Directors’ review of operations – Quality metallurgical anthracite from Somkhele

Petmin is South Africa’s largest producer of quality metallurgical anthracite and will in 2012 double capacity at its cash-generating Somkhele mine in the KwaZulu-Natal province. The mine is 85km northwest of Richards Bay. Expansion at Somkhele is a key part of Petmin’s growth strategy and strategic focus on the steel value chain. The construction of a second wash plant at Somkhele, for an investment of R140 million, will increase production to more than 1.1 million saleable tonnes of anthracite each year. The new plant will be commissioned in Q1 2012. Petmin is accelerating its three-year R54 million exploration programme on the 22,000 hectares under licence. The company currently mines on just 1,400 hectares and has explored 2,500 hectares to date. Somkhele consists of five mining areas, of which Areas 1 and 2 are being mined, and Areas 4 and 5 are being explored. The mine has SAMREC-compliant resources of 51 million tonnes. Petmin expects its exploration activity to increase the declared resource, enable further expansion, and extend the life of the mine to more than double the current production.

Operational and financial review

Somkhele produced 524,006 tonnes (2010: 467,843 tonnes) and sold 579,087 tonnes (2010: 411,630 tonnes) of anthracite in the year to 30 June 2011.

Net profit margins of 25% (2010: 36%) were achieved during the year ended 30 June 2011. The reduction in margins was due to the stronger Rand which reduced revenues by approximately R28 million and the increased mining costs (as previously announced in November 2010, it was anticipated that mining costs would increase due to an increase in strip ratios in the deeper reserves in Area 1).

The increased amount of overburden to be moved in this higher strip ratio environment resulted in an increase in mining costs of 56% when moving from a strip ratio of 1.7:1 in Area 2 to a strip ratio of 4:1 in Area 1. The increased production and sales volumes combined with efficiency improvements enabled Somkhele to curtail the impact of these higher costs and achieve a net profit margin of 25%.

Mining activities

The performance per area is given in the table below:

Waste removal in Area 1 during the period under review was 134,210m³. Plans have been put in place to further improve on this during the coming year, with improved equipment being introduced at the mine. Waste removal in Area 2 was 205,578m³. Mining in Area 2 has been difficult and constrained due to the limited access to the final levels of the pit.

During the period under review, coal exposed in Area 1 was 159,730 tonnes, whilst coal exposed in Area 2 was 6,993 tonnes. The total coal exposed was 1,215,460 tonnes whilst 1,250,268 tonnes were fed to the washing plant. The deficit on coal exposed has effectively reduced the available coal exposed from three to two months.

Somkhele Anthracite Mine highlights

Location	KwaZulu-Natal Province, 85km north of Richards Bay Port
Commissioning	Acquired in 2005 at pre-feasibility stage Commissioned opencast mine and plant in June 2007
Reserves and Resources	Somkhele has Resources of 77.3Mt and Reserves of 48.9Mt, excluding exploration in the northern areas These figures are awaiting final sign-off by an independent competent person Reserves equate to approximately 27Mt of saleable product or 20 years of mining at the expanded rates
Exploration activity	R54 million approved to accelerate exploration programme on 23 hectares of land under prospecting licence Potential to double current reserves
Mineral rights	New Order Mining Rights for Area 1 and valid for 27 years Mining Right Conversion of Areas 2 and 3 was granted Renewals of Prospecting Rights for Areas 4 and 5 granted
Mining	5 Areas with 4 coal seams (Areas 1 and 2 under production) B Seam up to 15m thick Mining operation in areas 1, 2 and 3 covering 1,400 hectares of land Open-pit, truck and shovel mining method Final highwall expected to be 80-120 metres
Current plant	Current plant capacity: 550,000 saleable tpa 42% yield on bulk mining basis
Second plant expansion	Additional 750,000 capacity Cost R140 million To be commissioned end of Q1 2012
Logistics	Delivery by road to Richards Bay Dry Bulk for export (RBDB) 600, 000 tonnes pa dedicated export facility at RBDB
Products and application	A key application of anthracite is as a reductant, replacing coke in ferroalloy industries 18% ash product is exported 15.5% ash product is supplied into local market
Markets	50% exported to iron-ore pelletising and sintering markets 50% supplied to local ferroalloy market
People	700 employees At least 80% of employees are from local community
Competitive advantage	Anthracite products with low phosphorus and sulphur contaminants; very high vitrinite content; proximity to Richards Bay for export (85km); 600,000 tonnes dedicated export facility; scalability, with 22,000 hectares of land under exploration.

