![LONDON MINING PLC
Competent Person’s Report on the Mineral Assets of
London Mining Plc
scale test work by Trical Mining and Metallurgical Services (TRICAL) which reported a head grade of
35% Fe. The individual samples forming the composite were taken from the following locations:
• Valley B: (channel sample on perimeter wall and two pits, 2.5m deep);
• Valley C: (channel sample on perimeter wall and two pits, 2.5m deep); and
• East Swamp: (channel sample on perimeter wall and three pits, 2.5m deep).
With a head grade of 35% Fe the LM composite sample appeared high-grade and not representative of
the tailings deposit as a whole. This could be attributed to the inclusion of an appreciable quantity of
material collected from the dam perimeter wall close to where the tailings had been discharged.
In August 2006, Trical Mining and Metallurgical Services removed samples from the same seven pits
and one from the pilot plant site. These were collected to test for variability and provide basic data for
process design. The samples had an average grade of 31.86% Fe, thus closer in grade to the average
estimated for the deposit than the original samples, but still appreciably higher than individual grades for
the deposits sampled.
From 2007 to 2008 the tailings deposits were drilled (LM drill campaign) by hollow stem auger to
ascertain the geology of the deposits and produce a surface map. The drilling, where completed, was
conducted on a 75m x 75m grid and a total of 240 holes were completed to recover 1,355 samples
(1.5m sample length). This also enabled accurate profiles of the tailings deposits to be generated and a
resource estimation to be undertaken (mineral resource estimate expected December 2009).
Table 3.6: Summary of Hollow Stem Auger Holes (2007-08)
No. of Samples No. of Samples
No. of Total No. of above below
Deposit Holes Samples Water Table Water Table
East Swamp 37 293 120 173
Catchment 1 and 2 33 218 114 104
Batabana 1 and 2 7 41 22 19
Hospital Swamp 20 82 43 39
Hamlet Swamp 39 138 20 118
Chendata 26 128 65 63
Valley A 10 55 32 24
K and R 13 82 41 41
Golf Course 21 67 32 37
Valley D 26 61 37 24
Valley B (less than 15% covered) 8 95 68 27
Total 240 1,355 683 672
3.7.3 Primary Resource
3.7.3.1 Historical Primary Assessment
Mr Gouldson, previously Acting Assistant Director of the Geological Survey, estimated the primary
resources at Marampa in 1985. This was confined to the principal ore bodies lying above the water
table (at an elevation of 300 feet [≈91.4m]). An earlier 1978 study by LKAB reported additional
reserves below the water table and in peripheral deposits.
It should also be stressed that in the past, primary mineralisation at Marampa has been classified into
four types in terms of texture, grinding and concentration properties as follows:
• Hard, fine-grained ore;
• Hard, flaky specularite;
• Medium hard ore; and
• Soft ore (almost entirely mined out).
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![LONDON MINING PLC
Competent Person’s Report on the Mineral Assets of
London Mining Plc
Replenishment periodically (as required); Replenishment Katik
~3.55km (for ~4 months in
Pump ~800m before gravity flow
the year)
Dredge
Pond ~1800m3/h; Batabana
[1km]
1800m3/h (Initial rate);
Steady state rate:
Spillway
~800m3/h;
Cyclone
~1800m3/h; ~1.4km
Concentrate @ 90%
[1.1km]
Ore, with solids; Water: 35m3/h
Mining 83m3/h Concentrate
(water) Ore Overflow: Trucking Station
Face
Stockpile 955 m3/h (water)
97
Plant Thickeners
1717m3/h
500m3/h 500m3/h
Tailings
500m3/h Slurry; 810 500m3/h
Reservoir 1
m3/h
~717 m3/h Reservoir 2
~350m
~350m Thickener Sludge;
Thickeners with ~500m3/h water;
Final Tailings Ponds Thickener Sludge ; 455m3/h
(various locations) ~350m to S of E Swamp
~1,250m3/h; ~[300m (from South of East Swamp)]
Key:
Water Flow into the Mining/processing system
Water Flow back to the Sources/Replenishment
Movement of Ore in Slurry
Movement of Ore (moist or dry)
Movement of Tailings or Slimes Slurry
Figure 3.10: Water Balance during Hydraulic Mining Operations](https://image.slidesharecdn.com/londaimadmissiondocument2-121016053314-phpapp02/85/London-Mining-97-320.jpg)
![Units
“°C” degrees Celsius
“bgl” below ground level
“Ga” billion years
“kg” kilogramme
“km(s)” kilometres
“km2” square kilometres
“kV” kilo-volt
“m” metres
“Ma” million years
“masl” metres above sea level
“Mt” million tonnes
“mm” millimetres
“Mtpa” million tonnes per annum
“t” a metric tonne (1,000kg)
“tpa” tonnes per annum
Technical Terms
“acid” an igneous or volcanic rock containing more than about 60% silica
(SiO2) by weight
“acid rock drainage” drainage that occurs as a result of natural oxidation of sulphide
minerals contained in rock that is exposed to air and water
“actinolite” a monoclinic mineral, 2[Ca2(Mg,Fe)5Si8O22(OH)2]; a metamorphic
ferromagnesian mineral; an asbestos
“adit” a horizontal or sub-horizontal underground development providing
access to underground workings from surface
“aero-magnetic” a geophysical prospecting (by air) method that maps variations in
the magnetic field of the Earth that are attributable to changes of
structure or magnetic susceptibility in certain near-surface rocks
“Al2O3” aluminium oxide
“alteration” changes in the chemical or mineralogical composition of a rock,
generally produced by weathering or hydrothermal solutions
“ammine” one of a group of complex compounds formed by coordination of
ammonia molecules with metal ions
“aplite” light-coloured igneous rock characterised by a fine-grained texture
169](https://image.slidesharecdn.com/londaimadmissiondocument2-121016053314-phpapp02/85/London-Mining-169-320.jpg)
![“kriging” geostatistical technique for interpolation that takes account of the
spatial auto-correlation of a variable (e.g. metal grade) to produce
the best linear unbiased estimate
“leachate” solution obtained by leaching
“limb” area of a fold between adjacent fold hinges
“LIMS” low intensity magnetic separation
“lineament” a large scale linear structural feature
“mafic” Pertaining to or composed dominantly of the ferromagnesian rock-
forming silicates; said of some igneous rocks and their constituent
minerals
“malachite” monoclinic mineral, Cu2CO3(OH)2; bright green; occurs with
azurite in oxidized zones of copper deposits
“mafic” a dark-coloured igneous rock which has a high proportion of
pyroxene and olivine minerals
“mangenite” monoclinic mineral, MnO(OH); a hydrothermal vein mineral; an ore
of manganese
“magnetite” isometric mineral, 8[FeOFe2O3]; major mineral in banded iron
formations
“manganese” grey-white, hard, brittle metallic element; chemical symbol Mn
“massive” a. said of a mineral deposit characterised by a great concentration
of ore in one place, as opposed to a disseminated or vein deposit.
b. said of any rock that has a homogeneous texture or fabric over a
wide area, with an absence of layering, foliation, cleavage, or any
similar directional structure
“Measured Resource” defined in the JORC Code, as that part of a Mineral Resource for
which the resource has been intersected and tested by drill holes,
underground openings or other sampling procedures at locations
which are spaced closely enough to confirm continuity and where
geoscientific data are reliably known. A measured resource
estimate will be based on a substantial amount of reliable data,
interpretation and evaluation which allows a clear determination to
be made of the shapes, sizes, densities and grades
“meta” prefix that indicates that the rock has been metamorphosed
“metallogenic” study of the genesis of mineral deposits, with emphasis on its
relationship in space and time to regional petrographic and tectonic
features of the Earth’s crust
“metallogenic province” a belt of rocks, often structurally controlled, that are host to a
specific selection of minerals
“metallurgical” describing the science concerned with the production, purification
and properties of metals and their applications
“metamorphism” process by which rocks which have been altered by the agencies of
heat, pressure and chemically active fluids
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London Mining
- 1. THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document, you should consult an independent financial adviser authorised under the Financial Services and Markets Act 2000 (as amended) who specialises in advising on the acquisition of shares and other securities if you are taking advice in the United Kingdom or from another appropriately authorised independent financial adviser if you are in a territory outside the United Kingdom. This document is an admission document prepared in accordance with the AIM Rules for Companies in connection with the proposed admission to trading of the Ordinary Shares on AIM. This document contains no offer to the public within the meaning of the FSMA and, accordingly, it does not comprise a prospectus for the purposes of the Prospectus Rules and has not been approved by or filed with the Financial Services Authority. Application has been made for all of the issued Ordinary Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that trading in the Ordinary Shares will commence on AIM on 6 November 2009. The Ordinary Shares are currently listed on the Oslo Axess market of the Oslo Børs and, following Admission, will continue to be listed on the Oslo Axess market of the Oslo Børs. The Company and the Directors of London Mining plc, whose names appear on page 4 of this document, accept responsibility, both collectively and individually, for the information contained in this document and for compliance with the AIM Rules for Companies. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts, and does not omit anything likely to affect the import of such information. AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the Official List of the UK Listing Authority. A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser. Each AIM company is required pursuant to the AIM Rules for Companies to have a nominated adviser. The nominated adviser is required to make a declaration to the London Stock Exchange on admission in the form set out in Schedule Two to the AIM Rules for Nominated Advisers. The London Stock Exchange has not itself examined or approved the contents of this document. LONDON MINING PLC (Incorporated and registered in England and Wales under the Companies Act 1985 with registered number 5424040) ADMISSION TO TRADING ON AIM Nominated Adviser and Joint Broker Liberum Capital Limited Joint Broker GMP Securities Europe LLP The Company is not offering any new Ordinary Shares or any other securities in connection with Admission. The Ordinary Shares have not been nor will they be, registered under the United States Securities Act of 1933, as amended, or with any securities regulatory authority of any state or other jurisdiction of the United States or under the applicable securities laws of Australia, Canada, Japan, South Africa or the Republic of Ireland. This document does not constitute an offer to sell or a solicitation of an offer to buy any Ordinary Shares within the United States. The Ordinary Shares may not be offered or sold within the United States or to US persons except in accordance with the registration requirements of the United States Securities Act 1933 (as amended) and under the securities laws of any applicable state or pursuant to an exemption therefrom. Subject to certain exceptions, the Ordinary Shares may not be offered or sold in Australia, Canada, Japan, South Africa or the Republic of Ireland or to or for the account or benefit of any national, resident or citizen of Australia, Canada, Japan, South Africa or the Republic of Ireland. This document does not constitute an offer of, or the solicitation of an offer to subscribe for or buy, any Ordinary Shares to any person in any jurisdiction to whom it is unlawful to make such offer or solicitation in such jurisdiction and is not for distribution in, or into, the United States, Australia, Canada, Japan, South Africa or the Republic of Ireland. The distribution of this document in other jurisdictions may be restricted by law and therefore persons into whose possession this document comes should inform themselves of and observe such restrictions. Liberum Capital Limited (“Liberum”) is regulated by the Financial Services Authority and is acting exclusively for the Company and for no one else in connection with the Placing and Admission. Liberum will not be responsible to anyone other than the Company for providing the protections afforded to customers of Liberum or for advising any other person on the contents of this document or the Placing and Admission. The responsibility of Liberum as nominated adviser and joint broker to the Company is owed solely to the London Stock Exchange and is not owed to the Company or the Directors or any other person. No representation or warranty, express or implied, is made by Liberum as to the contents of this document (without limiting the statutory rights of any person to whom this document is issued). No liability whatsoever is accepted by Liberum for the accuracy of any information or opinions contained in this document or for the omission of any material information for which it is not responsible. GMP Securities Europe LLP (“GMP”) is regulated by the Financial Services Authority and is acting exclusively for the Company (as joint broker) and for no one else in connection with the Placing and Admission. GMP will not be responsible to anyone other than the Company for providing the protections afforded to customers of GMP or for advising any other person on the contents of this document or the Placing and Admission. The responsibility of GMP as joint broker to the Company is owed solely to the London Stock Exchange and is not owed to the Company or the Directors or any other person. No representation or warranty, express or implied, is made by GMP as to the contents of this document (without limiting the statutory rights of any person to whom this document is issued). No liability whatsoever is accepted by GMP for the accuracy of any information or opinions contained in this document or for the omission of any material information for which it is not responsible.
