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Press release from Marketwire

Malaga Improves Profitability and Generates a Net Income of $5.6M and Income From Mining Activities of $7.8M in 2011

Wednesday, March 28, 2012

Malaga Improves Profitability and Generates a Net Income of $5.6M and Income From Mining Activities of $7.8M in 201107:00 EDT Wednesday, March 28, 2012MONTREAL, QUEBEC--(Marketwire - March 28, 2012) - Malaga Inc. ("MLG") (TSX:MLG)(OTCQX:MLGAF) is pleased to report its financial results today for the year ended December 31, 2011. The management discussion and analysis and audited financial statements can be found on the Company's website (www.malaga.ca) and on SEDAR (www.sedar.com). All amounts are in US dollars unless otherwise indicated. 2011 Full Year HighlightsNet income of $5.6M compared to $1.2M in 2010; Income from mining activities of $7.8M compared to $1.7M in 2010; EBITDA of $6.1M compared to $2.4M in 2010; Cash flow from operations before changes in non-cash working capital items of $5.9M, an increase of $4.6M over 2010; Revenues of $20.9M compared to $14.2M in 2010; A 77% increase in the APT average reference selling price, from $240 in 2010 to $424 in 2011; Increase in reserves of 16%, increasing from 169,427 tonnes ("t") as at January 1, 2010 to 195,880 t as at November 25, 2011 and an increase for the same comparative period of 104% in measured and indicated resources increasing from 398,845 t to 814,097 t and 129% increase in inferred resources (4,168,216 t compared to 1,820,641 t); First exploration campaign of the mantos structures on the southern part of the property and in the Consuzo zone initiated in 2011 and is ongoing with a total of 2,572 meters of diamond drill holes completed; Trading on the OTCQX International began in 2011."I am pleased that Malaga has increased its profitability in 2011 and continues to be the lowest cost producer of the publicly traded companies producing tungsten. We plan to increase our production and grow the size of our mine through exploration and development during 2012 in order to fully benefit from this very favorable price environment" said Pierre Monet, President and CEO of Malaga.Financial ResultsFor the full year 2011, Malaga generated a net income of $5.6 million ($0.03 per share), compared to a net income of $1.2 million ($0.01 per share) in 2010. This performance resulted from an average reference selling price increase per metric tonne unit (MTU) of $184 (77%), from $240 in 2010 to $424 in 2011. Sales increased to $20.9 million during the year, up 47% from $14.2 million in 2010. This includes $1.9 million from copper sales, a by-product at Pasto Bueno, in line with copper sales for 2010. For the fourth quarter of 2011, sales were $5.6 million, compared with the fourth quarter of 2010 at $3.3 million in 2010. Sales of tungsten in MTU amounted to 60,602 in 2011 compared to 70,407 in 2010, and due to a lower head grade of 0.67% compared to 0.81% in 2010, the actual production output was 55,357 MTU compared to 71,996 MTU in 2010.The 2011 cash cost of production was $167 per MTU, up from $134 per MTU for the same period a year ago. The Company identified the main causes and managed to reduce and control costs for the second half of the year. However, a temporary shortfall of production in December due to permit delays had a negative impact on production output and costs. The Company believes that continued control of the average cost of production is achievable during 2012. The Company believes that demand for tungsten will continue to grow and prices of APT will continue to rise, as it expects supply will remain limited in the near future. In addition, China has cut its export quotas for antimony, indium, tungsten, molybdenum and tin by up to 5% for 2012 as it continues to protect its metal resources. From 2007 to 2010, world tungsten production ranged from 54,500 tonnes to 68,800 tonnes. During that same period, China produced 83% of the world's tungsten, or between 41,000 and 59,000 tonnes per year. On March 27, 2012, the APT price was $430.In Q3 2011, the British Geological Survey published its 2011 risk list and tungsten is one of four elements having the highest relative supply risk index. Resource increase and continued development at the mineOver the last five years, the Company has been successful in replenishing and increasing its reserves and resources without significant investments in exploration and development. The Company obtained a certified independent NI 43-101 compliant report prepared by Pincock, Allen and Holt as at November 25, 2011 which showed a 16% increase in reserves to 195,880 t, close to 2 years of mine life at current capacity. The Company's objective is to continue to replenish the reserves at the mine and maintain them at a level that is between 18 to 36 months of production. The measured and indicated resources increased by 104% to 814,097 t (1) and the inferred resources increased by 129% to 