A mining engineer has been appointed and is finalising the development of a planning department. The planning models are being reviewed to ensure continuity and optimise the current pit designs.

Capital expenditure

Capital expenditure of R268 million (2010: R81 million) was incurred during the year ended 30 June 2011. R181 million (2010: R57 million) was spent on pre-stripping the open pits in Area 1 in order to ensure sufficient coal is available to feed the second plant once it is commissioned. The main focus of the balance of the capital expenditure was the construction of the second plant and the mineral resource exploration and evaluation drilling programme.

Exploration programme

Exploration for the B coal seam in Areas 4 and 5 began in August 2010 under the prospecting licences held by Somkhele. The exploration work has followed two concurrent approaches, one to locate new coal blocks and the other to sample by core drilling the KwaQubuka and Emalahleni blocks that had been delineated in previous percussion drilling campaigns, and then to evaluate new blocks located by the regional exploration.

Somkhele mining and exploration areas

Grid percussion drilling started in the Ophondweni block, located by regional exploration in a previous prospecting programme, and included testing the strike extremities. In addition to delineating the extent of potential anthracite resources, percussion drilling located and delineated the adjacent Gwabalanda block. Although this drilling achieved its objective, the amount of dolerite in or near the B seam, causing the coal to be badly burnt over large areas in both these blocks, was disappointing.

Subsequent geophysical density logging the coal seam and initial wash analyses from two core holes in Ophondweni suggests that these blocks could yield a high-density variety of anthracite away from the burnt areas.

The Gwabalanda block lies approximately 1.5km west of Ophondweni and is terminated at its northern and southern extremities by dolerite. The two blocks are separated by a normal fault with a throw of about 600m.

The Ophondweni block lies on the strike extension of and about 6km north-northeast of the Emalahleni block across an area of virtually no rock exposure. A series of holes were drilled but intersected extensive dolerite intrusions in the expected stratigraphic position of the B seam. No further work in this intermediary zone is recommended.

Exploration for new blocks is now focusing attention on the Tholokuhle, Mvutshini and Gunjanini blocks. Initial drilling has intersected coal correlated with the B seam although faulted and disturbed by dolerite intrusion. The positive correlations will now be tested along strike.

Exploration for new blocks has been aided by an aeromagnetic survey over Areas 4 and 5. The objective of this survey is to locate the major west-dipping faults that repeat the east-dipping stratigraphy and present new mining opportunities. The faults cut the dolerite intrusions which in turn alters the shape and intensity of the magnetic field associated with dolerite varieties that are magnetic. Initial examination of the data suggests that the survey has been successful and will be of assistance to the interpretation of the geological structure. The survey has subsequently revealed an unknown increase in dolerite intrusion as north-northwest trending dykes in the northern third of Area 5.

Core evaluation drilling of the near-surface Emalahleni and KwaQubuka blocks is almost complete. These holes should be complete in the next 6 months and will enable these previous categorized inferred resources to be upgraded to measured and indicated categories.

Extensive percussion drilling of potential underground resources has been undertaken down dip from the open cast areas of Area 1 and Emalahleni. This drilling has been largely successful and is expected to add significant tonnages to the measured and indicated resources for Somkhele once the core drilling and wash analyses of the samples are complete.

To date, R10.75 million has been spent on new target location and evaluation, including the open pit resources in Emalahleni and KwaQubuka, and a further R5.6 million spent on evaluating potential resources extractable by underground mining methods.

Construction of the second wash plant to double production

In July 2010, Petmin announced the expansion of Somkhele to double production through the construction of a second coal washing plant.