- 2. Copies of this document will be available during normal business hours on any day (except Saturdays, Sundays, bank and public holidays) free of charge to the public at the offices of Liberum Capital Limited, CityPoint, 10th Floor, One Ropemaker Street, London EC2Y 9HT from the date of this document to the date one month from the date of Admission. Until 40 days after Admission, any offer or sale of the Ordinary Shares offered hereby within the United States by any dealer (whether or not participating in this Placing) may violate the registration requirements of the United States Securities Act 1933 (as amended) if such offer or sale is made otherwise than in accordance with as available exemption under the United States Securities Act 1933 (as amended). Forward-looking Statements This document includes statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “intends”, “may”, “will”, or “should”, or, in each case, their negative or other variations or comparable terminology. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the Group’s actual results to differ materially from those indicated in these statements. These factors include, but are not limited to, those described in Part 2 of this document entitled “Risk Factors” which should be read in conjunction with the other cautionary statements that are included in this document. Any forward-looking statements in this document reflect the Company’s current views, intentions, beliefs or expectations with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Company’s operations, results of operations, growth strategy and liquidity. These forward-looking statements speak only as at the date of this document. Subject to any applicable obligations, the Company undertakes no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise. All subsequent written and oral forward-looking statements attributable to the Group or individuals acting on behalf of the Group are expressly qualified in their entirety by this paragraph. Prospective investors should specifically consider the factors identified in this document which could cause actual results to differ before making an investment decision. Reporting Currencies On 1 September 2008, the functional currency of the Company changed from pounds sterling to US dollars. Accordingly, audited historical financial information for the year ended 31 December 2008 and unaudited interim financial information for the six months ended 30 June 2009 included in this document in respect of the Company is reported in US dollars and audited historical financial information for the years ended 31 December 2006 and 31 December 2007 included in this document in respect of the Company is reported in pounds sterling. All references to “USD” or “$” are to US dollars, the lawful currency of the United States; all references to “GBP” or “£” are to pounds sterling, the lawful currency of the UK; all references to “AUD” are to Australian dollars, the lawful currency of the Commonwealth of Australia; all references to “RMB” are to Chinese Renminbi, the lawful currency of the People’s Republic of China; all references to “DKK” are to Danish Krone, the lawful currency of Denmark and all references to “SAR” are to Saudi Arabian Riyal, the lawful currency of Saudi Arabia. Resource Estimates Unless stated otherwise, resource estimates contained in this document have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. No assurance can be given that any resources which the Company may report to an internationally recognised standard in the future will be in line with these estimates or that the tonnages and grades referred to will be achieved. Investors should therefore place no reliance on these estimates. 2
- 3. CONTENTS Page Directors, Secretary and Advisers 4 Expected Timetable of Principal Events 7 Company Statistics 7 Key Information 8 Part 1 - Information on the Group 11 1. Introduction 11 2. History of the Group 11 3. The Group’s assets 12 4. Methods of financing the business 28 5. Objectives and strategy 28 6. Financial information 29 7. Current trading and prospects 30 8. Developing trends in the exploration and production of iron ore 31 9. Principal target markets 31 10. Directors, senior executive management, project directors and technical services team 32 11. Dividend policy 35 12. Reasons for the Admission 36 13. Details of the Placing of existing Ordinary Shares 36 14. Settlement, dealings and CREST 36 15. Lock-in arrangements 37 16. Corporate governance and internal controls 37 17. Share incentive arrangements 38 18. Taxation 39 19. Further information 39 Part 2 - Risk Factors 40 Part 3 - Competent Person’s Report 51 Part 4 - Financial Information on the Group 182 Part 5 - Additional Information 338 Definitions and Glossary of Terms 382 3
- 4. DIRECTORS, SECRETARY AND ADVISERS Directors Dr. Colin Knight - Non-executive Chairman Graeme Hossie - Chief Executive Rachel Rhodes - Finance Director Sir Nicholas Bonsor - Non-executive Director Malcolm Groat - Non-executive Director Dr. Hans Kristian Schønwandt - Non-executive Director Company Secretary Rohit Bhoothalingam Registered Office 39 Sloane Street London, SW1X 9LP United Kingdom Nominated Adviser and Broker Liberum Capital Limited to the Company CityPoint 10th Floor One Ropemaker Street London, EC2Y 9HT United Kingdom Joint Broker to the Company GMP Securities Europe LLP 4 Albemarle Street London, W1S 4GA United Kingdom Solicitors to the Company Travers Smith LLP as to English Law 10 Snow Hill London, EC1A 2AL United Kingdom Reporting Accountants and Auditors Deloitte LLP 2 New Street Square London, EC4A 3BZ United Kingdom Solicitors to the Nominated Adviser Osborne Clarke and Joint Brokers One London Wall London, EC2Y 5EB United Kingdom Registrar (Norway) DnB Nor Bank ASA Verdipapirservice Stranden 21 Oslo Norway Registrar (United Kingdom) Computershare Investor Services plc The Pavilions Bridgwater Road Bristol, BS13 8AE United Kingdom Competent Person Wardell Armstrong International Limited Sir Henry Doulton House Forge Lane Etruria Stoke-on-Trent, ST1 5BD United Kingdom 4
- 5. Legal Advisers to the Company as Basma & Macaulay to Sierra Leone Law 26 Main Motor Road Brookfields Sierra Leone Legal Advisers to the Company as The Law Office of Abdulaziz H Fahad to Saudi Arabian Law 4th Floor Jarir Plaza Olaya Street Riyadh, 11454 Saudi Arabia Legal Advisers to the Company as Nuna Advokater to Greenland Law Nuna Eqqartussissuserisut Nuna Law Firm Qullilerfik 2 6., Postboks 59 3900 Nuuk Greenland Legal Advisers to the Company as Jun He Law Offices to Chinese Law China Resources Building 20th Floor 8 Jianguomenbei Avenue Beijing 100005 People’s Republic of China Legal Advisers to the Company as Jun He Law Offices to Hong Kong Law Suite 2208, 22/F, Jardine House 1 Connaught Place Central Hong Kong Legal Advisers to the Company as Wikborg Rein to Norwegian Law Pb 1513 Vika 0117 Oslo Norway Legal Advisers to the Company as Eversheds to South African Law 22 Fredman Drive Sandton, Johannesburg South Africa Legal Advisers to the Company as Brigard & Urrutia to Colombian Law Calle 70A # 4-14 Bogota Colombia Legal Advisers to the Company as Galicia y Robles to Mexican Law “Torre del Bosque” Blvd. Manuel Avila Camacho, 24 7° piso Col. Lomas de Chapultepec 11000 México, D.F. Mexico Legal Advisers to the Company as Appleby to British Virgin Islands Law 56 Administration Drive Wickhams Cay 1 British Virgin Islands 5
- 6. Legal Advisers to the Company as Ogier LLP to Cayman Islands Law Equitable House 47 King William Street London, EC4R 9AF United Kingdom Legal Advisers to the Company as Dougherty Quinn LLP to Isle of Man Law The Chambers 5 Mount Pleasant Douglas, IM1 2PU Isle of Man Legal Advisers to the Company as Rolim, Godoi, Viotti & Leite Campos Advogados to Brazilian Law SPAlameda Santos, nº 1940, 5º andar Cerqueira César São Paulo - SP CEP: 01418-200 Brazil Solicitors to the Company as to Memery Crystal LLP Litigation Matters 44 Southampton Buildings London, WC2A 1AP United Kingdom 6
- 7. EXPECTED TIMETABLE OF PRINCIPAL EVENTS Publication of this document 3 November 2009 Admission and expected commencement of 6 November 2009 dealings in the Ordinary Shares on AIM CREST accounts credited with Sale Shares 11 November 2009 in uncertificated form Despatch of definitive share certificates in by 23 November 2009 respect of Sale Shares in certificated form Each of the times and dates in the above timetable is subject to change. All times are London times unless otherwise stated. COMPANY STATISTICS Placing Price GBP1.924 Number of existing Ordinary Shares in issue both before and after 109,533,795 Admission Maximum number of Sale Shares being sold pursuant to the Placing 37,239,225 Market capitalisation of the Company at the Placing Price following GBP210.7 million Admission ISIN code GB00B1VZK334 SEDOL B1VZK331 TIDM LOND 7
- 8. KEY INFORMATION Introduction London Mining is a UK-based company that is focused on identifying, developing and operating scaleable mines to become a mid-tier supplier to the global steel industry. The Company was founded in 2005 and is headquartered in London. The Company has decided to seek admission to AIM in order to benefit from the presence of established mining sector research coverage in London and improved access to global investors. London Mining expects the move will achieve increased liquidity and greater understanding of its assets. The Company is currently listed on the Oslo Axess market of the Oslo Børs and will maintain this listing following Admission. The Company will review the status of the Oslo Axess listing after an appropriate period of time. Overview of the Group’s assets The Group’s principal assets are: • 100% of the lease over the Marampa mine in Sierra Leone – a near term hematite iron ore development project – the Company is currently undertaking final process design and engineering work – the Company is in the process of confirming resource to JORC standard • 50% interest in SLI, a joint venture with National Mining Company of Saudi Arabia to develop the Wadi Sawawin deposit in Saudi Arabia – a jaspilitic hematite iron ore project for which the Company is currently undertaking a Bankable Feasibility Study – NMC owns the exploitation and exploration licences for the Wadi Sawawin deposits and has agreed to transfer these to SLI – the Company is in the process of confirming the Wadi Sawawin resource to JORC standard • 100% of the licence for the Isua deposit in Greenland – a magnetite iron ore deposit – the Company is currently undertaking a pre-feasibility study – Isua has 507Mt of resources to JORC standard • 50% interest in CGMR BVI, a joint venture with Wits Basin, which owns 100% of the Xiaonanshan mine and Sudan plant in China – a producing magnetite iron ore mine and processing plant – a drilling programme is planned to confirm resource to JORC standard The Company also has a number of investments in other iron ore and coal development opportunities: • a 20% interest in ICC, a Colombian coal exploration and development company • a 39% interest in DMC Coal and a contractual right to a 28% interest in DMC, a South African holding company with interests in various coal and iron ore exploration and development companies • a USD2 million loan to assist funding the exploration of a Chilean iron ore project • a 55% interest in a small Mexican iron ore project Objectives and strategy London Mining’s objective is to identify, develop and operate scaleable mines to become a mid-tier supplier to the global steel industry. The Group’s principal assets have actual or anticipated production and the ability for further expansion through either upgrading resources or acquisition. The Company is currently undertaking resource definition programmes to ensure that all of these principal projects will have JORC standard resources in accordance with the timeframes set out in this document. The Directors believe that the total iron ore concentrate production capacity of the Group’s four principal projects (on a 100% basis) has the potential to rise from 0.4Mtpa in 2009 to 14Mtpa in 2014 and to in excess of 20Mtpa in 2018: • Sierra Leone – sinter feed : 1.5Mtpa in 2011 to in excess of 3Mtpa in 2013 • Saudi Arabia – DR pellets : 5Mtpa in 2013 to 10Mtpa in 2017 8
- 9. • Greenland – DR pellet feed : 5Mtpa in 2014 to 10Mtpa in 2018 • China – magnetite concentrate : 0.4Mtpa in 2009 to 1Mtpa in 2011 (Source: Company estimates) The strategy of London Mining is to focus its activities on deliverable iron ore projects, where the key features are scaleable production, financing opportunities and a clear route to market. The ability to accelerate projects through to efficient producing mines, utilising its experienced technical and operating team, is an important part of the Company’s strategy. The Group’s principal projects range from late stage exploration projects, through a brownfield site to an under-optimised producing mine, all of which the Company intends to develop to be efficient producing mines. All of the Group’s principal assets have an ore body and logistics solution which allow for production to be initiated and/or expanded in phases. The logistics solution primarily focuses on workable port locations with available land and with the ability to load, either directly or via transhipment, to ocean going vessels. The port locations are all within approximately 100km of the proposed mine site for all of the existing principal projects with the exception of China, where the product is largely sold at the mine gate, hence transportation costs are low. Currently, London Mining’s target markets are the MENA countries and China, and all of the principal assets are able to supply one or both of these markets. The Company has an experienced management and technical team. The iron ore assets are managed by in country project directors aided by a technical services team headed by the Company’s Chief Operating Officer, Luciano Ramos and comprising seven people with expertise in geology, metallurgy and mine engineering. The technical services team is focused on delivering low-cost, fast track solutions to production. The iron ore assets are overseen by the Company’s management team in London, which focuses on head office functions including funding, off-take agreements and corporate development opportunities. Summary of financial information The table below sets out a summary of the trading record of the Group’s business for the six-month period ended 30 June 2009 and the three financial years ended 31 December 2008, 31 December 2007 and 31 December 2006. Save for the conversion of the reported figures for the financial years ended 31 December 2007 and 31 December 2006 into USD as described below, this data has been extracted, without material adjustment, from the Financial Information contained in Part 4 of this document. GBP reported figures for the financial years ended 31 December 2007 and 31 December 2006 (prior to the Group’s change in functional and presentational currency to USD) are presented in USD for comparability. Items in the income statement have been translated at the average USD / GBP exchange rate for the respective period and items in the balance sheet have been translated at the USD / GBP exchange spot rate as at the respective period end. 9
- 10. Six months ended Financial Financial Financial 30 June year ended year ended year ended 2009 31 December 31 December 31 December $’000 2008 2007(1)(3) 2006(2) (unaudited) $’000 $’000 $’000 Revenue 2,984 - - - Gross profit 1,002 - - - Profit from discontinued operations - 4,897 2,618 - Post tax profit on disposal of discontinued operations - 664,194 - - Profit / (loss) before tax (16,580) 586,081 (16,950) (2,013) Net profit / (loss) (16,599) 586,081 (16,970) (2,012) Cash 245,154 316,286 90,718 559 Total assets (including cash) 383,318 379,886 206,141 8,914 Total Liabilities 38,681 11,853 96,059 6,259 Notes: (1) (2) USD / GBP1 average exchange rate 2.002 1.843 USD / GBP1 spot rate 1.991 1.959 3 The financial year ended 31 December 2007 presented above has been extracted from the comparative information in the 31 December 2008 financial statements which present the results of the Brazilian operations as discontinued. Dividend policy The Board assesses on an annual basis whether a dividend will be paid to shareholders. The declaration and payment by the Company of any dividends and the amount of such dividends will depend on the results of the Group’s operations, its financial position, cash requirements, prospects, profits available for distribution and other factors deemed to be relevant at the time including possibilities for further value creation through new investments. Summary of the Placing Passport, Caspian Investments (BVI) Limited, Benbrack Charkit Limited and Naturaliste Holdings Pty Ltd are selling a total of 37,239,225 Ordinary Shares pursuant to the Placing. The Placing is conditional on, amongst other things, Admission becoming effective. The Company will not receive any proceeds from the sale of the Sale Shares. All Selling Shareholders (other than Passport, which will not hold any Ordinary Shares following Admission) have agreed (except in certain cases including disposals by way of acceptance of a takeover offer for the entire issued share capital of the Company) that they will not dispose of any of the Ordinary Shares they hold at Admission for a period of 180 days after Admission without the prior written consent of Liberum. For a further period of 180 days after the expiry of this period, all Selling Shareholders (other than Passport, which will not hold any Ordinary Shares following Admission) have agreed to a customary orderly market arrangement in respect of the Ordinary Shares they hold at Admission. Pelos Strategy Limited (a company connected to Graeme Hossie) and Graeme Hossie have also agreed to lock-in and orderly market arrangements. Immediately following Admission, Caspian Investments (BVI) Limited, Benbrack Charkit Limited and Naturaliste Holdings Pty Ltd will own 18.32%, 4.56% and 1.19% of the Ordinary Shares respectively. Admission It is expected that Admission will become effective and that dealings in the Ordinary Shares on AIM will commence on 6 November 2009. This date is subject to change at the absolute discretion of the Company and Liberum. Risk factors Prior to investing in the Ordinary Shares, prospective investors should consider, together with the other information contained in this document, the risk factors set out in Part 2 of this document. 10
- 11. PART 1 INFORMATION ON THE GROUP 1. Introduction London Mining is a UK-based company that is focused on identifying, developing and operating scaleable mines to become a mid-tier supplier to the global steel industry. The Company was founded in 2005 and is headquartered in London. The Group’s principal assets have actual or anticipated production and the ability for further expansion through either upgrading resources or acquisition. The Group currently has four principal projects in iron ore, which it is either developing or operating on its own or through joint ventures. The Company is currently undertaking resource definition programmes to ensure that all of these principal projects will have JORC standard resources in accordance with the timeframes set out below. The Directors believe that the total iron ore concentrate production capacity of the Group’s four principal projects (on a 100% basis) has the potential to rise from 0.4Mtpa in 2009 to 14Mtpa in 2014 and to in excess of 20Mtpa in 2018. The Company also has a number of investments in other iron ore and coal development opportunities. The strategy of London Mining is to focus its activities on deliverable iron ore projects, where the key features are scaleable production, financing opportunities and a clear route to market. The ability to accelerate projects through to efficient producing mines, utilising its experienced technical and operating team, is an important part of the Company’s strategy. In August 2008, the Company sold its Brazilian operations for a total consideration of USD810 million. USD68 million of the proceeds of the sale were used to redeem bonds issued by the Company to finance the acquisition of the Brazilian operations and a further GBP219 million was returned to shareholders. The balance after costs was retained by the Company for re-investment. As at 30 September 2009, the Company had consolidated Group cash of USD230 million (unaudited), which it has principally allocated for the development of its existing projects. The Company’s website can be found at www.londonmining.co.uk. 2. History of the Group The Company was founded in April 2005 by Graeme Hossie (the current Chief Executive) and Chris Brown, after it secured an option to acquire a private Canadian company, Hammersmyth Management Ltd, which owned 100% of the Isua magnetite iron ore deposit in Greenland. The option was exercised, and the Company acquired the exploration licence in October 2005. In December 2005, the Company secured an option to acquire the Marampa iron ore mine in Sierra Leone. A mining lease for the Marampa mine was assigned to a subsidiary of the Company in September 2006. In May 2007, the Company completed the acquisition of Minas Itatiaiuçú Ltda, a Brazilian producer of iron ore, for an overall purchase price of USD89 million (including USD24 million deferred consideration). In October 2007, the Company completed its listing on the Oslo Axess market of the Oslo Børs. In January 2008, the Company announced that it was forming a 50/50 joint venture company, Saudi London Iron Ltd, with Saudi-based National Mining Company to develop the Wadi Sawawin iron ore project near the Red Sea Coast of Saudi Arabia. In August 2008, the Company announced an investment in the coal industry through its purchase of a minority stake in South African based DMC Coal Mining Ltd and the issue of a loan to DMC Energy (Pty) Ltd secured on 28% of the issued shares of its parent company. Also in August 2008, following a strategic review of the Brazilian operations, the Company completed the sale of its Brazilian assets to a member of the ArcelorMittal Group for a total consideration of 11
