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Press release from Marketwire

Malaga Announces Its Q2 Results

Net income of $0.2M and cash flow from operating activities of $1.8M

Wednesday, August 15, 2012

Malaga Announces Its Q2 Results07:00 EDT Wednesday, August 15, 2012MONTREAL, QUEBEC--(Marketwire - Aug. 15, 2012) - Malaga Inc. ("MLG") (TSX:MLG)(OTCQX:MLGAF) reports its financial results today for the second quarter ended June 30, 2012. The management discussion and analysis and unaudited interim 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. Second Quarter and First Six-Month HighlightsNet income of $0.2M for Q2-2012, and $0.3M for the six-month period ended June 30, 2012; Cash flow from operating activities of $1.8M for Q2-2012 and $2.8M for the six-month period; EBITDA of $0.8M for Q2-2012 and $1.4M for the six-month period; Total sales for the quarter of $5.0M and $8.6M for the six-month period; Copper by-product sales for the quarter of $0.6M and $0.7M for the six-month period; Advances on sales of $1.4M to fund the construction of a pilot plant to recover tailings and other programs to increase output; Completion of the first phase of the exploration campaign. Financial ResultsFor the second quarter of 2012, Malaga generated an adjusted net income of $0.2M compared to $0.5M in Q2-2011. The decrease is mainly the result of a 13% decrease in sales volume of tungsten (13,600 MTU in Q2-2012 compared to 15,607 in Q2-2011), an 11% decrease in the selling price and a $14 increase in cash cost production per MTU ($203 compared to $189) which results from lower head grade of mineral extracted (0.57% compared to 0.64% in Q2-2011). The rate of production remained constant in Q2 averaging above 350 tpd.Copper sales were very low in Q1 due to the transportation problems caused by the unusually strong rainfall. In Q2, the Company has been able to recover some of the Q1 loss and the by-product sales amounted to $0.6M, substantially greater than in Q1-2012. The Company will continue to sell the copper by-product for the remainder of the year. For the second half of the year, Malaga will continue with its development program at the mine, with the construction of a new incline ramp in order to access new ore zones in Huayllapon with higher grades. In addition, the Company has commenced the construction of a pilot plant to recover tungsten in the current tailings pond, which is expected to be completed midway through Q4-2012. Long lead time equipment (pump and screens) have been ordered with estimated delivery by the end of Q3, the detailed engineering and construction plans will be completed during Q3 and the site preparation for the pilot plant has commenced and is ongoing. Assuming a 50% recovery rate, Malaga would produce 31,500 MTU over the next few years from the current tailings pond. With production levels expected to increase in the second half of the year compared to the first, Malaga estimates that the cash cost of production will decrease.The APT price forecast from Roskill Information Services "Tungsten: Market Outlook to 2016, 10th edition 2011", are between $350/MTU and $440/MTU through 2016 and take into account growing demand and anticipated new sources of supply coming into the market. The current European APT price is between $390/MTU and $415/MTU. The Company believes long-term market fundamentals remain robust with limited availability of tungsten in the market and strong demand for tungsten concentrate.Continued development at the mineMalaga continues to accelerate underground development at the Pasto Bueno mine in order to replenish the mined reserves and define new reserves and resources. On a year-to-date basis, 2,136 meters of underground development advances and 678 meters of underground diamond drilling were completed. Exploration CampaignThe Company completed its initial exploration campaign on the southern part of the property, the area of the mantos. Results from 14 of 17 drill holes in the mantos show the presence of tungsten ore from traces up to 4.04% W03. This mineralized zone is very different from the northern part of the Pasto Bueno property where Malaga is currently extracting and milling tungsten as the mantos are wider and contains scheelite (CaW04) which supports the potential presence of a skarn at depth, which will need to be proven out with further drilling. Drilling also indicated the presence of gold, copper and other metals in that part of the property.Hydro-electricityHidropesac, owned 49% by Malaga, expects to complete the archaeological and environmental studies during Q3-2012. Then, it will apply for a permanent concession and after approval and commercial agreements and financing secured, construction would commence with the objective to start in early 2013. Key Financial Data:For the three-month periods ended June 30,For the six-month periods ended June 30,(in $'000)2012201120122011Sales4,9585,3298,56510,586Cost of sales (including depreciation and depletion)3,5593,1926,0586,726Depreciation and depletion5345601,0011,275Income from mining activities1,3992,1382,5073,860General and administrative expenses9971,2761,8442,145Net income1501,6292812,443Adjusted net income1485062631,275EBITDA8061,5691,3772,839Earnings per share basic and diluted$0.00$0.01$0.00$0.01Cash cost of production per MTU$203$189$200$155Production in MTU12,61313,07324,55630,566ABOUT MALAGA INC.Malaga Inc. owns the Pasto Bueno mine in Peru and is one of a 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. 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.FOR FURTHER INFORMATION PLEASE CONTACT: President & CEOPierre MonetMalaga Inc.514 288-3224ORCorporate Strategy and Investor RelationsNicole BlanchardSun International Communications450 973-6600