Construction is progressing according to schedule, with all civil and structural designs completed and the final electrical designs being verified and finalised. The structural and civil contracts were both phased, in order to allow the project team an early start on construction.

The civil contract for phase 1 has been completed, as well as all bulk excavations and backfilling. The contract for phases 2-5 for the remainder of civil work was placed and the civil team has already started with the priority areas and is progressing according to schedule.

The mechanical contract for phase 1 is on schedule. A decision to do all plate work designs and fabrication earlier in the project has saved time. The contracts for phases 2-5 have been placed and additional teams and site management allocated to complete this work according to schedule.

To date, about 75% of the construction costs have been committed with only the electrical contract and the civils to order for the bunkers to be placed. The plant is on track for commissioning at the end of the first quarter of 2012.

Market review

Global supply

Over the past decade, Russian and Ukrainian anthracite has been successfully sold into the western European and Mediterranean markets. The Siberian mines are now looking at markets in Asia, but they are dependent on Russian rail freights remaining at a low level to maintain their competiveness in world markets. Longer term, logistics costs in the CIS region can be expected to rise.

Exports of anthracite from China and Vietnam have stabilised and may decline in the future. A decade ago, these countries were keen to export around the world for the hard currency. Now the official policy is to discourage exports of primary commodities in order to supply the domestic demand and develop their economies. Trade continues into “local” Asian markets, mainly Japan and South Korea. China imports from North Korea and Vietnam, mainly for power production and other relatively low-value applications.

South African exports are likely to remain stable at the current level and consist mainly of fines to Brazil for ore-pelletising. Opportunities are expected to open up in India for the same application. There is a strong domestic demand for ilmenite and ferroalloys smelting.

US production mainly supplies the North American market with limited sales elsewhere. There are efforts to re-finance the larger Pennsylvania mines and enter the seaborne export market. However, the scale of production of the US mines is well below that of those in other countries and so costs probably higher.

Summing production is complicated by the inclusion of raw with washed coal by some countries, the variation in what is defined as anthracite around the world, and the complete lack of datareporting in some countries. Nevertheless, “Resource-Net” has arrived at a figure of 153 million tonnes for world anthracite production (saleable) in 2010, increasing by an average of 4.6% per year over the past decade.

Anthracite demand

Fines are used typically in iron ore sintering and pelletising applications in place of coke breeze. Use in pulverized coal injection (PCI) in the blast furnace is confined mainly to the Far East. Ilmenite smelting needs low-ash, high fixed-carbon fines, but the number of end-users in this sector is quite limited.

Lumps are used as coke replacement in lime kilns by the soda ash and sugar industries, primarily in Europe. These end-use sectors are mature, and there appears little prospect for any significant increase in the future. There is also some demand as coke replacement in ferroalloys production, but use tends to be localised near to the supply source such as in South Africa. Anthracite is also calcined (dried and de-volatilised) for use in electric-arc furnace steelmaking and electrode markets, where it competes against calcined petroleum coke.

In North America, the lumps market is still dominated by the household fuel sector. In Asia, there is relatively low demand currently for anthracite lumps compared to the rest of the world.

Anthracite pricing

Due to the variety of grades and applications, anthracite does not lend itself to reference pricing such as that produced by commodity market publishers for steam coal and other carbonaceous products.

The only regular (monthly) pricing series for anthracite is produced by “Resource-Net” for the European market (cfr basis northern Europe, lumps and fines, max 3% volatiles). Grades for pulverized coal injection (PCI) in the Far East are sold in line with low-volatile PCI coals from Australia.

Until the price spike in coke of 2007-08, anthracite pricing was linked more to the steam coal than the metallurgical coke and coal markets. The lumps price peaked at $325/tonne cfr in the third quarter 2008. While it is often stated that suppliers target anthracite lumps at 60-70% of the blast furnace coke price, our analyses show that:

	Anthracite lumps, in fact, show better correlation with hard coking coal (96%) than with coke (86%) (100% indicating a perfect linear correlation). Maybe this is because they are both high-quality carbonaceous minerals.
	Over the past eight years, pricing for anthracite lumps in Europe has most frequently fallen into range of 40-49% of the coke price (ten quarters from the 33 price data points). It has been at 60% or more of the coke price in only seven quarters over this time period.
	As they can be used almost inter-changeably in most applications, pricing for anthracite fines and coke breeze are closely linked. As they can be used almost inter-changeably in most applications, pricing for anthracite fines and coke breeze are closely linked. Availability of both tends towards an excess in most parts of the world, and so pricing reflects this.