- 12. USD810 million. USD68 million of the proceeds of the sale were used to redeem bonds issued by the Company in April 2007 to finance the acquisition. A further GBP219 million of the proceeds was returned to shareholders in November 2008. In September 2008, the Company made a further investment in the coal sector through the purchase of a minority stake in International Coal Company Limited, a coal exploration and development company in Colombia. In April 2009, the Company’s 50/50 joint venture company, China Global Mining Resources (BVI) Limited, completed the acquisition of a Chinese domestic iron ore mine and processing plant. The mine is near Maanshan in the Anhui Province and the plant is in the Jiangsu Province in the People’s Republic of China. A timeline of the key events in the history of the Group is set out below: May 2007 January 2008 August 2008 Company enters Company sells April 2009 Company into a joint Brazilian Company acquires May 2006 acquires MIL for venture with NMC assets to an operating iron Company secures USD89 million to develop the Acelor Mittal for ore mine and an option to and raises October 2005 Wadi Sawawin USD810 million. processing plant in acquire MIL the USD100 million Company project GBP219 million China through its owner of Itatiaiuçú through issue of acquires Isua returned to joint venture, mine in Brazil Ordinary Shares magnetite project shareholders in CGMR (BVI) and bonds in Greenland November 2008 April 2005 October 2009 April 2005 December 2005 June 2006 to October 2007 August 2008 September 2008 Company Company secures March 2007 Company lists on Company invests Company acquires formed an option to Company raises Oslo Axess and in South African 20% interest acquire the GBP13 million raises based DMC in ICC Marampa iron through issue of NOK320million Energy ore mine in Sierra Ordinary Shares (USD60 million) Leone and convertible through issue of loan notes Ordinary Shares 3. The Group’s assets 3.1 Overview The principal assets of the Group are four iron ore projects that it is either developing or operating on its own or through joint ventures. The Group also has investments in other iron ore and coal development opportunities in order to build its project pipeline to provide sustainable growth in the future. The Group’s principal assets range from late stage exploration projects, through a brownfield site to an under-optimised producing mine, all of which the Company intends to develop to be efficient producing mines. The Group focuses its activities on deliverable iron ore projects, where the key features are scaleable production, financing opportunities and a clear route to market. The Group’s principal assets are: • 100% of the lease over the Marampa mine in Sierra Leone – a near term hematite iron ore development project – the Company is currently undertaking final process design and engineering work – the Company is in the process of confirming resource to JORC standard • 50% interest in SLI, a joint venture with National Mining Company of Saudi Arabia to develop the Wadi Sawawin deposit in Saudi Arabia – a jaspilitic hematite iron ore project for which the Company is currently undertaking a Bankable Feasibility Study – NMC owns the exploitation and exploration licences for the Wadi Sawawin deposits and has agreed to transfer these to SLI – the Company is in the process of confirming the Wadi Sawawin resource to JORC standard 12
- 13. • 100% of the licence for the Isua deposit in Greenland – a magnetite iron ore deposit – the Company is currently undertaking a pre-feasibility study – Isua has 507Mt of resources to JORC standard • 50% interest in CGMR BVI, a joint venture with Wits Basin, which owns 100% of the Xiaonanshan mine and Sudan plant in China – a producing magnetite iron ore mine and processing plant – a drilling programme is planned to confirm resource to JORC standard All of the Group’s principal iron ore assets have an ore body and logistics solution which allow for production to be initiated and/or expanded in phases. The Directors believe that the total iron ore concentrate production capacity of these projects (on a 100% basis) has the potential to rise from 0.4Mtpa in 2009 to 14Mtpa in 2014 and to in excess of 20Mtpa in 2018: • Sierra Leone – sinter feed : 1.5Mtpa in 2011 to in excess of 3Mtpa in 2013 • Saudi Arabia – DR pellets : 5Mtpa in 2013 to 10Mtpa in 2017 • Greenland – DR pellet feed : 5Mtpa in 2014 to 10Mtpa in 2018 • China – magnetite concentrate : 0.4Mtpa in 2009 to 1Mtpa in 2011 (Source: Company estimates) The Company also has a number of investments in other iron ore and coal development opportunities: • a 20% interest in ICC, a Colombian coal exploration and development company • a 39% interest in DMC Coal and a contractual right to a 28% interest in DMC, a South African holding company with interests on various coal and iron ore exploration and development companies • a USD2 million loan to assist funding the exploration of a Chilean iron ore project • a 55% interest in a small Mexican iron ore project A map of the Group’s principal assets is set out below. The Company is currently undertaking resource definition programmes on Marampa and Wadi Sawawin and has a planned drilling programme at Xiaonanshan to ensure that all of these assets will have JORC standard resources within the timeframes set out in this document. 100% Isua 507Mt resources @ 35% Fe Production: 5Mtpa to 10Mtpa2 Greenland 50% Wadi Sawawin3 230Mt resources @ 41% Fe (unclassified) Production: 5Mtpa to 10Mtpa2 Saudi China 100% Marampa Arabia 47.8Mt (tailings) resources @ 28% Fe (unclassified) Sierra 84.5Mt (primary ore) resources @ 38% Fe (unclassified) Leone Production: 1.5Mtpa to in excess of 3Mtpa2 50% Xiaonanshan3,4 31Mt @ 23.6% Fe (unclassified) Production: 0.4Mtpa to 1Mtpa2 1 With the exception of Isua, the resource estimates contained in this map have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 2 Production estimates are based on the Directors’ belief of the potential iron ore concentrate capacity on a 100% basis. 3 Resource figure is on a 100% basis. 4 Resource figure assumes completion of the XNS Integration and extension of the mining licence to permit mining below 28 metres below sea level. 13
- 14. The Company has an experienced management and technical team. The iron ore assets are managed by country project directors aided by a technical services team headed by the Company’s Chief Operating Officer, Luciano Ramos and comprising of seven people with expertise in geology, metallurgy and mine engineering. The technical services team is focussed on delivering low-cost, fast track solutions to production. The iron ore assets are overseen by the Company’s management team in London, which focuses on head office functions including funding, off-take agreements and corporate development opportunities. The ability to develop projects rapidly into efficient producing mines, utilising its experienced technical and operating team, is an important part of the Group’s strategy. The Company successfully and rapidly scaled up production at its Brazilian operations prior to selling those operations to ArcelorMittal for USD810 million in August 2008. During its 16 month period of ownership the Company invested USD32 million and increased the resource from 268Mt grading 47% Fe to 1.1Bt grading 38% Fe, expanded capacity from 0.5Mtpa to 4Mtpa, completed construction of a 3.5Mtpa sinter feed plant in less than 9 months and negotiated both long term offtake agreements and a short-term domestic sales agreement with Vale. These resource estimates were not prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. The Company’s investments in coal assets are early stage minority interests and, as such, the assets are managed by the management teams of the partner companies. 3.2 Iron ore projects 3.2.1 Sierra Leone: Marampa iron ore mine (100% owned) (a) Highlights • Brownfield asset comprising economic tailings and primary ore • Economic route to market identified via a combination of road, barge and transshipment facility • Phase 1: Expected production capacity of 1.5Mtpa 66% sinter feed within 12 to 18 months of commencing development • Phase 2: Potential expansion to in excess of 3Mtpa 66% sinter feed or blast furnace feed from additional tailings capacity and/or development of the primary ore • Final stage exploration to confirm resource to JORC standard for the tailings by the end of 2009 (b) Introduction The Marampa mine is located 125km by road east/north-east of Freetown, the capital of Sierra Leone, in the Lunsar area in the Marampa Masimera Chiefdom in the Port Loko District, Northern Province of Sierra Leone. It is a brownfield asset, comprising primary ore resources and economic tailings that can be re-processed. The Marampa deposit was discovered in 1926 and open pit production was commenced in 1933 by the Sierra Leone Development Company. By the 1960’s iron ore production had reached 2 Mtpa. The mine was last in production in 1985, prior to the civil war. 14
- 15. The maps below show the location of the Group’s operations in Sierra Leone. (c) Title and ownership The Company secured an option to acquire the mining rights at the Marampa mine in December 2005. After securing funding, the Company was able to exercise the option in January 2006 and in September 2006 the Marampa mining lease was assigned to LMC, a 100% subsidiary of the Company. In September 2008, the Company commenced legal proceedings against a wholly owned subsidiary of African Minerals in connection with a dispute over the coordinates of the Marampa mining lease (ML 02/05). In December 2008, the Government of Sierra Leone, acting through the then Minister of Natural Resources, the Attorney General and the Minister of Justice, commenced legal proceedings in relation to the Company’s right to mine the Marampa mining lease. In August 2009, London Mining and African Minerals settled their respective claims over the Marampa district and in September 2009, London Mining and the Government of Sierra Leone resolved amicably their dispute over the same area. On 31 August 2009, the Government of Sierra Leone issued a new mining lease (ML 02/09) to LMC. The mining lease covers an area of 13.82km2 and expires in August 2034. Further details of the lease are set out in section 14.3 in Part 5 of this document. (d) Geology and resource The iron ore deposit at Marampa is hosted in the pre-Cambrian Marampa Schist formation. It has a complex structure which is believed to comprise a single main horizon of quartz-hematite schist that has been isoclinally folded and thrusted. It has a maximum thickness of about 65m, dips at 45° to 85° east/ south-east and has a sharp contact with its quartz mica schist host rock. The mining lease incorporates the principle primary ore deposits at Masaboin Hill and Ghafal Hill as well as tailings deposits from former operations that occupy low ground immediately to the east of Masaboin Hill. There are ten tailings deposits with a central cluster of five deposits collectively accounting for approximately 85% of the total estimated tailings tonnage. The five peripheral or satellite deposits, some of which are farmed, account for the rest of the tailings resource. Based on historical records from Austrominerals (1985), the Directors estimate a preliminary unclassified resource of 47Mt grading 28% Fe for tailings and 43Mt grading 38% Fe for primary ore. A further 41Mt of primary ore grading 36% Fe was identified by LKAB in 1978. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. An updated statement of resources for the tailings to JORC standard is expected to be completed by the end of 2009. A 54 hole, 6,925m diamond drilling programme is ongoing to validate the primary ore deposit to JORC standard by June 2010. The Directors believe there to be significant additional resource from the primary ore deposit. 15
- 16. Further details of the geology are set out in section 3 of the Competent Person’s Report in Part 3 of this document. (e) Operations The Company is currently completing final design and process engineering and plans to commence development at Marampa by the end of 2009. Construction of a tailings re-processing facility to provide 1.5Mtpa of capacity is expected to be complete within 12-18 months of work beginning (Phase 1). The Directors believe that production could be increased to in excess of 3Mtpa through an expanded tailings operation and/or development of the primary ore resource (Phase 2). A decision on the expanded production capacity will be made following the announcement of a resource to JORC standard for the primary ore in the first half of 2010. In September 2009, the Government of Sierra Leone approved a proposed fiscal incentive package, the main features of which are a reduction on all import and excise duties (including fuel, lubricants, capital expenditure and spare parts) for the duration of the mining lease; and a reduction in the corporation tax rate and other operational taxes for the first 10 years of the project. The Company’s mining plans, together with the fiscal incentives are expected to be ratified by the Sierra Leone Parliament before the end of 2009 which will enable the Company to commence development. Conventional truck and shovel methods and hydraulic mining are expected to be used to extract the tailings resource. Testwork undertaken on a three tonnes tailings sample (25.6% Fe, 46% SiO2, 16.2% Al2O3) in Brazil has shown that a two stage high intensity magnetic separation process is able to produce 65.5% Fe product with 2.5% SiO2 and 2.9% Al2O3 (suitable for use as sinter feed). Testwork also shows that a higher grade, 67.1% Fe product with 1.2% SiO2 and 2.1% Al2O3 could be produced by adding a milling circuit. This additional stage is not being considered because the Directors believe there to be a strong market for the lower grade Marampa product and a milling circuit would increase initial capital expenditure. Based on unclassified historical resource estimates and annual concentrate capacity of 1.5Mtpa for tailings and an additional 1.5Mtpa for primary ore, the Directors believe that there is sufficient resource to support a tailings re-processing operation for 11 years and a mine life in excess of 15 years for primary ore. The Company expects to transport the concentrate to barge loading facilities at Tawfayim on the Port Loko creek for shipment to offshore floating cranes 60km away for loading at a location which can accommodate Handymax, Panamax or Capesize ships. The mine is located 40km from Tawfayim, of which 22km is existing tarmac road. The remaining 18km will be a laterite road, which has been surveyed, is under construction and will be completed before production commences. Current estimates for Marmapa indicate operational expenditure for Phase 1, 1.5Mtpa production of concentrate, of USD32.9/dmt comprising: mining USD1.9/dmt; processing USD6.7/dmt; haulage, loading and transport USD11.9/dmt; overheads USD10.7/dmt and royalties of 3% of the realised price of USD1.7/dmt. Capital intensity for the project is positively impacted by the absence of a requirement for crushing and milling circuits to process tailings and the proximity of the operations to the coast. Total capital expenditure is expected to be USD70 million including contingency, for the 1.5Mtpa tailings reprocessing operation or USD47/t of annual capacity. The main capital items are: processing USD25 million; power generation and distribution USD13 million; haulage, loading and port facilities USD11 million; facilities USD8 million; mining USD4.8 million; roads and site preparation USD3.5 million and dredging river USD1.5 million. A further USD10 million is estimated to be required to fund pre- production working capital requirements and residual acquisition costs (including USD1 million for 19Mt of additional tailings that were purchased from the Government of Sierra Leone following the award of the new mining lease in September 2009), and USD5 million for owners pre-production overheads. The Company has received a marketing study from CRU Strategies which identifies the most likely market for Marampa’s fine sinter feed to be in Europe, with a long term price forecast between 2010 and 2020 of USD63/dmt, a 3$/t premium to the Brazilian ltabira fines product. However, the Company is also in initial discussions with Chinese parties regarding off-take agreements. The Company is now investigating the optimal arrangement for offtake agreements. The Sierra Leone project team is led out of Freetown by David Keili, who currently has a team of 19 professionals working for him, and a further 188 employees. The team is assisted by international and local consultants and contractors to implement the capital improvement programme required to re-open the Marampa Mine. 16
- 17. (f) Outlook The Company expects to complete a resource statement for tailings to JORC standard by the end of 2009 and, subject to the ratification of the Company’s mining plans and fiscal incentives by the Sierra Leone Parliament, expects to commence construction of the Phase 1, 1.5Mtpa tailings re-processing facility by the end of 2009. A resource statement for Masoboin Hill and Ghafal Hill primary ore bodies is expected to be completed to JORC standard by June 2010 and thereafter a decision will be taken on the expanded production from 1.5Mtpa to in excess of 3Mtpa (Phase 2) on the basis of expanded re-processing of tailings or commencing production of primary ore operations. The Company expects to undertake a Bankable Feasibility Study for Phase 2 in 2011 and, subject to the results of that study, undertake construction of facilities in 2012, with production in 2013. To date, London Mining has spent approximately USD19 million on the Marampa project including expensed overheads. It is anticipated a further USD70 million of capital expenditure, USD10 million of pre-production working capital on residual acquisition costs and USD5 million of owners overhead costs will be required to achieve the target production of 1.5Mtpa of tailings within 12 to 18 months of work beginning. The Directors intend to finance the construction of the Phase 1, 1.5Mtpa tailings re-processing facility from existing cash resources. 3.2.2 Saudi Arabia: Wadi Sawawin iron ore project (50% owned) (a) Highlights • Located 60km from the Red Sea port of Duba in a region of strong iron ore demand growth • Bankable Feasibility Study and resource to JORC standard expected by end of 2009 • Phase 1: Plan to build a mine, beneficiation plant, and pellet plant, power and desalination plants, and port with capacity for 5Mtpa of DR pellets by 2013 • Expected to benefit from cheap local energy • Phase 2: potential to expand production from 5Mtpa to 10Mtpa of DR pellets by 2017 (b) Introduction The Wadi Sawawin iron ore deposits are located in the Northern Hijaz region of the Kingdom of Saudi Arabia approximately 125km from Tabuk and 60km from the Red Sea port of Duba. The formations were discovered in 1953 and during the following 40 years they were investigated by various authorities, principally British Steel Consultants Ltd. The deposits are between 600m and 1,100m above sea level in mountainous country. In January 2008, London Mining entered into an agreement with NMC to form a 50/50 joint venture company, SLI, to develop the deposits. NMC is a Saudi company owned by crown and industrial interests. HRH Prince Nawaf Bin Sultan Bin Abdul-Aziz is the Chairman of NMC. London Mining has committed to fund the project to the stage of a Bankable Feasibility Study, which is expected to cost USD16 million in total. Further details of the joint venture arrangements are set out in section 14.2 of Part 5 of this document. SLI intends to develop the Wadi Sawawin open pit iron ore project to create an iron ore mining and pelletising operation to produce DR pellets to supply steel production in Saudi Arabia and the Middle East and North Africa Region. In January 2009, independent mining engineers Ausenco/SEI completed a pre-feasibility study that showed that the Wadi Sawawin project with production of 5Mtpa DR pellets (Phase 1) was feasible. The Company is currently undertaking a Bankable Feasibility Study. Worley Parsons have been engaged to undertake this study, which is being managed by the Company’s Wadi Sawawin project team. Standard Chartered Bank has been engaged as the financing adviser for the project. The Bankable Feasibility Study is expected to be completed before the end of 2009. 17