4,168,216 t, including 450,000 t of tailings material grading 0.14% that could be recovered in the near future. Should the measured and indicated resources be converted into reserves, this would represent close to 7 years of production. The technical report does not include any resources from the mantos structure on the southern part of the property.Malaga has also undertaken extensive underground development to increase the quantity of its tungsten ore sent to the mill. Through 2011, 4,827 meters of underground development work was completed. The Company plans to continue the program in 2012 with the objective of reaching the full mill production capacity of 500 tonnes per day (tpd) in 2013.The investment in development and acquisition of property, plant and equipment was $7.1 million in 2011 ($3.4M in 2010), of which $4.2M was used to build a new tailings pond and $1.8M was used for underground development. Drilling CampaignAn exploration campaign commenced in the second quarter of 2011 and $0.7M was invested. With 10 to 12 short and long-range holes targeting the Loreto vein and the four mantos structures to the south of the property, this program will allow the Company to start defining the potential of this part of the property. Secondary mineralization (gold/copper) has also been detected and future assays will continue to test for a wide range of mineralization.Key Financial Data:For the twelve-month periods ended December 31,(in $'000)20112010Sales20,87714,184Cost of sales (including depreciation and depletion)13,05512,446Depreciation and depletion2,4362,826Income from mining activities7,8221,738General and administrative expenses3,9682,995Adjusted net income (loss)2,953(1,609)EBITDA6,0862,400Earnings per share (basic and fully diluted)$0.03$0.01Cash cost of production per MTU167134Production in MTU55,35771,996IFRS On January 1, 2011, International Financial Reporting Standards ("IFRS") became Canadian GAAP for publicly-accountable enterprises. MLG's interim and annual financial statements are therefore prepared in accordance with IFRS as of January 1, 2011, and comparable figures for 2010 have been restated accordingly. As a result, Malaga has adopted the US dollar as its functional and reporting currency. 2012 OUTLOOK The Company will continue its development and underground exploration program in order to increase the reserves and resources to support the plant by developing more production stopes. Annual production is forecasted at 60,000 to 65,000 MTUs for 2012. The Company's objective is to continue to replenish the reserves and maintain it between 18 to 36 months of production as well as increasing its measured, indicated and inferred resources. In addition to its development program, when the first exploration campaign is expected to be completed in Q2-2012, the results will be analyzed in depth and the Company will determine the objectives and the scope of the second campaign. The Company and its Swiss partners, Emerging Power Developers and Stucky S.A, intend to build a new hydroelectric plant in Peru. While initial capacity is expected to be 20 megawatts (MW), given the area's watershed and water flow characteristics, the Company expects to obtain final approval early in the fourth quarter of 2012.2012 OBJECTIVES In 2012, main objectives are:Increase mine capacity to 400 tpd by year end and produce 60,000 to 65,000 MTUs Continue to be the lowest cash cost producer of all publicly traded tungsten companies Continue to delineate inferred resources in the mantos structure Increase the reserves as well as mineral resources Make a decision on the construction of a 20MW hydro-power plant by Q4-2012ANNUAL GENERAL MEETING The annual general meeting will be held on June 6, 2012 at 10am at 1 Place Ville-Marie, 40th floor.ABOUT MALAGA INC. Malaga Inc. owns the producing Pasto Bueno mine in Peru and is one of the few publicly-traded producers of tungsten outside of China. Malaga is a low cost producer due to its gravimetric ore concentration process and the availability of hydroelectric power generated on its property. Malaga's production capacity represents about 10% of the tungsten available for sale outside of China. The Company plans to increase production and continue to explore the property to develop its reserves and resources.FORWARD‐LOOKING STATEMENTS Certain statements in the foregoing may constitute forward‐looking statements which involve known and unknown risks, uncertainties and other factors that may cause Malaga's actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward‐looking statements. The information provided reflects management's current expectations regarding future events and performance as of the date of this news release.(1) The reserves are included in the measured and indicated resourcesFOR FURTHER INFORMATION PLEASE CONTACT: President & CEOPierre MonetMalaga Inc.514 288-3224ORCorporate Strategy and Investor RelationsNicole BlanchardSun International Communications450 973-6600