Demand for Somkhele’s products remained good during the reporting period. Internationally, there has been an increase in demand for carbon feedstock, mainly due to the floods in Australia. Unfortunately, Somkhele could not capitalise on these opportunities as the mine had already been operating at improved and maximum capacity.

Supply agreements with key customers have been signed with take or pay agreements for at least 50% of the planned production tonnages for the period 1 April 2012 to 28 February 2013.

Local market

Our principal local market is the ferrochrome producers which have seen solid demand in the year under review but are increasingly under pressure as Chinese demand for ferrochrome has softened considerably – due primarily to significant quantities of ore being supplied to China from other locations. Our major customers continue to order in line with forecast despite some furnace closures indicating variable and lower supply from other producers. We believe that we may be less affected than most producers given the fact that we form a significant portion of the reductant base for these customers. We expect this trend to continue for at least the first half of the forthcoming year and have planned accordingly. This is however offset by the ‘take or pay’ and guaranteed tonnages embedded in our long-term supply contracts.

Sustainable development highlights at Somkhele

Health and safety

There were no lost time or reportable accidents reported for the reporting period. The LTIFR for Somkhele is zero. The review of all mandatory COPs has been completed.

There were no occupational health cases reported during the period under review. Results from the Personal Dust Exposure surveys performed on employees indicated that all exposures were within the occupational exposure limits of 2.0 mg/m³ for coal dust and 0.1 mg/m³ for Alpha-Quartz.

Environment

There were no environmental incidents reported for the period.

Fall-out dust levels and background noise measurements were determined by the Health and Occupational Hygiene Laboratory during the period. All measurements were within the recommended levels. The limits for particulate matter as prescribed by SANS 1929 allow a daily average limit of 75μg/m³ (0.075mg/m³). The levels measured at the operation did not exceed the above limit and averaged from 0.038 mg/m³ to 0.012 mg/m³ during the study.

The mine continued to monitor surface and ground water levels in its area of responsibility. The results are reflected in the table below and were all within the accepted standard allowed.

Labour relations

The Union Branch Committee is fully operational with monthly meetings attended by NUM representatives. The recruitment, training and development of operators for earth-moving machinery as well as plant operators for the new mining areas and the second washing plant is in progress. The recruitment of locals is a matter of priority.

The total number of employees on the mine has increased from 338 in 2010 to approximately 700 at the end of June 2011.

LTIFR statistics

Community development

Somkhele engages with community recognised structures which includes the Mpukunyoni Mining Committee (MMC), Traditional Council, Indunas and Mtubatuba Local Municipality. The mine also conducts roadshows with communities on issues of environment, safety and health, recruitment and community projects updates.

During the year under review, Somkhele supported the surrounding communities through the development of two community halls which have been completed, two dip tanks, two food gardens, the upgrading of a 7km community road and a brickmaking plant which employs nine community members. The mine is currently finalizing a baseline needs survey which will inform the projects the mine will support in the next five years. This process will be completed by December 2011, with implementations of the new strategies to start in early 2012.