- 18. (c) Title and Ownership NMC holds exploration licences over three groups of Wadi Sawawin deposits – the Western Group, the Eastern Group and Wadi Alhamra. It also has an exploitation (mining) licence for part of the Western Group deposits. The exploration licences cover an area of 211km2 and expire in June 2010 and the exploitation licence covers an area of 3.5km2 and expires in September 2032. The Company intends to renew the exploration licences at the appropriate time. As part of the joint venture, NMC has agreed to transfer the licences to SLI and is in the process of effecting the transfer. The transfer requires the consent of the Ministry of Petroleum and Mineral Resources. Further details of the exploration licences and the exploitation licence are set out in section 14.3 in Part 5 of this document. The map below shows the locations of the licence areas in Saudi Arabia. (d) Geology and resource Jaspilitic iron ore has a widespread occurrence in the Wadi Sawawin district, mostly in small deposits that owe their formation to intense tectonics and subsequent erosion. The main jaspilite unit, of the algoma type, is generally 30-60m thick with grades varying between 40% and 43% Fe. The iron formation is hard, finely laminated rock consisting of hematite and magnetite rich bands alternating with dark red jasper bands. Unclassified resource and reserve estimates undertaken by British Steel Consultants between 1976 and 1994 identified a total of 412Mt of resources at an average grade of approximately 42% Fe and 28% SiO2. The current programme of work focuses on the Western Group of deposits. In 2009 Snowden Consultants estimated a total mineral unclassified resource of 230Mt at the Western Group of deposits at an average grade of approximately 41% Fe. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. London Mining is currently undertaking a 3,000m drilling program to verify the existing resource at the Western Group deposits. The Company expects to confirm a resource to JORC standard based on the 2009 Snowden Consultants estimates by the end of 2009 and to announce an upgraded resource to JORC standard in 2010 based on the current drilling programme. The Company has not yet undertaken any exploration work on the Eastern Group or the Wadi Alhamra, however the Directors believe that there may be the possibility of expanding resource through exploration of these deposits. Further details of the geology are set out in section 4 of the Competent Person’s Report in Part 3 of this document. 18
- 19. (e) Operations A pre-feasibility study performed by independent mining engineers Ausenco/SEI on the 5Mtpa of DR pellets first phase of the Wadi Sawawin project was completed in January 2009 and concluded that the project would be feasible. The pre-feasibility study proposed that the first phase of the 5Mpta Wadi Sawawin project (Phase 1) should be a 11.6Mtpa (ROM) open pit mine connected by a 60km slurry pipeline to beneficiation and pelletising facilities on the Red Sea Coast, north of Duba which would produce 5Mtpa of DR pellets. It is also proposed that a deep water port facility should be constructed to the north of Duba, to allow direct loading of the DR pellets onto ocean going ships. The process expected to be used was modelled using crushing on site, autogenous grinding and selective flocculation to produce a DR pellet. Key findings of the pre-feasibility study supported the potential economic viability of this first phase and were as follows: • Final pit design tonnage: 157Mt • Stripping ratio: 1.25 • Mine Life: 14 years • Fe Grade: 41% • Beneficiation: 5Mtpa • Fe Grade Pellet: 67% • Capital expenditure: USD1.8 billion A Bankable Feasibility Study is currently being undertaken by Worley Parsons, which is reviewing all options and will provide an optimised project proposal. The Bankable Feasibility Study is expected to conclude that the location of the port should be moved to the old pilot site and that the main part of the beneficiation process should occur at the coast. In addition, transport to the coast by way of rail or conveyor is also being considered. The project’s economics benefit from low energy costs and Wadi Sawawin’s accessible location. The suggested relocation of the plant to the coast means that the plant will be located next to the main road some 20km from the oil terminal at Duba. The mine is 40km from the coast and accessed by a 55km dirt road from the proposed plant/port site. Operating costs are expected to total USD19.4/t of ROM ore or USD46/t of pellets. This comprises mining USD2.0/t; processing USD15.3/t; and general and administration costs of PFS USD2.1/t. An independent market study by CRU Strategies to evaluate the market for DR pellets and pellet feed in MENA over the life of the SLI project was completed in January 2009. The January 2009 CRU Strategies market study confirmed that the economic outlook for MENA was strong and that the market for DR pellets was undersupplied and growing and calculated a long term pricing premium for the Wadi Sawawin product of $21/t to Brazilian Tubarao pellets. A sustained and significant gap in the supply of DR pellets was forecast in the medium term for MENA, even after planned new projects in the region, which should provide the opportunity for further production capacity expansion from 5Mtpa to 10Mtpa. An updated study received in August 2009 forecast a supply/demand deficit of 13Mt in 2013 and 12Mt in 2019 and indicated a long-term pricing outlook for DR pellets (FOB Red Sea) of USD113/t. The market study supports SLI’s objectives of creating a hub for DR pellet production in Saudi Arabia. 19
- 20. The map below shows the expected layout of the Wadi Sawawin operations The Wadi Sawawin project team is led out of Oman by Manfred Deutsch, who has a team of six professionals working for him and two administrative employees. (f) Outlook The completion of the Bankable Feasibility Study is expected to optimise the pre-feasibility study and to facilitate the financing of Phase 1 of the project during 2010 to enable first production in the third quarter of 2013. A 3,000m resource defining drilling programme is underway with the objective of increasing the historical identified mineable resources in order to extend the mine life from 14 years, which is expected to be completed in the first half of 2010. In June 2008, SLI signed a non-binding strategic memorandum of understanding with SAPIS for 100% of the offtake of the Wadi Sawawin project. The memorandum of understanding also referred to the future equitable contribution of the Company’s Isua project in Greenland to the SLI joint venture and the provision of financing on attractive terms. SAPIS is a company formed by the Saudi Bin Laden Group, NMC and others. SLI intends to negotiate a formal agreement with SAPIS following the publication of the Bankable Feasibility Study. At this stage, London Mining has not taken a decision regarding the contribution of the Isua project to SLI. The Kingdom of Saudi Arabia has a policy of diversifying its economy away from oil-related activities and the Wadi Sawawin iron ore project would assist in such a diversification. The Government of Saudi Arabia, through the Public Investment Fund, makes available significant loans to commercial projects that will assist in the development of the economy. The Directors believe that the Wadi Sawawin project will have access to loans from the Public Investment Fund with significantly better terms than would be available elsewhere. To date London Mining has spent approximately USD8.5 million on the Wadi Sawawin project. It is anticipated that a further USD11 million will be spent by London Mining to complete the Bankable Feasibility Study. The construction of Phase 1 of the Wadi Sawawin project is intended to be funded from third party debt or equity funding and the Company will work with a number of parties, expected to include its joint venture partner NMC, SAPIS, Standard Chartered Bank and other external providers of finance, to secure such funding. The Directors believe that financial commitment in 2010 should see production in the third quarter of 2013. 20
- 21. The Directors believe that there is a resource potential to expand production at Wadi Sawawin from 5Mtpa to 10Mtpa by 2017 (Phase 2). Feasibility studies will be undertaken to confirm this once financing has been arranged for Phase 1. 3.2.3 Greenland: Isua iron ore deposit (100% owned) (a) Highlights • Large resource to JORC standard of 507Mt at 35% Fe • Initial testwork indicates ore can produce high quality magnetite pellet feed • Located approximately 100km from potential port site capable of year round shipping • Updated JORC resource expected before the end of 2009 • Pre-feasibility study expected during the first quarter of 2010 (b) Introduction The Isua deposit was acquired by the Company in October 2005. The deposit was discovered in 1962 and work was carried out by Marcona Corporation in the 1970s and by Rio Tinto (RTZ) in the late 1990s. Until now, the project has not been developed due to historic low iron ore prices. Isua is located in Greenland on the western edge of the inland ice cap. The deposit sits at an altitude of between 800m and 1150m above sea level, some 155km south of the Arctic circle and 150km north- east of the capital city of Nuuk. The deposit is located some 65km inland from the nearest fjord. As the deposit is located on the “warm” western side of Greenland, it benefits from the possibility of year round operations and shipping to world markets. Very limited local infrastructure exists, but there is ample access to lakes to provide water for processing and hydropower. The Company is investigating the possibility of pipeline transportation of ore slurry to the proposed port site in deepwater fjords approximately 100km away. The Company is also investigating other transportation solutions as part of a pre-feasibility study. 21
- 22. The maps below show the location of the Isua project in Greenland. (c) Title and ownership The Group owns the exclusive exploration licence (No. 2004/18) for the Isua prospect in West Greenland and a non-exclusive prospecting licence covering onshore areas of West Greenland. The exploration licence covers an area of 26km² and expires on 31 December 2013, ten years after first issuance. The ability to renew the exploration licence beyond the tenth year is at the discretion of the Greenland Bureau of Minerals and Petroleum. There is a right to convert to an exploitation licence which would be valid for 30 years (subject to satisfaction of certain conditions). The exploration licence establishes an exclusive right for the owner to explore all minerals except hydrocarbons and radioactive elements in the designated area. The prospecting licence was issued to London Mining on 21 November 2007 for a period of 5 years, expiring on 31 December 2012. The prospecting licence establishes a non-exclusive right for the owner to prospect for minerals, excluding hydrocarbons and radioactive elements, in the designated area for areas suitable for further exploration. Further details of the exploration licence and the prospecting licence are set out in section 14.3 in Part 5 of this document. 22
- 23. (d) Geology and resource Isua lies to the west of an oval-shaped dome-like intrusion of pegmatitic granite. It is a banded iron formation that dips overall at 60° to 70° to the east or southeast, with the dip being steeper in the south of the deposit. It is folded into a shallow syncline, with sharp folding near the hanging wall of the deposit in places. Such folding may account for an apparent thickening of the BIF unit in the central part of the body. The BIF unit is between 200m and 300m thick and has been traced on the surface over a strike length of some 1,000m. A thin, low-grade BIF horizon exists in the hanging wall of the northern part of the deposit and there is a 500m long (+40,000 gamma) magnetic anomaly 300m inside the footwall of the deposit. The principal ore mineral is magnetite and gangue mineral is predominantly quartz. Previous work completed by IMC defined a resource to JORC standard of 880Mt at 34% Fe (of which 58Mt at 33% Fe was classified as Indicated and 822Mt at 34% Fe was classified as Inferred) and an open pit resource of 81Mt at 33% Fe (without removing any ice sheet) or 185Mt at 33% Fe (assuming removal of 50m of the ice sheet). In June 2009, Snowden Consultants classified part of the historical resource as an Inferred mineral resource to JORC standard of 507Mt at 35% Fe. Snowden Consultants only incorporated parts of the resource to 350m whereas IMC included material to a depth of 600m. Further details of the geology and mineral resource estimates are set out in section 5 of the Competent Person’s Report in Part 3 of this document. (e) Operations From the preliminary resource estimates, Snowden Consultants has produced an open-pit design comprising 168Mt of ore grading 35% Fe and 41% SiO2 with a stripping ratio of 0.54t/t. This will support concentrate production of 5Mtpa for 15 years (Phase 1). London Mining believes there is an opportunity to expand production by exploiting ore outside of the mineable resource currently being considered by Snowden Consultants. The Company is considering various process routes for production from Isua. One option currently being considered is to produce a concentrate suitable for blending with ore from Wadi Sawawin at the Company’s proposed pelletising facility in Saudi Arabia in order to produce a DR pellet. The Company is also exploring other opportunities including to sell a high quality blast furnace pellet feed into Europe or China. The Greenland project team is led out of Nuuk by John Wonnacott, the former Chief Engineer of Diavik diamond mine, who currently has two professionals working for him, including Dr. Xiaogang Hu, a glacier specialist who has a PhD in hydrology and many years’ experience in construction in permafrost environments. (f) Outlook The Company completed a 3,600m drilling programme in the summer of 2009 and plans to release an updated resource to JORC standard before the end of 2009. A pre-feasibility study is planned for completion by March 2010 and subject to positive results, a full Bankable Feasibility Study will be carried out by the end of 2010. Environmental base-line studies are being performed in order to allow the project to meet all environmental requirements within the proposed timeline and a community and regional relations programme is being put in place. The Directors believe that construction of Phase 1 will begin in 2012 with first production in 2014. The Directors believe that there is a resource potential to expand production at Isua from 5Mtpa to 10Mtpa by 2018 in a second phase. Feasibility studies will be undertaken to confirm this once financing has been arranged for Phase 1. To date, London Mining has spent approximately USD14.5 million on the Isua project and expects to spend a further USD7 million to deliver a pre-feasibility study in the first quarter of 2010. Subject to the results of the pre-feasibility study, the Company expects to spend a further USD21 million to deliver a Bankable Feasibility Study by the end of 2010. 23
- 24. 3.2.4 PRC: Xiaonanshan iron ore mine (50% owned) (a) Highlights • Acquired in April 2009 • Positive net operating cash flows from current open pit production capacity of approximately 0.4Mtpa of magnetite concentrate • Potential to increase production to in excess of 1Mtpa through acquisition of the neighbouring SBQ mine, and the Guqiao mine and associated 0.3Mtpa processing plant • Resource of expanded licence area (including the SBQ mine and Guqiao mine) to be confirmed to JORC standard through a planned drilling programme by September 2010 (b) Introduction On 17 March 2009, the Company and Wits Basin Precious Minerals, Inc. formed a 50/50 joint venture, through which the joint venture company, CGMR BVI acquired two Chinese companies through its wholly-owned subsidiary CGMR: Maanshan Xiaonanshan Mining Co Limited, the owner of the Xiaonanshan mine, an operating open pit iron ore mine near Maanshan in the Anhui Province and Nanjing Sudan Mining Co Limited, the owner of a processing plant in the Jiangsu Province. The combined operation has a current capacity of 0.4Mtpa of magnetite concentrate grading 62% to 64% Fe. Under the terms of the joint venture arrangements, London Mining made a total initial investment of USD44.5 million and the acquisition completed in April 2009. Under the terms of the Chinese acquisitions and upon government approval, the sellers are entitled to deferred consideration of approximately RMB120 million (USD17.48 million) relating to the Sudan acquisition payable by February 2010. One of the sellers is further entitled to up to USD38.64 million under a consulting agreement with CGMR BVI, payable subject to available cash of CGMR BVI, which will largely flow from the operations of the acquired entities. It is expected that the Sudan deferred consideration will be paid in part from cash generated from the operations and also from external funds raised as part of the expansion programme set out below. London Mining has no contractual obligation to provide additional finance to CGMR BVI. Further details of the joint venture arrangements are set out in section 14.2 of Part 5 of this document. The maps below show the location of the Group’s operations in China. 24
- 25. (c) Title and ownership In connection with the acquisition of XNS and Sudan, the Land and Resources Bureau of Anhui Province granted XNS a new extended mining licence in February 2009, by way of the Mining Rights Granting Agreement. The extended mining licence includes two areas operated by an adjacent iron ore producer (the SBQ mine and the Guqiao mine) as well as unoccupied areas to the west. The extended mining licence was granted as part of the Chinese government’s policy to consolidate domestic iron ore producers in the region. The extended mining licence covers an area of 0.66km2 to a depth of 28 metres below sea level with a mining capacity of up to 0.9Mtpa of iron ore at a 25% cut off grade (the mining of ore with less than 25% cut off is not subject to mining licence regulation). The mining licence expires on 10 February 2014, with a right, subject to satisfaction of requirements under PRC law, to apply for renewal. The extended mining licence was granted on the basis that the mining operations of XNS and the neighbouring mines would be consolidated. Pursuant to the Mining Rights Granting Agreement, on 13 August 2009, CGMR entered into a non- binding Memorandum of Understanding to acquire the neighbouring SBQ mine and Guqiao mine. Guqiao is not being operated and SBQ produces 0.3Mtpa of ore at 63% Fe from a processing plant near to the XNS pit. CGMR is currently conducting due diligence in respect of this opportunity and expects to conclude its work during the first quarter of 2010. The Mining Rights Granting Agreement does not specify a deadline for completion of the XNS Integration of XNS with the neighbouring mines nor does it specify the penalties if the XNS Integration were not to occur. However, if CGMR does not complete the XNS Integration in accordance with the Mining Rights Granting Agreement and/or does not consolidate production within the region, there is a risk that the extended mining licence, incorporating the areas currently being mined by a neighbouring operation, may be reduced so as to exclude the neighbouring operations or revoked. If CGMR is not able to mine resources from this extended licence, or is restricted to resources at current depth without any licence depth extension, there is a risk that the Company’s carrying value of its shares in CGMR may not be supported in full. XNS is required to pay a RMB18.5 million (USD2.7 million) mining rights premium to the relevant land and resource authority in respect of the extended mining licence granted in February 2009, of which the first payment of RMB3.8 million (USD0.6 million) was paid in April 2009 and the second payment of RMB14.7 million (USD2.1 million) is due before 30 November 2009. CGMR intends to apply for the licence to be expanded to permit mining at a depth below 28 metres below sea level to increase capacity following the XNS Integration and the completion of a combined pit feasibility study and mining schedule. (d) Geology and resource The Xiaonanshan mining operations are located in a major iron ore producing region 2km from Maanshan Iron & Steel’s Nanshan mine, the largest operator in the region. The ore deposits of the region lie within the Ningwu basin and are thought to be the product of a magmatic hydrothermal process related to a porphyry sequence. Mineralisation at Xiaonanshan is typically in the form of disseminated magnetite with associated hematite and specular hematite. The main ore bodies appear saddle-shaped with a flat middle, dipping at both sides. The access to this additional resource at depth will require the extension of the current XNS pit walls, in particular to the north, west and east. The extension to the north of the existing pit will require the acquisition of the neighbouring mines as envisaged under the XNS Integration and the extension to the east will require the relocation of the current access road to the SBQ mine. The area to the west is not currently occupied but will require negotiation with the local community to secure the usage rights. It is currently expected this will result in the payment of a small, annual fee. The extended mining licence has a historical resource to Chinese standards of 31.2Mt grading 23.6% Fe. CGMR currently only has a mining licence over the Xiaonanshan pit to a depth of 28 metres below sea level. Historical resources, to a depth of 30 metres below sea level, have been quoted as 3.7Mt of ore grading 27.9% within the current XNS pit and 7Mt of ore at 20.6% Fe(total) within the enlarged licence. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 25
