Oct 2015 Nov 2015 Dec 2015

TRI (LHS)

TRIFR (RHS)

Operations

TABLE 1. KANMANTOO COPPER MINE PRODUCTION STATISTICS

* Calendar year

Mining production was 4,727kt (1,530k BCM moved) for the December 2015 quarter, of which 579kt was ore, with no oxide and transitional ore placed onto long term stockpiles. The decrease in mining movements over recent quarters have been a result of a number of factors, including confined mining and working areas, a focus on copper production, mining of harder waste and ore zones, and the effects of El Nino which has led to mining stops as a result of dust. Many of these challenges are expected to be addressed in the coming quarters with the opening up of the pit and the completion of a new water pipeline. Mined ore was reduced as a result of the high stripping ratio of the cut-back in the Giant Pit.

FIGURE 2. KANMANTOO COPPER MINE TOTAL BCM

The treatment of oxide ores requires greater mill time and leads to lower recoveries. Notwithstanding this, mill throughput and reliability continued to be high, with mill throughput this quarter being the third highest achieved despite a significant portion of oxide ore processed.

FIGURE 3. KANMANTOO QUARTERLY MILL TONNES, COPPER RECOVER AND MILL RUN TIME

* With change to 31 December year end, July was included again in milled tonnes for September 2014 quarter for comparison purposes.