Results of tests performed on borehole water at Tendele

Directors’ review of operations – Profitable sale of SamQuarz Silica Mine

Petmin announced in September 2011 it had agreed to sell its SamQuarz silica mine for R258 million, a 45% year-on-year return after tax since it bought the operation for R85 million in 2004. The mine was sold to Thaba Chueu Mining (Pty) Limited, a subsidiary of Spain’s Grupo Ferroatlantica SL. The price may be adjusted to around R270 million once final approval is secured from the Competition Commission and Department of Mineral Resources. SamQuarz is the largest producer of flint-grade silica in South Africa and a key supplier to the clear glass and metallurgical industry. It has a mining right conversion that is valid for 30 years and a life of mine of more than 40 years. Petmin acquired SamQuarz as an underperforming asset. The business was restructured into a long-term, sustainable, reliable cash-producing operation and it was cash flow from SamQuarz which gave Petmin the stable financial base from which to build its growth strategy. Petmin’s overall return from SamQuarz has been 305%, which is consistent with Petmin’s reputation for delivering superior value to shareholders. The disposal will provide Petmin with significant cash resources to be deployed in Petmin’s pipeline of projects.

SamQuarz Silica Mine highlights

Location	10km east of Delmas, Mpumalanga Province, approximately 50km from greater Johannesburg
Commissioning	Operation since 1955
Reserves and Resources	SAMREC-compliant quartzite reserves of 60.64Mt and 11.48Mt of chert reserves
Mineral rights	Mining Right Conversion approved and valid for 30 years
Mining	Open pit operation Final pit design will be 220-230m deep, ~1.1Mtpa saleable production Largest producer of high-quality silica in SA – low in iron and aluminia
Plant	Silica plant design capacity of 1.5Mtpa Chert plant design capacity of 0.75Mtpa Product yield 97%
Products and markets	30% high grade silica sand for the plate glass and clear glass manufacturing industry 29% metallurgical grade silica supplied into the ferroalloys industry 18% metallurgical chert supplied into the ferroalloys industry 20% aggregate supplied into the construction and road building industry 3% dried silica sand for the tile manufacturing sector
People	336 employees 68% of employees from surrounding towns
Competitive advantage	Sizeable, high quality resource; low in iron and alumina (required for glass manufacturers); close proximity of mine to key customers on long-term offtake agreements

Operational and financial review

SamQuarz produced 1,325,868 tonnes (2010: 1,255,559 tonnes) of silica and chert in the year ended 30 June 2011. Sales volumes increased by 7% to 1,248,989 tonnes (2009: 1,171,355 tonnes).

Profit before tax declined by 15% to R33 million (2010: R39 million) as profit margins were squeezed by the effects of long-term sales contract pricing mechanisms that do not match the inflationary increases of mining costs. Management is negotiating contract price adjustments to reverse this negative trend.

Mining costs

During the period under review, average total cost per tonne was R109.71 compared with R98.83 in 2010. Variable costs were slightly higher due to drilling and blasting costs rising as a result of the tightening up of the burden and spacing on the western side of the pit to reduce oversize material. The reduction of the burden spacing increased blasting costs by 46% within this area.

Maintenance costs were also higher because of the five-day plant shutdown in April 2011 and repeated failures on feeder motors.

Fixed production costs were higher mainly due to contractor salaries paid to assist with plant maintenance during the first quarter, and due to increased rehabilitation costs.

Capital expenditure

Capital expenditure for the period under review was R63 million (2010: R22 million). Expenditure was primarily spent on the development of the open pit, and the completion of the relocation of the old office block to allow for access to additional nearsurface, glass grade ore.

Market review

The silica market in South Africa is mainly consumed by the glass and metallurgical sectors. The metallurgical market remains the primary consumer of product, taking approximately 50% of supply. The balance is taken up by the glass manufacturing and construction industries, with a small fraction going into the filter media, silica milling and recreational sectors.

SamQuarz continues to be the largest producer of silica in South Africa, with about 35% market share. It supplies silica and chert to key blue-chip companies such as PFG, Consol, Xstrata, Samancor and Nampak.

Silica sand sales were negatively impacted by reduced demand from some key customers, with the period between February and March particularly affected. The availability of recycled glass in the market also affected the flint sand offtake.

Demand from glass customers remained steady during the period under review. The automotive and construction sectors’ soft performance translated into flat glass sales.

SamQuarz – LTIFR: FY10-FY11

Overall metallurgical sector demand remained steady, shored up by the steel trend (refer to the Anthracite market review above) and further improvement is anticipated in this sector over next six months. Spot sales of all products into other sectors are being constantly pursued to shore up sales.