- 26. In July 2009, CGMR commissioned Wardrop to produce an unclassified resource statement based on historical drill records. This work indicates that the geological resource of the licence can be increased. CGMR plans to implement a comprehensive drilling programme to verify the Wardrop estimate and produce a consolidated mine plan following XNS Integration to support a 1-2Mtpa operation. (e) Operations The Xiaonanshan open pit mine has been in production since 1998 and currently mines approximately 1.2–1.5Mtpa of run of mine ore. Low grade ores are crushed and magnetically concentrated on site at the preliminary concentrator, before being trucked with higher grade ores approximately 7km on a concrete paved road to the Sudan concentration plants. The ore is then concentrated to produce approximately 0.4Mtpa of 62–64% Fe product. All iron ore concentrate is sold into the local market on a monthly contract basis to a total of six customers who typically purchase 5,000t to 10,000t per month each. The concentrate is collected from the Sudan processing plant site by customers using their own trucks and transported by road to local blast furnaces and steel mills or exported from the region from a nearby river port. CGMR is continuing with its audit of mine reserves, operations and health and safety and is in the planning stages of a drilling campaign to ratify existing drill data and define fully the global resource of the extended licence as a first stage to optimising the mine plan as well as examining possible improvements to enhance the grade and price obtained. CGMR has appointed Green Earth Mining Resources Limited, a company controlled by William Green who acts as a consultant to Wits Basin, as operator of its Chinese operations. Under the operator agreement, Green Earth provides services to XNS/Sudan including geological investigation, survey and mine planning and a technical consultant to provide engineering and technical services. Further details of the operator agreement are set out in section 14.2 of Part 5 of this document. (f) Outlook The acquisitions of XNS and Sudan has provided management with a good vantage point to assess the dynamics of Chinese iron ore supply and demand. The Directors believe that this acquisition has brought additional intangible benefits through opportunities for further strategic alliances with Chinese investors and potential off-take partners, which are expected to benefit the Company in the long term. London Mining intends to establish an advisory committee to advise on relationships and opportunities in China. CGMR aims to expand production from the existing profitable iron ore operations, by acquiring and consolidating further resources in the area and establishing international standard professional mining practices and efficiencies. In addition, cost reduction and expansion of the existing operations combined with a new marketing strategy are intended to ensure operating margins remain strong. As described above, CGMR is currently conducting due diligence in respect of the acquisition of the SBQ mine and the Guqiao mine and expects to conclude its work during the first quarter of 2010. If the acquisition completes, the Directors believe that the capacity of the proposed enlarged mining operation comprising the Xianonshan mine, the SBQ mine and the Guqiao mine can be increased to in excess of 1Mtpa in 2011 (subject to obtaining an appropriate extension to the mining licence which currently extends to 28m below sea level). CGMR has also acquired the right to acquire an iron ore exploration company, Matang, subject to government approval and the satisfaction of certain conditions including the issue of a new business licence to Matang, for a total consideration of RMB80 million (USD11.66 million). Matang is owned by the sellers of XNS and Sudan and is located about 9km west to south west of the Sudan plant. The Matang asset is still in its exploration stage but CGMR has the opportunity to develop it as a satellite ore body. CGMR intends to finance the XNS Integration and the acquisition of Matang from third party funding which may, in the longer term, involve a listing of CGMR on the Hong Kong Stock Exchange. CGMR has appointed a financial adviser to advise on the fundraising. If third party funds cannot be raised on acceptable terms, or the conclusions of due diligence do not support the XNS Integration, the XNS Integration may be delayed or abandoned in its existing form and this may have a material impact on the mining licence. London Mining has no contractual requirement to provide further funding to CGMR. 26
- 27. 3.3 Other Assets 3.3.1 South Africa: DMC Coal (39.3% owned) and a contractual right to a 28% interest in DMC On 8 August 2008, London Mining through its wholly-owned subsidiary, Rannerdale, announced that it had agreed to take an initial 39.3% interest in DMC Coal, a company in which DMC has a 30.35% interest, for USD16.5 million. Rannerdale also issued a USD18.5 million loan to DMC Energy, a subsidiary of DMC. DMC Energy’s obligation to repay the loan was secured by a limited recourse guarantee and a pledge and cession of shares from Mr. Heine van Niekerk’s family trust in relation to 28% of the issued share capital of DMC. On 28 August 2009, Rannerdale called for repayment of its loan to DMC Energy and exercised its rights under the guarantee and pledge which required Mr. Heine van Niekerk’s family trust to transfer to it 28% of the issued share capital of DMC. The Company is currently in discussions with DMC to convert the USD18.5 million loan and its USD16.5 million investment in DMC Coal into 28% of the issued share capital of DMC, on a fully diluted basis. DMC owns a number of thermal coal properties, the most advanced of which is its 70% owned Rietkuil project. The Rietkuil project is located in the Delmas district, 80km east of Johannesburg and adjacent to the Exxaro’s Leeupan Mine. High tension power lines are close to the property as well as the rail spur to the Delmas Colliery. A full feasibility study on the Rietkuil project commenced in February 2009 and is due to be released during the first quarter of 2010. Work for this feasibility study includes the drilling of the resource to reach a SAMREC compliant measured and indicated resource. Initial results indicate that a resource of around 200Mt GTIS can be exploited by open pit methods. This resource estimate has not been prepared in accordance with an internationally recognised standard, is based on historical data and is included for information only. DMC has a number of other assets, the value of which the Company is currently assessing. These include an earn in right to a 51% holding in the Springbok Flats Energy project which consists of five prospecting rights situated in the southern portion of the Springbok Flats Coalfield. DMC Coal holds the exclusive prospecting rights to the Limpopo project which is situated in the Limpopo/Thuli coal field adjacent to Coal of Africa’s Thuli project. 3.3.2 Colombia: International Coal Company Ltd (20% owned) On 15 September 2008, the Group announced the acquisition of 20% of the share capital of ICC for USD5.1 million, a company with Colombian assets in coking coal, including coking coal concessions, land and permits for near term coke production facilities in the Socha region of Colombia. In addition, ICC has certain options and opportunities relating to acquisitions, joint ventures or development rights relating to thermal and metallurgical coal resources, ports and contract mining operations. ICC has engaged and is expanding a management team for the development of these assets. Graeme Hossie, the Company’s Chief Executive, has a 12% personal economic interest in ICC. Mr Hossie does not participate in any Board decisions of London Mining relating to ICC. ICC intends to build the coke production facilities once it has procured development funding; secure local supply through contracts and over time through integral mining operations and joint ventures; and secure sales agreements for the coke production. Total annual production of 0.4Mtpa of coke is targeted over time. Supply agreements are being negotiated with local artisanal and mechanised coking coal miners for the supply needs of the operations. The coke will be marketed either internationally or domestically, depending on demand and logistics costs. The Company is currently in negotiations with ICC regarding providing some limited funding of up to USD5 million to develop further the business plan for coke and coal production. Any such funding is likely to be made within the next few months. 3.3.3 Chile In April 2009, the Company entered into an agreement with Chinese-owned Success Mining (Hong Kong) Ltd and one of the existing shareholders of Success under which the Company made a USD2 million loan to Success. A Chilean subsidiary, Minerita S.A., 99% owned by Success, holds concessions 27
- 28. to iron ore deposits in the Atacama Region of Northern Chile. Minerita S.A. is an early stage exploration company which is undertaking exploration and development work in Chile. The exploration and development process is ongoing, with the aim of determining if there is an economic resource of scale in the region. London Mining intends to provide technical and financial assistance to the project, including geological and metallurgical advice and may provide further limited funding to the project. The Company’s loan to Success is interest free, unsecured and repayable quarterly out of the cashflows generated by the Success group from its operations and is repayable prior to any dividends being paid to Success’s shareholders. 3.3.4 Mexico: El Artillero iron ore deposit (55% owned) As part of its exploration activity, in August 2007 and subsequently, the Company acquired 55% of the shares of BVI registered Anglo-Mexican Mining Ltd, and funded a drilling programme, for a total investment of USD1 million. Anglo-Mexican Mining Ltd owns 98% of Compania Minera Suizo- Mexicana, a company which owns the mining rights to the El Artillero deposit in Mexico. The El Artillero deposit is located 60km east of the port city of Manzanillo (on the Pacific Coast), 5km northeast of the township of Minatitlán, and 12km northeast of the operating Pena Colarado iron ore mine, in Colima State, Mexico. Following further exploration and test work on the deposit, the Company determined that the resource was not of sufficient size to warrant further investment. The Company is currently considering third party offers to buy out its interest in Anglo-Mexican Mining Ltd and the Directors are confident of recovering the Company’s initial investment. 4. Methods of financing the business At 30 September 2009, the Company had consolidated Group cash of USD230 million (unaudited), which it has allocated to fund the development of its principal assets through to key milestones: • Sierra Leone : financing the capital expenditure for the construction of the Phase 1, 1.5Mtpa tailings re-processing facility (USD70 million); pre-production working capital and residual acquisition costs (USD10 million); and owners pre-production over heads (USD5 million) • Saudi Arabia : financing the Wadi Sawawin Bankable Feasibility Study (USD11 million) • Greenland : financing the Isua pre-feasibility study (USD7 million) and Bankable Feasibility Study (USD21 million). The Company has also allocated USD5 million to a JORC drilling campaign, to upgrade and expand the existing resources and USD10 million to take advantage of other investment opportunities, in accordance with its strategy. With the exception of the Marampa Phase 1 project, it is the current intention of the Directors to seek some third party funding for the development of its more capital intensive projects, being the Marampa Phase 2 expansion, the Wadi Sawawin project in Saudi Arabia and the Isua project in Greenland. CGMR intends to seek third party funding for the expansion in China (XNS Integration and the acquisition of Matang). The Directors estimate a normalised annual overhead for head office and project overhead costs of around USD11 million and USD8 million respectively. The Group also has a number of non-recurring cash commitments that will be paid over the next three year period. These total USD17 million and include residual payments under the Return Bonus Plan, listing fees, historic transaction costs and legal fees. 5. Objectives and strategy London Mining’s objective is to identify, develop and operate scaleable mines to become a mid-tier supplier to the global steel industry. The Group’s principal assets have actual or anticipated production and the ability for further expansion through either upgrading resources or acquisition. The Company is currently undertaking resource definition programmes to ensure that all of these principal projects will have JORC standard resources in accordance with the timeframes described above. The Directors believe that the total iron ore concentrate production capacity of the Group’s four principal projects (on a 100% basis) has the potential to rise from 0.4Mtpa in 2009 to 14Mtpa in 2014 and to in excess of 20Mtpa in 2018: • Sierra Leone – sinter feed : 1.5Mtpa in 2011 to in excess of 3Mtpa in 2013 28
- 29. • Saudi Arabia – DR pellets : 5Mtpa in 2013 to 10Mtpa in 2017 • Greenland – DR pellet feed : 5Mtpa in 2014 to 10Mtpa in 2018 • China – magnetite concentrate : 0.4Mtpa in 2009 to 1Mtpa in 2011 (Source: Company estimates) The strategy of London Mining is to focus its activities on deliverable iron ore projects, where the key features are scaleable production, financing opportunities and a clear route to market. The ability to accelerate projects through to efficient producing mines, utilising its experienced technical and operating team, is an important part of the Company’s strategy. The Group’s principal projects range from late stage exploration projects, through a brownfield site to an under-optimised producing mine, all of which the Company intends to develop to be efficient producing mines. All of the Group’s principal assets have an ore body and logistics solution which allow for production to be initiated and/or expanded in phases. The logistics solution primarily focuses on workable port locations with available land and with the ability to load, either directly or via transhipment, to ocean going vessels. The port locations are all within approximately 100km of the proposed mine site for all of the existing principal projects with the exception of China, where the product is largely sold at the mine gate, hence transportation costs are low. Currently, London Mining’s target markets are the Middle East and China, and all of the principal assets are able to supply one or both of these markets. The Company has an experienced management and technical team. The iron ore assets are managed by in country project directors aided by a technical services team headed by the Company’s Chief Operating Officer, Luciano Ramos and comprising seven people with expertise in geology, metallurgy and mine engineering. The technical services team is focused on delivering low-cost, fast track solutions to production. The iron ore assets are overseen by the Company’s management team in London, which focuses on head office functions including funding, off-take agreements and corporate development opportunities. 6. Financial information The table below sets out a summary of the trading record of the Group’s business for the six-month period ended 30 June 2009 and the three financial years ended 31 December 2008, 31 December 2007 and 31 December 2006. Save for the conversion of the reported figures for the financial years ended 31 December 2007 and 31 December 2006 into USD as described below, this data has been extracted, without material adjustment, from the Financial Information contained in Part 4 of this document. 29
- 30. GBP reported figures for the financial years ended 31 December 2007 and 31 December 2006 (prior to the Group’s change in functional and presentational currency to USD) are presented in USD for comparability. Items in the income statement have been translated at the average USD / GBP exchange rate for the respective period and items in the balance sheet have been translated at the USD / GBP exchange spot rate as at the respective period end. Six months ended Financial Financial Financial 30 June year ended year ended year ended 2009 31 December 31 December 31 December $’000 2008 2007(1)(3) 2006(2) (unaudited) $’000 $’000 $’000 Revenue 2,984 - - - Gross profit 1,002 - - - Profit from discontinued operations - 4,897 2,618 - Post tax profit on disposal of discontinued operations - 664,194 - - Profit / (loss) before tax (16,580) 586,081 (16,950) (2,013) Net profit / (loss) (16,599) 586,081 (16,970) (2,012) Cash 245,154 316,286 90,718 559 Total assets (including cash) 383,318 379,886 206,141 8,914 Total Liabilities 38,681 11,853 96,059 6,259 Notes: (1) (2) USD / GBP1 average exchange rate 2.002 1.843 USD / GBP1 spot rate 1.991 1.959 3 The financial year ended 31 December 2007 presented above has been extracted from the comparative information in the 31 December 2008 financial statements which present the results of the Brazilian operations as discontinued. 7. Current trading and prospects With the exception of China, all of the Group’s principal assets are at the resource definition or development stage and as such do not generate any revenue. The Group is generating positive net operating cash flows from its iron ore asset in China, held through its 50/50 joint venture, CGMR. Since 30 June 2009, the operation has produced an average of 29,000 tonnes of concentrate per month at an average cash cost of approximately USD40 per tonne, (before taking account of the Group’s management fee). Since 30 June 2009, the realised sales price has improved from an average of USD59 per tonne for the second quarter of 2009 to USD71 per tonne in September 2009 as the delivered spot iron ore price has recovered. The ongoing health and safety standard improvement programme currently being implemented may result in higher operating costs over the remainder of the year. In addition, operating costs may be impacted by an expected increase in the strip ratio and an increase in development costs, although the Directors expect these increases should be partially offset by operating efficiencies. On 13 August 2009, CGMR entered into a non-binding Memorandum of Understanding with the neighbouring mine owner for the acquisition of certain assets, including the SBQ mine and the Guqiao mine and a 0.3Mtpa processing plant near to the XNS mine. This acquisition would fast track expansion at the XNS mine and would satisfy the policy of the local authorities for CGMR to consolidate operations in the region. CGMR is currently conducting due diligence in respect of this opportunity and expects to conclude its work during the first quarter of 2010. Since 30 June 2009, the Group has invested USD9 million of its cash on development of its iron ore projects and made a further USD5.9 million loan to the EBT for purchase of Ordinary Shares to satisfy options and awards granted under the Share Option Plans. After other overhead costs, the Group has a 30
- 31. residual unaudited cash balance of approximately USD230 million as at 30 September 2009, which it is to use to fund the key milestones of its principal assets. Of this, the Company has allocated USD85 million to the development of its Marampa project in Sierra Leone (comprising capital expenditure of USD70 million, USD10 million for pre-production working capital and residual acquisition costs, and USD5 million for owners pre-production overheads), a further USD11 million for completion of the Bankable Feasibility Study for the Wadi Sawawin project in Saudi Arabia, USD7 million to complete the pre-feasibility study for the Isua project in Greenland (and a further estimated USD21 million to complete a Bankable Feasibility Study, subject to the pre-feasibility study), USD5 million to conduct a global drilling campaign to upgrade and expand the existing resources of the Group’s principal assets to JORC standard and USD10 million for other development opportunities, including a loan facility of up to USD5 million to ICC to do engineering work to advance coke production and further define resources on coking coal opportunities in Colombia. A further USD17 million is committed to pay a number of nonrecurring cash commitments that will be paid over the next three years, including residual payments under the Return Bonus Plan, Listing fees, historic transaction costs and legal fees. The Directors estimate a normalised annual overhead for head office and project overhead costs of around USD11 million and USD8 million respectively. 8. Developing trends in the exploration and production of iron ore Annual iron ore demand is expected to grow strongly over the next 10 years, with CRU Strategies1 projecting an increase of 540Mt between 2009 and 2019 to a total of 2,169Mt. Importantly a significant driver for the global iron ore market is the demand from the seaborne market. China has grown its domestic iron ore supply strongly over the past few years, with a compound annual growth rate of approximately 20% between 2002 and 2008. However, Chinese domestic production has peaked and started to fall, with CRU Strategies1 believing that the fall in spot prices has accelerated that process. The falling production is expected to cause China to become increasingly reliant on seaborne sources of supply. Chinese supply may be brought on stream to meet rising local demand, but this capacity will have to compete economically with alternative seaborne sources. The recent examples of Chinese steel companies looking to invest in overseas iron ore projects is an indication that there is little expectation of significant new ‘lower cost’ supply from within China. By 2013, the world will need an additional 270Mt of seaborne capacity compared with 2008 according to CRU Strategies1, with this rising to 480Mt by 2019. The Directors believe that the existing expansion plans of the major established mining companies in Australia and Brazil, which largely consist of low cost production, are not likely to be sufficient to meet anticipated demand in the seaborne market over the next decade. Although the estimated supply, taking all potential expansions and new projects into account, would be far in excess of anticipated demand, financing risk is a significant risk in delivering these projects and as such delivery of these projects is not assured. The Directors believe that the projects most likely to be built to meet supply are typically likely to be projects in Australia, West Africa and India. These projects will be required if the world production of iron ore is to be sufficient to meet demand over the next 10 years; however these are not in general low cost projects. The long-run price of iron ore must be high enough to induce these projects to come on stream. London Mining believes its ability to quickly appraise projects and fast-track development to production will allow it to become a profitable developer of iron ore capacity for the steel industry. 1 Source: CRU Strategies report, September 2009. 9. Principal target markets The Company’s two principal target markets are currently China and the MENA countries. The use of steel is concentrated in sectors that typically form a large part of an economy’s overall GDP, for example construction, transportation, manufacturing and engineering. This causes industrialising economies to pass through a phase of growth with high steel per capita consumption. As China, India and MENA are currently passing through that industrialisation phase, and given their large populations, they are driving the significant growth in steel and hence iron ore demand. 31
- 32. CRU Strategies predict that China is forecast to continue upward growth in crude steel production over the medium term, although it is not expected to be at the very high levels seen since 2002; year-on-year growth out to 2013 is forecast to be an average of 5% each year. From 2013 to 2019, CRU Strategies predict that Chinese crude steel production is forecast to grow at a rate of 2% per year, reaching 716Mt by 2019 and MENA crude steel production is expected to see double-digit year-on-year growth from 2010 out to 2012. Production is forecast to reach 36Mt by 2013, and is estimated to increase by a further 28% to 46Mt by 2019. The two major technologies in use for steel production are: • Blast Furnace (“BF”)/Blast Oxygen Furnace (“BOF”) • Direct Reduced Iron (“DRI”)/Electric Arc Furnace (“EAF”). The preference for using BOF or EAF steelmaking varies worldwide. BOF steelmaking is the most widely used production route, accounting for 67% of crude steel production in 2008, and is used heavily in China. Sinter comprises 60-70% of the feed for the BF process with the balance comprised of pellets, lump and scrap. DRI production involves reduction by natural gas (or coal, instead of coke in the BF process) of which the MENA region has large resources and this has resulted in the exclusive use of low cost DRI and EAF operations in the region. EAF is also predominantly used in the United States where there is a high availability of scrap. DR pellet feed is typically lower in Al2O3 and Si02 than BF feed and often requires additional processing to achieve the required specification. London Mining is able to supply both BF (Chinese majority) and DR (MENA majority) product. The Company has completed metallurgical test-work and marketing studies which identify the following markets for its seaborne iron ore: • Marampa – sinter feed (Europe/China) • Wadi Sawawin – DR pellets (MENA) • Isua – DR pellet feed (MENA) or BF pellet feed (Europe/China) Marampa concentrate is considered to be suitable for sale as a fine sinter product into Europe or as blast furnace feed to China. CRU Strategies estimate a long term pricing premium of USD3/t to Brazilian Itabira fines for the Marampa sinter product. Wadi Sawawin will produce DR iron pellets. CRU Strategies has identified strong demand for this product in the MENA region and calculated a long term pricing premium for the Wadi Sawawin product of $21/t to Brazilian Tubarao pellets. The product specification for Isua is still to be finalised but initial work shows it to be suitable for blending with concentrate at the Wadi Sawawin operation to produce DR pellets. London Mining has also invested in the CGMR joint venture which sells directly into the Chinese domestic iron ore market. In the period between 23 April 2009 and 30 June 2009, the combined XNS and Sudan operation generated sales in China of 101,000t of 62% Fe concentrate at an average realised price of USD59 per tonne. CGMR expects to achieve a premium to current pricing by implementing process changes to produce a 63% Fe concentrate. 10. Directors, senior executive management, project directors and technical services team The existing Board comprises four Non-executive Directors and two Executive Directors (the Chief Executive and Finance Director). The Company intends to recruit a new Non-executive Director following Admission. Brief biographies of the Directors, senior executive management, project directors and key members of the technical services team are set out below in sections 10.1 to 10.4: 10.1 Directors Dr. Colin Knight – Non-executive Chairman (age 75) Colin was appointed as a non-executive director and chairman of the Company on 14 June 2005. He is a mining engineer and economic geologist and, since 1983, has consulted on mining finance and 32
- 33. policy on projects worldwide for London stockbrokers and banks, and for the World Bank and Commonwealth Secretariat in developing countries in Africa. After military service in the Royal Engineers, Colin spent some 18 years in the Canadian mining industry, including exploration, operations, mining finance and ultimately consulting. He returned to the UK in 1974, working for the Rio Tinto group in London in European and overseas exploration, budget control, project appraisal and negotiations with joint venture partners and governments. He qualified in mining engineering at the Camborne School of Mines, and holds a degree in economic geology and a PhD from the University of Toronto. Professional associations include FIMM (now FIMMM), CEng., PEng (Canada). Graeme Hossie – Chief Executive (age 44) Graeme co-founded the Company in 2005 and has been instrumental in building the Group from inception. In his roles as finance director, corporate development officer and deputy managing director and, since February 2009, as Chief Executive, he has driven fund raisings of over USD185 million, asset and company acquisitions and joint venture partnerships, the establishment of off-take and strategic relationships, the Company’s listing on Oslo Axess, growth of and subsequent disposal of the Group’s Brazilian operations and the overall development of the Group’s expanding iron and coal projects and international management team. Prior to founding the Company, Graeme ran a venture development consultancy assisting resource and high growth venture companies and has founded and developed new ventures as principal adviser and executive in several industries including natural resources, media and consumer products. Graeme was previously a management consultant with Bain and Company in London, and in venture capital and innovation consulting with Piper Trust. Graeme holds a business degree from Ivey at the University of Western Ontario. Rachel Rhodes – Finance Director (age 38) Rachel was appointed to the Board on 4 September 2008 as finance director. She is a member of the Institute of Chartered Accountants in England and Wales, having qualified with Coopers & Lybrand in London in 1996. She has over 10 years’ experience in the mining sector, of which the last five years prior to joining London Mining were in key financial roles with Anglo American plc. During this time at Anglo American, Rachel successfully led major corporate transactions, including the financial workstreams on the demerger of Mondi plc, Anglo’s paper and packaging business, which was dual- listed on the London and Johannesburg stock exchanges and the Group’s conversion to International Financial Reporting Standards in 2006. Rachel most recently served as Lead Corporate Finance Manager within Anglo American’s corporate finance department. Rachel holds a master of arts degree in economics from Cambridge University. Sir Nicholas Bonsor – Non–executive Director (age 66) Sir Nicholas was appointed to the Board on 1 September 2007 as a non-executive director. A practising barrister specialising in regulatory and commercial law, Sir Nicholas was a member of British Parliament from 1979 to 1997 where he specialised in foreign affairs and defence, and was chairman of the Defence Select Committee from 1992 to 1995 and Minister of State at the Foreign Office from 1995 to 1997. Sir Nicholas has served on the board of several companies, including Blue Note Mining Inc. (Canada) from 2006 to 2008, and has served as the chairman of Egerton International Ltd from 2004 to present. He is a Deputy Lieutenant of Buckinghamshire, a freeman of the City of London (1988), a member of the Chartered Institute of Arbitrators and a fellow of the Royal Society of Arts. Sir Nicholas practised as a barrister from 1967 to 1975 and from 2003 to the present day. Sir Nicholas holds a master of arts degree in jurisprudence from Oxford University. Malcolm Groat – Non-executive Director (age 48) Malcolm was appointed to the Board on 4 September 2008 as a non-executive director having previously held the position of part-time finance director from June 2007. Malcolm is a fellow of the Royal Society for the encouragement of Arts, Manufactures and Commerce, a fellow of the Institute of Directors, and a fellow of the Institute of Chartered Accountants in England and Wales. In the mining sector, he serves as non-executive director with Tengri Coal plc of Mongolia and has previously served as finance director of Platinum Mining Corporation of India PLC (which was admitted to AIM in 2005). Prior to working in the mining sector, Malcolm spent a decade in finance roles in large global engineering groups. Before that he qualified with PriceWaterhouse in London and worked internationally in corporate finance. Malcolm holds a Master of Arts degree in Modern History and International Politics from St. Andrews University and an MBA from Warwick University. 33
- 34. Dr. Hans Kristian Schønwandt – Non-executive Director (age 68) Hans was appointed as a non-executive director on 4 January 2006. He was the deputy minister, head of the Bureau of Minerals and Petroleum for the Greenland Government from 1998 until he retired in October 2005. Between 1987 and 1998 he was head of the department of economic geology at the Geological Survey of Denmark and Greenland. Hans has a PhD in economic geology from the University of Copenhagen. 10.2 Executive management The executive management of the Company consists of Graeme Hossie, Rachel Rhodes and the following senior managers: Luciano Ramos – Chief Operating Officer (age 50) Luciano joined the Group in May 2007 as President of London Mining Brasil Limitada. Luciano was appointed Chief Operating Officer of the Company’s iron ore division which includes projects in Saudi Arabia, Greenland, China and Sierra Leone in February 2009. Luciano, with over 23 years’ experience in the mining industry, including 15 years with Companhia Vale de Rio Doce, is an expert in mineral processing and project and mine management and heads the Company’s technical services. Luciano led the transformation of the Company’s Brazilian mine into a state of-the-art iron ore mining operation with a tenfold increase in production within 16 months. Benjamin Lee – Head of Corporate Development (age 38) Benjamin joined London Mining in April 2009 and is involved in all financial and strategic aspects of current and future projects. Prior to joining London Mining Benjamin was head of UK Mergers & Acquisitions at Kaupthing Bank from 2007 to 2008. Among a number of transactions completed there, he was the lead adviser to London Mining on the disposal of its Brazilian iron ore mine. Prior to joining Kaupthing, Benjamin worked for 13 years in Mergers & Acquisitions at UBS in London and New York, advising on a wide variety of transactions for large and mid-sized companies. Benjamin holds a master of arts degree in economics from Cambridge University. Rohit Bhoothalingam – Head of Legal and Company Secretary (age 36) Rohit joined London Mining in December 2008. Prior to this he was Head of Legal at a natural resource focussed investment fund. Prior to this, he worked with leading US law firms Wilmer Hale in New York and London and Orrick, Herrington & Sutcliffe in New York. Rohit has a BA in law from Cambridge University and holds a masters degree in law from Georgetown University Law Centre. He qualified for the New York Bar in 1999. Thomas Credland – Head of Investor Relations (age 32) Thomas is a geologist and joined London Mining in April 2009. Prior to joining London Mining, he was an institutional equity salesman in the mining and metals team at Canaccord Adams. Prior to this, Thomas was a mining analyst for Brook Hunt and Associates, working on their base metal and gold cost studies. Thomas has spent time working in exploration and development most notably at Xstrata’s Windimurra Vanadiam Project in Western Australia. He holds a BSc (Hons) in Geology from the University of Edinburgh and an MSc in Mineral Project Appraisal from the Royal School of Mines at Imperial College. 10.3 Project directors Details of the project directors of the Group’s assets in Sierra Leone, Saudi Arabia and Greenland are set out below: David Keili – Project Director for Marampa, Sierra Leone (age 51) David joined London Mining in December 2008. He is a registered professional engineer and Sierra Leone national, with extensive western training and experience in civil engineering, mining and administration. David graduated with honours in engineering at the University of Lancaster in the UK and has taken masters level courses in both Business and Public Administration in the US. His professional experience spans over 28 years mostly in the US and more recently at Sierra Rutile Mine in Sierra Leone. 34
- 35. Manfred Deutsch – Project Director for Wadi Sawawin, Saudi Arabia (age 60) Manfred joined London Mining in August 2008. He is a chemical engineer with extensive experience in projects, operations and regional/corporate management. He has spent 8 years in the US, more than 20 years in the Middle East and has previously been employed by Brown & Root, Thyssenkrupp and SNC Lavalin. John Wonnacott – Project Director for Isua, Greenland (age 61) John joined London Mining in June 2009. John is a civil and geotechnical engineer with 37 years’ experience, with particular expertise in the development of projects in cold weather climates. Most notably John was the Chief Engineer of the Diavik Diamond Mine Project in Canada where he hired, led and directed a team of engineers responsible for the design and construction of a USD1.3 billion new mine located 100km south of the Arctic Circle. John is a graduate of Nova Scotia Technical University with BEng in Civil Engineering and an MEng in Geotechnical Engineering 10.4 Technical services team The technical services team is led by the Chief Operating Officer, Luciano Ramos. Details of the key members of the technical services team are set out below: Phillip Stirling – General Manager for Mineral Processing, Engineering & Mining Operations (age 55) Phillip joined London Mining in May 2009 from BHP Billiton where he occupied senior management positions at the Mount Keith, Kalgoorlie and Ravensthorpe nickel operations. Phillip is a metallurgical engineer with over 30 years’ experience mostly in the iron ore sector. He spent the formative years of his career in Brazil working as a senior member of production teams on concentrator and pellitising plants as well as railway and port operations. Phillip emigrated to Australia in 1998 where he worked for two years as manager of the pellet plant and port operations at Australian Bulk Minerals’ Savage River Mine. He also gained managerial experience as General Manager Operations at Alcan Gove (which included port operations) and Site General Manager at Endeavour Underground Mine and Processing Facility in New South Wales. Sergio Guedes – General Manager for Mineral Resources (age 50) Sergio joined London Mining in May 2009. Sergio has had a 25 year career within the Brazilian mining industry and abroad, and has worked exclusively within iron ore for more than 18 years. He has particular expertise in the coordination of geology programmes for increasing ore body knowledge, resource evaluation and expansion and mine planning. Sergio has experience in Brazil, Australia, Saudi Arabia and West Africa and has worked for Vale, Rio Tinto, MBR and ICOMI. Sergio is a geologist, is currently studying for a Masters degree in Economic Geology UFMG and has an MBA from the Don Cabral Foundation. Rinaldo Nardi – Senior Specialist in Mineral Processing and Plant Design (age 57) Rinaldo joined London Mining in July 2009 and is a mining engineer and has a PhD in mineral engineering. He has 35 years’ experience including 25 years with Vale. Rinaldo has significant expertise of managing both iron ore and coal projects at the design, construction and start-up stages. 11. Dividend policy The Board assesses on an annual basis whether a dividend will be paid to shareholders. The declaration and payment by the Company of any dividends and the amount of such dividends will depend on the results of the Group’s operations, its financial position, cash requirements, prospects, profits available for distribution and other factors deemed to be relevant at the time including possibilities for further value creation through new investments. On 20 August 2008, in connection with the sale of the Group’s Brazilian operations, a proposal was announced to return 200 pence per Ordinary Share to shareholders. A total of GBP219 million cash was returned to shareholders. No other dividend or distribution has been paid in the past 3 years. 35