Sustainable development highlights at SamQuarz

Health and safety

Two lost time injuries occurred during the period under review:

	The first incident occurred in January when a drill rig assistant from Enviro Blasting Services pinched his finger between the rod and rod changer unit on the drilling machine.
	The second incident occurred in March when a SamQuarz boilermaker twisted his left knee whilst negotiating his way though spillage on a walkway.

The mine currently has a lost time injury frequency rate of 0.51 (FY2010: 0.52).

SamQuarz achieved a 5* NOSA rating during the audit conducted in October 2010, achieving 92.34%, compared to 92.08% in the previous year.

SamQuarz held campaigns to promote awareness and education in critical areas over the review period, including HIV/Aids, safety in the workplace and home and health in the home. Booklets and posters relating to each topic were placed on all noticeboards at the mine; and T-shirts, caps, pens and packets of fruit were distributed to all employees to enhance awareness of these important topics.

There were no new cases involving occupational diseases reported during the period under review.

Environment

No audits were conducted by the DMR for the period under review. Internal self audits were however conducted and action lists were drawn up to address shortcomings.

The review of the Environmental Management Programme Report (EMPR) document is still underway following changes to incorporate moving the office block. This process will now be driven more aggressively in order to complete the document for submission to DMR.

Labour relations

The relationships between management and employees were well maintained during the period. The Company continued to actively manage its formal union and employee communication forums with union meetings held on a monthly basis and future forum and employment equity meetings held on a quarterly basis.

NUM members held elections towards the end of the year for the selection of new committee members. Wage negotiations were concluded with a one year substantive agreement with NUM settling on an increase of 10.2%.

For further detail please see Performance against the Mining Charter Scorecard performance on page 39.

A community development project success story SamQuarz mine continues to be committed to supporting communities around the mine. Having recognised that farming is a key economic activity in the area around its mining operation, the mine committed to a cross-industry farming project, Mphiwe Siyalima, owned by Gift Mafuleka, aimed at developing new emerging HDSA entrants into commercial farmers and uplifting the surrounding communities. The project was officially launched on 29 September 2010 by the Deputy Minister of Rural Development and Land Reform, Dr Joe Phaahla, at Leeuwfontein farm near Bronkhorstspruit. Mphiwe Siyalima has been a year in the making and is the result of a successful collaboration between SamQuarz, the Department of Rural Development and Land Affairs, McCain Foods, Tim Hedges (Gift’s sponsor and mentor), and Gift Mafuleka – an emerging commercial farmer. SamQuarz sees the Mphiwe Siyalima project as a way of addressing enterprise development in the area and ensuring wider employment opportunities and training for the local community and women in particular. The farm currently employs 11 people and has the potential to provide 40 regular jobs. This project is an example of cross industry partnerships that the mining industry can forge to create sustainable and commercially viable development projects.

Directors’ review of operations – Veremo pig-iron development project

Petmin has a 25% stake in the Veremo iron ore project in Mpumalanga. The polymetallic ore body with 42% Fe content is suitable for production of 1Mtpa of high-quality pig iron per annum. Petmin has invested R73 million (in 2008) on Veremo. The project area has five renewed Prospecting Rights covering 2,989 hectares of land and a recent drilling programme showed a Measured Resource of 44.3 million tonnes in the weathered zone of the orebody. A mining right application was submitted in November 2010 and plant commissioning and production is anticipated in 2013-14. The project is close to power, rail and water supplies.

The Veremo development project is an iron-ore deposit of Layer 21 of the magnetite layers of the Upper Zone of the Bushveld Complex. It is attractive for the development of a pig iron operation because of the thickness of the orebody, which is up to 60 metres, lateral continuity, exposure, and high titanium dioxide content. This is the first iron-ore layer to be discovered in South Africa that is capable of generating such large resources per hectare.

Location and regional geology

The Stoffberg Ti-magnetite project is situated approximately 10km north of the town of Stoffberg. The project is located in the upper most portion of the Upper Zone of the Eastern Bushveld Complex. The Upper Zone is comprised of magnetite-bearing gabbro, anorthosite and olivine diorite and hosts numerous interlayered titano-magnetite layers of variable thickness and lateral extent.