- 36. 12. Reasons for the Admission An application has been made for all of the issued Ordinary Shares to be admitted to trading on AIM. The purpose of the Admission is to enhance shareholder value by allowing the Company and investors to benefit from the presence of established mining sector research coverage in London; and giving the Company improved access to global investors. The Company expects the move will achieve increased liquidity in and demand for Ordinary Shares, allowing shareholders to trade their Ordinary Shares more freely and a greater understanding of its assets. At present the Company plans to maintain its listing on the Oslo Axess market of the Oslo Børs. The Company will review the status of the Oslo Axess listing after an appropriate period of time. 13. Details of the Placing of existing Ordinary Shares Existing shareholders in the Company are selling a total of 37,239,225 Ordinary Shares pursuant to the Placing. The Placing is conditional upon, amongst other things, Admission becoming effective. The Company will not receive any proceeds from the sale of the Sale Shares. Further details of the Selling Shareholder Agreements are set out in section 12 of Part 5 of this document. 14. Settlement, dealings and CREST 14.1 AIM and CREST Application has been made to the London Stock Exchange for the Ordinary Shares to be admitted to trading on AIM. Admission is expected to take place and dealings in the Ordinary Shares are expected to commence on AIM at 8.00 a.m. on 6 November 2009. CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by certificate and transferred otherwise than by written instrument. The Articles permit the holding and transfer of Ordinary Shares in CREST. The Directors have applied for the Ordinary Shares to be admitted to CREST, and accordingly enabled for settlement in CREST and CREST has agreed to such admission. CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain a share certificate will be entitled to do so. The Company has appointed Computershare Investor Services PLC to be its registrar in the UK and maintain the Company’s share register. 14.2 Oslo and VPS The Ordinary Shares are currently listed on the Oslo Axess market of the Oslo Børs and, following Admission, will continue to be listed on the Oslo Axess market of the Oslo Børs. In order to comply with the Norwegian requirement that shares listed on the Oslo Axess market are capable of being settled in VPS (Norway’s paperless centralised securities registry), the Company currently maintains a register in VPS operated by DnB NOR. Prior to Admission, DnB NOR intends to dematerialise all of the Ordinary Shares held by it (on behalf of VPS shareholders) and place them within the CREST system by transferring them to the SDRT designated CREST account of HSBC which will act as its custodian. The proposed transfer to HSBC will facilitate the cross border settlement of Ordinary Shares following Admission. Following the transfer of the Ordinary Shares, HSBC will be the legal owner of all the Ordinary Shares that are in the VPS system. HSBC and DnB NOR have entered into a custodian agreement whereby HSBC has agreed to pass on any dividends that it receives from the Company to DnB NOR for onward transmission to VPS shareholders and to exercise voting rights in accordance with the instructions of DnB NOR. Accordingly, investors registered as owners in VPS must continue to look to DnB NOR to exercise rights arising in respect of those Ordinary Shares. These arrangements will not be affected by Admission. All transactions related to securities registered with VPS must be recorded in VPS and the transactions are recorded through computerised book-entries. No physical share certificates are or can be issued for securities registered with VPS. VPS confirms each entry by sending a notification of the transaction to the 36
- 37. relevant shareholder, regardless of beneficial ownership. The evidence of ownership through VPS is the only formality required in order to acquire and sell beneficial ownership of the shares on the Oslo Børs. To effect these entries, the shareholder must establish a securities account with a Norwegian account operator unless the shareholder’s securities are registered in the name of a nominee. Norwegian banks, authorised investment firms in Norway and Norwegian branches of credit institutions established within the EEA are allowed to act as account operators. The entry of a transaction in VPS is prima facie evidence under Norwegian law in determining the legal rights of parties as towards the issuing company and against a third party claiming an interest in the security. 14.3 Settlement Shareholders should note that the default electronic settlement system for trades on AIM is the CREST system and the default electronic settlement system for trades on Oslo Axess is the VPS system. Therefore, if a shareholder who holds Ordinary Shares in VPS decides to trade Ordinary Shares on AIM, the timetable for electronically settling the trade may be longer than would be the case if the Ordinary Shares are held in the shareholder’s CREST account. Likewise, if a shareholder holds Ordinary Shares in CREST and decides to trade Ordinary Shares on Oslo Axess, the timetable for electronically settling the trade may be longer than would be the case if the Ordinary Shares are held in VPS. Such extended settlement dates may restrict the demand for Ordinary Shares settled in this way. Therefore, shareholders wishing to trade Ordinary Shares on AIM should consider transferring Ordinary Shares into the CREST electronic settlement system instead of maintaining them in the VPS electronic settlement system. 15. Lock-in arrangements All Selling Shareholders (other than Passport, which will not hold any Ordinary Shares following Admission) have agreed (except in certain cases including disposals by way of acceptance of a takeover offer for the entire issued share capital of the Company) that they will not dispose of any of the Ordinary Shares they hold at Admission for a period of 180 days after Admission without the prior written consent of Liberum. For a further period of 180 days after the expiry of this period, all Selling Shareholders (other than Passport, which will not hold any Ordinary Shares following Admission) have agreed to a customary orderly market arrangement in respect of the Ordinary Shares they hold at Admission. Pelos Strategy Limited (a company connected to Graeme Hossie) and Graeme Hossie have also agreed to lock-in and orderly market arrangements. Further details of the lock-in arrangements are set out in sections 12 and 14 of Part 5 of this document. 16. Corporate governance and internal controls The Company will not, upon Admission, be fully compliant with the principles and provisions of the Combined Code, but it intends to become so, as far as appropriate for a company of its size and save as explained below, as soon as reasonably practicable following Admission. The Board comprises six members, four of whom are Non-executive Directors. The Board considers that Sir Nicholas Bonsor is the only independent for the purposes of the Combined Code. The Combined Code provides that smaller companies should have at least two independent Non-executive Directors. In order to comply with this requirement, the Board intends to recruit a new independent Non-executive Director following Admission. The Board intends to meet at regular intervals each year and all necessary information will be supplied to Directors on a timely basis to enable them to discharge their duties effectively. Additionally, special meetings may take place or other arrangements made when Board decisions are required in advance of regular meetings. The Board has adopted a formal schedule of matters reserved for decision by the Board. The Board has appointed Sir Nicholas Bonsor as the senior independent Non-executive Director. The Board has established audit, remuneration and nomination committees, each with formal terms of reference. The audit committee will be chaired by Sir Nicholas Bonsor and will comprise Dr. Colin Knight and Malcolm Groat. Following appointment, the new independent Non-executive Director will join the audit committee and Dr. Colin Knight will step down. The Combined Code provides that the audit committee should comprise of two independent Non-executive Directors. The Board believes that is appropriate that Malcolm Groat should continue to be a member of the audit committee, notwithstanding the fact that he 37
- 38. is not independent as he has recent and relevant financial experience. The audit committee will meet whenever there is business to discuss and at least four times each year. It is responsible for ensuring that the financial performance of the Group is properly monitored, controlled and reported on. It will also meet the auditors without executive Board members being present and review reports from the auditors relating to accounts and internal control systems. The remuneration committee will be chaired by Sir Nicholas Bonsor and will comprise Dr. Colin Knight, Malcolm Groat and Dr. Hans Kristian Schønwandt. Following appointment, the new independent Non-executive Director will join the remuneration committee and Dr. Hans Kristian Schønwandt will step down. The Combined Code provides that the remuneration committee shall comprise at least two independent Non-executive Directors and the Chairman (provided he was independent on appointment). The Board believes that whilst Malcolm Groat is not independent for the purposes of the Combined Code and therefore the composition of the remuneration committee is not in compliance with the Combined Code, Malcolm Groat makes a valuable contribution to the remuneration committee and it is appropriate for him to continue as a member of the committee following the appointment of the new independent Non-executive Director. The remuneration committee will review the performance of the Executive Directors and set the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of shareholders. In determining the remuneration of Executive Directors, the remuneration committee will seek to enable the Company to attract and retain executives of the highest calibre. The remuneration committee will also make recommendations to the full Board concerning the allocation of share options to employees and vesting and performance conditions. No Director will be permitted to participate in decisions concerning his own remuneration. The nomination committee will be chaired by Dr. Colin Knight and will comprise Sir Nicholas Bonsor, Malcolm Groat and Dr. Hans Kristian Schønwandt. Following appointment, the new independent Non-executive Director will join the nomination committee and Dr. Hans Kristian Schønwandt will step down. The Combined Code provides that the nomination committee shall comprise a majority of independent Non-executive Directors. The Board believes that whilst Malcolm Groat is not independent for the purposes of the Combined Code and therefore the composition of the nomination committee is not in compliance with the Combined Code, Malcolm Groat makes a valuable contribution to the nomination committee and it is appropriate for him to continue as a member of the committee following the appointment of the new independent Non-executive Director. The nomination committee will consider appointments to the Board and is responsible for nominating candidates to fill Board vacancies and for making recommendations on Board composition. The Company has adopted a model code for directors’ dealing which is appropriate for an AIM quoted company. The Directors will comply with Rule 21 of the AIM Rules for Companies relating to directors’ dealings and will take all reasonable steps to ensure compliance by the Group’s applicable employees as well. 17. Share incentive arrangements The Company has established the following share incentive plans: • the London Mining plc No. 1 Share Option Plan; • the London Mining plc No. 2 Share Option Plan; and • the London Mining plc Long Term Incentive Plan. Further details of these share incentive arrangements are contained in paragraph 4 of Part 5 of this document. Details of awards currently held by the Board are set out at paragraph 6 of Part 5. It is currently intended that the Plans will continue to be used to provide share based incentives to Directors and key employees. Following Admission, the Company intends to grant share options and awards with performance conditions that reflect market practice for AIM quoted companies of an equivalent size and industry. The Company does not intend to grant any share options or awards under the LTIP to any non-executive directors. In addition, the Company has established the EBT as a discretionary trust, for the benefit of employees of the Group. The Trustee has agreed to purchase Ordinary Shares from time to time and to use those shares to satisfy certain options or awards made under the terms of the Plans. Funds are lent by the Company to the EBT to fund the acquisition of Ordinary Shares. For further details, see sections 4.3 and 14.1(f) of Part 5 of this document. 38
- 39. The Company has also adopted the London Mining Return Bonus Plan. Under the RBP, cash bonus awards can be made to participants in the Plans if either a special dividend or return of share capital is made by the Company and for which participants are not otherwise compensated. Further details about the RBP and subsisting awards under the RBP are contained in paragraphs 4.3 and 6(j) of Part 5 of this document. As at the date of this document, there are 13,983,476 Ordinary Shares either under option or subject to LTIP awards. Of the 13,983,476 Ordinary Shares under option or subject to LTIP awards, 12,303,476 are subject to employee awards and 1,680,000 are granted under a plan for non-employees and consultants. As at the date of this document, the EBT holds 6,710,943 Ordinary Shares to satisfy employee share options and LTIP awards. Ordinary Shares held by the EBT have full voting rights and participate in dividend distributions. The Company is restricted in granting awards under the Plans that are expected to be settled by issuing new Ordinary Shares to 10% of the Company’s issued share capital. The Company is not restricted if awards are to be settled by the EBT with shares purchased in the market. The Remuneration Committee is considering adopting HMRC approved share incentive arrangements in order to provide share based incentives on a tax efficient basis following Admission. The Remuneration Committee is considering adopting a Joint Share Ownership Plan which would allow executives to acquire interests in Ordinary Shares in a tax efficient manner in order to allow then to align their interests with those of shareholders. 18. Taxation General information relating to UK taxation is summarised in section 13 of Part 5 of this document. With regard to the disposal of the Group’s Brazilian operations in 2008, the Substantial Shareholdings Exemption (“SSE”) should apply to exempt this share disposal from UK corporation tax on chargeable gains. One of the requirements for SSE is that London Mining is a trading group for the purposes of these rules. To satisfy this test, it is important that the Group reinvests a substantial proportion of the proceeds into qualifying trading activities. Advance clearance was sought and received from HMRC in July 2008 which confirmed that the SSE would apply to the Brazilian disposal provided that the cash received would be returned to shareholders or spent on qualifying trading activities, with details of the Group’s planned investment programme at that time submitted to HMRC. Because of subsequent changes to this investment programme, an updated clearance was obtained from HMRC on 17 September 2009 which reflects the Group’s current plans. Whilst the rules do not contain specific provisions about when the proceeds should be reinvested by, the strategic investment programme presented to HMRC covers the period to 31 December 2010. Failure to reinvest the proceeds suitably may render the Company liable to UK corporation tax on chargeable gains on the disposal of its Brazilian operations for its 2008 tax year. Any person who is in any doubt as to his or her tax position, or is subject to tax in a jurisdiction other than that of the UK, should consult his or her professional advisers. 19. Further information Your attention is drawn to the additional information in Parts 2 to 5 of this document. 39
- 40. PART 2 RISK FACTORS In addition to all other information set out in this document, the following specific factors should be considered carefully in evaluating whether to make an investment in the Company. An investment in the Company may not be suitable for all recipients of this document and is only suitable for investors who are capable of evaluating the risks and merits of such investment and who have sufficient resources to bear any loss which might result from such investment. If you are in any doubt about the action you should take, you should consult an independent financial adviser authorised under the FSMA who specialises in advising on the acquisition of shares and other securities if you are taking advice in the United Kingdom or from another appropriately authorised independent financial adviser if you are in a territory outside of the United Kingdom. This summary of risk factors is not intended to be exhaustive. A RISKS SPECIFICALLY RELATED TO THE GROUP Resource estimates With the exception of resource estimates for the Isua project in Greenland, the resource estimates contained in this document have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. No assurance can be given that any resources which the Company may report to an internationally recognised standard in the future will be in line with these estimates or that the tonnages and grades referred to will be achieved. Investors should therefore place no reliance on these statements. No assurance can be given that the anticipated tonnages and grades will be achieved or reported to JORC standard, that the indicated level of recovery will be realised or that ore/ mineral reserves can be mined or processed profitably. There are numerous uncertainties inherent in estimating ore/mineral resources, including many factors beyond the Group’s control or that of its joint venture companies. Such estimation is a subjective process, and the accuracy of any resource estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. Short-term operating factors relating to the ore/mineral resources, such as the need for orderly development of the ore bodies or the processing of new or different ore grades, may cause an ore body to be unprofitable in any particular accounting period. In addition, there can be no assurance that recoveries derived from small scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production. Snowden Consultants have classified part of the resource at the Isua project in Greenland as an Inferred mineral resource to JORC standard. Inferred mineral resources are not mineral reserves and do not have demonstrated economic viability. Due to the uncertainty of Inferred mineral resources, there is no assurance that these Inferred mineral resources will be upgraded to proven or probable mineral reserves as a result of continued exploration. Fluctuation in commodity prices, results of drilling, metallurgical testing and production and the evaluation of mine plans subsequent to the date of any estimate of ore/mineral resources may require revision of such estimates. The actual volume and grade of resources mined and processed and recovery rates may not be the same as currently anticipated. Any material reductions in estimates of ore/mineral resources, or of the ability of the Group or its joint venture companies to extract these ore/mineral resources, could lead to a project being commercially unviable and could have a material adverse effect on the Group’s results of operations and financial condition. Exploration, development and production risks Each of the Group’s interests and the interests of its joint venture companies are at various stages of exploration, appraisal, development and production within the mining industry cycle process. Any investment in the Company by an investor should be understood as an investment in the exploration and development of potential iron ore and coal resources rather than a direct investment in iron ore and coal as a commodity. 40