Layer 21 ranges in thickness from 7m to 60m and consists of cumulus olivine and plagioclase with variable amounts of Ti-magnetite which generally exceeds 50%, particularly in the stratigraphically lower portion of L21. The latter contains minor quantities of pyroxene, mica and ilmenite and is underlain by magnetite gabbro and overlain by olivine diorite. The hanging wall contact is generally gradational while the floor contact tends to be well defined, except for the occasional occurrence of thin, semimassive stringers of Ti-magnetite in the uppermost 50cm to 80cm of the underlying magnetite gabbro. Plagioclase frequently occurs as distinct lensoid, 1cm to 5cm thick, “eye”-shaped accumulations within L21.

Veremo development project highlights

Location	Eastern Bushveld, near Stoffberg, Mpumalanga Province
Ownership	25% Petmin, 75% Framework Investments Limited (100% subsidiary of Kermas Limited)
Date of acquisition	May 2008
Reserves & Resources	Polymetallic ore body containing approximately 42% Fe and 14% titanium dioxide Magnetite ore outcrops on surface SAMREC-compliant drilling programme has delineated an updated Measured Resource of 44.3Mt (previously 11.6Mt), and Indicated Resource of 29.10Mt in the weathered zone of the ore body because it is easier to process Fresh Zone has a Measured Resource of 498.3Mt and Indicated Resource of 26.4Mt
Mineral rights	5 Prospecting Rights successfully renewed in May 2009 Prospecting area covers 2,989 hectares of land Mining rights application was submitted in November 2010 and the company is awaiting approval of this application New order prospecting rights were granted on the farm Onverwacht, contiguous to the current prospecting area
Project plan	Potential for 1Mtpa pig iron Framework Investments is managing the project Finalise metallurgical processing test work is underway Awaiting outcome of mining right application Scoping study and detailed EMP and EIA have been submitted to the relevant authorities Bankable feasibility study is in the process of being finalised
Infrastructure and logistics	Well situated, close to existing power and rail infrastructure Water supply in close proximity

Project history and previous exploration work concluded

Veremo’s exploration programme on the Stoffberg Ti-magnetite deposit commenced in 2005. The first phase diamond drilling began in February 2006 and was completed in November 2006, during which time 90 BQ cored boreholes, amounting to 6,594m, were drilled. A total of 314 trenches were excavated, amounting to approximately 14km of trenching. All boreholes and most of the trenches were sampled and submitted for analysis.

The results of the field work together with the analytical data were compiled during 2007 in a series of technical reports and the data was used to delineate a resource estimate. During 2008, Veremo had the geological and analytical data reviewed and recalculated the resource model. An in-fill drilling and trenching programme to upgrade the deposit to a SAMREC-compliant resource commenced.

During 2009 and 2010 Veremo finalised a core drilling and sampling programme together with a trenching campaign as part of a final geological scoping study to delineate a SAMREC-compliant measured resource in selected high priority areas from previous drilling campaigns. The programme consisted of 38 boreholes drilled. A total of 1,176m of core was drilled during this period.

The results of this drilling programme were published by Petmin in the 2010 annual report and delineated a SAMREC-compliant measured and indicated resource of 73.35 million tonnes of measured and indicated resource and 12.83 million tonnes of inferred resource in the weathered zone of the ore body.

The project area is divided into five fault-bound structural blocks, and the drilling was aimed at defining the thickness of the weathered zone within each of these blocks. A summary of the 38 boreholes is included in the Reserves and Resources section of this report.

During the year under review, Veremo submitted a mining licence application over its project areas. An Environmental Management Programme Report in support of this application was submitted to the DMR in May 2011.

Value curve – Veremo

Veremo – project development update

Kermas Limited, the ultimate controlling shareholder of Veremo is assessing various development options to produce some 1 million tonnes of pig iron and potentially titanium slag and awaits the outcome of the mining licence application.