- 41. The exploration for, and development and operation of, mineral deposits by its very nature involves a high degree of risk which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, properties which are explored may not ultimately be developed into producing mines or have the mineral resources currently estimated. Major expenses may be required to locate and establish mineral resources, to develop metallurgical processes and to construct mining and processing facilities at a particular site. There is no assurance that the exploration or development programs planned by the Group and its joint venture companies will result in profitable commercial mining operations. Constructing and operating a mine can be more expensive than planned due to higher capital expenditures, higher wages or the cost of fuel, equipment, transportation and power. An operating mine can also be hampered by logistical problems, labour unrest, and equipment breakdown amongst many others. The Group and its joint venture companies have the rights to explore and appraise their portfolio of assets but may not necessarily have a right to produce until such time as the reserves are determined to be commercial and appropriate exploitation licences are granted or development plans are approved. If at any stage the Group or its joint venture companies are precluded from pursuing their exploration or development programmes, or such programmes are otherwise not continued, the Group’s business, financial condition and/or results of operations, and accordingly the carrying value of the Group’s assets, are likely to be materially adversely affected. Stage of development The Group and its business and the business of its joint venture companies are still conducting exploration work on all of their assets which are therefore at an early stage of development. This necessarily involves a high degree of risk, which a combination of experience, knowledge and careful evaluation may not overcome. The Group and its joint venture companies have a limited history of operations and earnings and there can be no assurance that their businesses will be successful or profitable or that commercial quantities of iron ore and coal will be discovered by them. Dependence on licences The Group and its joint venture companies are dependent on mining and exploration licences in order to explore for and produce mineral resources from the assets of the Group and its joint venture companies. Failure to obtain a licence, revocation of an existing licence, failure to renew a licence or failure to obtain a licence that is required to move from one stage of the industry cycle to another (including, for example, the exploration phase to the exploitation phase) could have a material adverse effect on the Group’s financial performance and may lead to a reduction in the carrying value of assets. Where the Group or any of its joint venture companies fails to comply with its respective obligations under any such licences or permits, then such licence or permit may be lost, forfeited or not renewed by the grantor. Saudi Arabia: Wadi Sawawin licences NMC, the Company’s joint venture partner in Saudi Arabia, holds three exploration licences over three groups of Wadi Sawawin deposits – the Western Group, the Eastern Group and the Wadi Alhamra (the “Exploration Licences”). It also has an exploitation (mining) licence for part of the Western Group deposits. As part of the joint venture arrangements, NMC has agreed to transfer these licences to the joint venture company (SLI) which is 50 per cent. owned by London Mining and is in the process of effecting the transfer. As at the date of this document the transfer, which requires the consent of the Saudi Ministry of Petroleum and Mineral Resources (the “Ministry”), has not been completed. The Ministry may refuse consent if, inter alia, NMC has not complied with all obligations of Saudi law binding on NMC, or if NMC has not complied with the conditions of the licence and the requirements of the Mining Investment Code, or if SLI has not complied in full with all obligations of Saudi law binding upon it, or if SLI is not considered to be a fit and proper person to hold the licences, or if London Mining is not considered by the Ministry to be a suitable and proper person to be a shareholder in SLI. If NMC fails to complete the transfer or the Ministry does not consent to the transfer or, if as permitted by Saudi Arabian law, the transfer leads to a detrimental variation in the terms of any of the licences, the Wadi Sawawin project may be delayed or not completed which could have a material adverse effect on the results of operation, financial condition and prospects of the Group. 41
- 42. The Exploration Licences expire on 23 June 2010. The Mining Investment Code provides that an exploration licence may be renewed for a further term of five years with the consent of the Ministry. Following the transfer of the Exploration Licences to SLI, application will be made to renew the licences at the appropriate time. If the Exploration Licences are not renewed, the Wadi Sawawin project will be delayed or not completed which could have a material adverse effect on the results of operations, financial condition and prospects of the Group. Saudi Arabia: foreign investment licence In accordance with Saudi law, SLI is required to maintain a foreign investment licence. SLI’s foreign investment licence has expired and SLI is in the process of renewing it. The Saudi Arabian General Investment Authority (“SAGIA”) has discretion to refuse to renew a foreign investment licence and to impose fines when a company is late renewing a licence. If SAGIA refuses to renew the licence there is a risk that the consent to the transfer of the Exploration Licences will not be granted and/or that the Wadi Sawawin project will be delayed or not completed, which could have a material adverse effect on the results of operations, financial condition and prospects of the Group. China: mining licence In connection with the acquisition of XNS and Sudan, the Land and Resources Bureau of Anhui Province (the “Bureau”) granted XNS a new extended mining licence in February 2009, by way of the Mining Rights Granting Agreement (the “Granting Agreement”). The extended mining licence granted by the Bureau included areas operated by another iron ore producer in the region as it was their intention to consolidate domestic iron ore producers in the region. The terms of the Granting Agreement reflected the expectation of the Bureau that the mining operations of XNS and the neighbouring mines would be consolidated. Pursuant to the Granting Agreement, on 13 August 2009, CGMR entered into a non-binding Memorandum of Understanding to acquire the neighbouring SBQ mine and Guqiao iron ore mine. CGMR is currently conducting due diligence in respect of this opportunity and expects to conclude its work during the first quarter of 2010. The Granting Agreement does not specify a deadline for completion of the XNS Integration, nor does it specify the penalties if the XNS Integration were not to occur. If CGMR does not complete the XNS Integration in accordance with the Granting Agreement and/or does not consolidate production within the region, there is a risk that the extended mining licence it received from the Bureau, incorporating the areas currently being mined by neighbouring operations, may be reduced so as to exclude the neighbouring operations or revoked. If CGMR is not able to mine resources from this extended licence, there is a risk that the carrying value for the Company’s investment in CGMR BVI may not be supported in full. China: resource availability The extended mining licence has a vertical mining limit which extends from 85 metres above sea level to 28 metres below sea level. The current unclassified resource of the area covered by the extended mining licence is estimated to be 31.2Mt at 23.6% Fe. Historical resources, to a depth of 30 metres below sea level, have been quoted as 3.7Mt of ore grading 27.9% Fe within the current XNS mine and 7Mt of ore at 20.6% Fe within the extended mining licence. The remaining unclassified resource of 24.3Mt at 24.5% Fe relates to the resource at a depth below 28 metres. (These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only.) The access to this additional resource will require the vertical mining limit of the extended mining licence to be extended to below 28 metres below sea level and the push back of the current XNS pit walls, in particular to the north, west and east. The extension to the north of the existing pit will require the acquisition of the neighbouring mines as envisaged under the XNS Integration and the extension to the east will require the relocation of the current access road to the SBQ mine. The extension to the west will require negotiation with existing land owners to secure the usage rights. It is currently expected this will require a small, annual fee as the land to the west is not being mined. However, if CGMR is not able to secure the usage rights with the owners of land to the west of the mine at all or on commercially 42
- 43. acceptable terms, or is restricted to resources at current depth without any licence depth extension or if the XNS Integration does not occur, CGMR will not be able to access the available resource and there is a risk that the Company’s carrying value for the Company’s investment in CGMR BVI may not be supported in full. China: health and safety Historically, the health and safety standards at the XNS mine and the mine design and operating processes have not been to acceptable international standards. The haul roads, benches and faces at the mine are in poor condition. No safety berms are present on the haul roads or benches and the faces have been over-steepened in several places. Given the monsoonal weather in the region and the weathered nature of the overlying sub-soil, the risk of medium to large scale failures occurring within the pit are high. Whilst CGMR is currently implementing initial health and safety standard improvements and intends to raise health and safety standards to international standards, any failure at the XNS mine may delay or ultimately prevent the exploitation of the mine or may result in cost overruns or substantial losses or other extensive liabilities to CGMR due to substantial environmental pollution or damage, personal injury or loss of life, clean-up responsibilities, regulatory investigation and penalties or suspension of operations. China: land use The land used by XNS for its mining activities at the XNS mine is collectively-owned construction land leased from the local government. Under Chinese laws, collectively-owned construction land is not permitted to be used for mining activities by foreign owned enterprises (such as XNS) unless the enterprise applies to convert the collectively-owned construction land into state-owned construction land and obtains a state-owned land use rights certificate. Using the land without obtaining the requisite land use rights certificate may result in a small fine and the confiscation of the buildings and other facilities on the land. XNS does not currently have the requisite land use certificate but is in discussions with the local government authority to seek its agreement for XNS’ continued use of this land. Given that the Chinese government has recently announced deregulation policies in other provinces in respect of the types of collectively-owned construction land that users (including foreign owned enterprises) are entitled to use without converting the collectively-owned construction land into state-owned construction land and without obtaining a land use rights certificate, the Company has been advised that the risks relating to this issue are low. Part of the land used by Sudan for industrial use (being land that is used for its tailings reservoir and the construction of certain facilities connected with the tailings reservoir) is state-owned land. While Sudan holds a land use rights certificate from the local government for this land, the certificate permits the land to be used for warehousing rather than industrial use. Using the land for a purpose that is not permitted by the land use rights certificate may result in a small fine or the Sudan land use rights certificate being revoked. However, the Company has been advised that under Chinese law, for certain purposes warehousing land and industrial land are classified as the same type of land and therefore using land for warehousing rather than industrial use is more likely to lead to a small fine rather than a revocation of the land use rights certificate. Sudan also leases an area of forest land (on which the processing plant is constructed and the remainder of which is used for the tailings reservoir) from the local government for which it does not have the appropriate governmental approval or land use rights certificate. As a result, Sudan may be subject to a fine or an order to return the land and dismantle the buildings and other facilities on the land. The Company has been advised that a fine is more likely in this scenario. In order to obtain the requisite government approval, the forest land may need to be converted into construction land, which would attract a significant fee based on the size of the land. Sudan could face further financial penalties if Sudan’s use of the forest land is considered to have destroyed such land. CGMR is currently considering the appropriate remedial action to take to address this issue. In respect of each of the land use risks set out above, if any of the land used by XNS or Sudan is confiscated or a fine is imposed there is a risk that the carrying value for the Company’s investment in CGMR BVI may not be supported in full. 43
- 44. Sierra Leone: financial incentives In September 2009, the Government of Sierra Leone approved a proposed fiscal incentive package for the Company’s Marampa iron ore mine. The main features of the package are a reduction on all import and excise duties (including fuel, lubricants, capital expenditure and spare parts) for the duration of the mining lease and a reduction in the corporation tax rate and other operational taxes for the first 10 years of the project. The Company’s mining plans including terms such as the level of royalties to be paid to the Government of Sierra Leone together with the fiscal incentives package, are expected to be considered, approved and ratified by the Sierra Leone Parliament before the end of 2009. If the Sierra Leone Parliament does not approve the mining plans and the fiscal incentives package, the Board will have to re-evaluate the commercial viability of the Marampa project. A decision to delay or cancel the project could have a material adverse effect on the results of operations, financial condition and prospects of the Group. Additional financing Although as at 30 September 2009, the Group had consolidated Group cash of USD230 million (unaudited) and no borrowings. The exploration, development, mining and processing of the projects of the Group and its joint venture companies, will require significant additional external financing. In particular, it is the current intention of the Directors to seek third party funding for the development of the Wadi Sawawin project in Saudi Arabia, the Isua project in Greenland and the Phase 2 development in Sierra Leone. CGMR also intends to seek third party funding for the expansion in China (including the XNS Integration and the possible acquisition of Matang). Failure to obtain sufficient funding could result in the delay or indefinite postponement of exploration, development or production on any or all of the projects of the Group and its joint venture companies and the delay or indefinite postponement of the XNS Integration and the possible acquisition of Matang in China. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favourable. Failure to obtain additional financing on a timely basis, on acceptable terms or at all, could cause the Group and its joint venture companies to forfeit their interest in some or all of their iron ore and coal interests and could have a material adverse effect on the results of operations, financial condition and prospects of the Group. Banks and other providers of finance may impose additional operational requirements on the Group’s projects relating to, for example, environmental matters and health and safety. Complying with additional operational requirements may increase the costs of a project which could also adversely affect the Group’s financial performance. Bankable feasibility studies In order to seek third party funding for the development of the Wadi Sawawin project in Saudi Arabia, the Isua project in Greenland and the Phase 2 development in Sierra Leone, the Group expects to undertake Bankable Feasibility Studies. There can be no guarantee that the results of a Bankable Feasibility Study will support the commercial viability of a project or confirm the results of any pre-feasibility studies or management’s estimates of operating expenditure and capital expenditure. A Bankable Feasibility Study that concludes that a project is unviable could have a material adverse effect on the results of operations, financial condition and prospects of the Group. Joint ventures The Group has entered into a number of joint venture arrangements and the Company expects to continue to enter into further joint ventures in the future. Joint ventures necessarily involve special risks. The risks include the possibility that the Group’s joint venture partners may: (i) have economic or business interests or goals that are inconsistent with or opposed to those of the Group, (ii) exercise veto rights so as to block actions that the Group believes to be in its or the joint venture’s best interests, (iii) take action contrary to the Group’s policies or objectives with respect to its investments, or (iv) as a result of financial or other difficulties, be unable or unwilling to fulfil their obligations under the joint venture or other agreements. Any of the foregoing may have a material adverse effect on the results of operations run by the joint venture or may delay or result in the non-completion of the relevant development projects. In addition, the termination of joint ventures, if not replaced on similar terms, could have a material adverse effect on the results of operations, financial condition and prospects of the Group. 44
- 45. Operational dependence Some of the assets in which the Group has an interest are operated by other parties. Whilst the Company seeks to enter into appropriate operator agreements (for example, in China) and/or shareholders’ agreements, the Group has a reduced ability to exercise influence over the operation of the assets they do not operate or their associated costs, which could adversely affect the Group’s financial performance. South Africa On 8 August 2008, London Mining through its wholly owned subsidiary, Rannerdale, announced that it had agreed to take an initial 39.3% interest in DMC Coal, a Company in which DMC has a 30.35% interest, for USD16.5 million. Rannerdale also agreed to issue a USD18.5 million loan to DMC Energy, a subsidiary of DMC. DMC Energy’s obligation to repay this loan was secured by a limited recourse guarantee and a pledge and cession of shares from Mr. Heine van Niekerk’s family trust in relation to 28% of the issued share capital of DMC. On 28 August 2009, Rannerdale called for repayment of its loan to DMC Energy and exercised its rights under the guarantee and pledge which required Mr. Heine van Niekerk’s family trust to transfer to it 28% of the issued share capital of DMC. The Company is currently in discussions with DMC to convert the USD18.5 million loan and its USD16.5 million investment in DMC Coal into 28% of the issued share capital of DMC, on a fully diluted basis. There can be no guarantee that these discussions will be concluded and if they are not there may be a dispute over Rannerdale’s exercise of its rights under the guarantee and pledge. If the Company reaches a successful conclusion to its discussions with DMC and DMC agrees to register Rannerdale as the holder of 28% of the issued share capital of DMC, there can be no guarantee that the shareholders of DMC will enter into a shareholders’ agreement with the Company or, if they will, whether such terms will provide Rannerdale with suitable protections. If no shareholders’ agreement is entered into, the Company will not have any control over the business and operations of DMC, including the timing and amount of capital expenditure or the selection of technology and risk management practices or the right to appoint a director (other than those which it has under South African securities laws). Substantial shareholdings exemption With regard to the disposal of the Group’s Brazilian operations in 2008, the substantial shareholdings exemption (“SSE”) should apply to exempt this share disposal from UK corporation tax on chargeable gains. One of the requirements for SSE is that London Mining is a trading group for the purposes of these rules. To satisfy this test, it is important that the Group reinvests a substantial proportion of the proceeds into qualifying trading activities. Advance clearance was sought and received from HMRC in July 2008 which confirmed that the SSE would apply to the Brazilian disposal provided that the cash received would be returned to shareholders or spent on qualifying trading activities, with details of the Group’s planned investment programme submitted to HMRC at that time. Because of subsequent changes to this investment programme, an updated clearance was obtained from HMRC on 17 September 2009 which reflects the Group’s current plans. Whilst the rules do not contain specific provisions about when the proceeds should be reinvested by, the strategic investment programme presented to HMRC covers the period to 31 December 2010. Failure to reinvest the proceeds suitably may render the Company liable to UK corporation tax on chargeable gains on the disposal for its 2008 tax year. The Company’s liability to tax on the disposal would be in excess of USD200 million. Risks associated with the Board’s investment and acquisition strategy The Group’s ability to grow the business and create value for shareholders through its investment and acquisition strategy will depend on the availability of suitable investment opportunities, the Group’s ability to compete effectively for these investment opportunities, the availability of capital to complete such investment opportunities and the ability of the Group to integrate successfully any interests acquired. 45
- 46. These risks could be heightened if the Group completes several investments or acquisitions within a relatively short period of time. The benefits of an investment or acquisition may often take considerable time to develop, and the Group cannot guarantee that any investment or acquisition will in fact produce the intended benefits. Dependence on key personnel The success of the Group is dependent on its senior management. The Group does not have any key person insurance in effect for management. The contribution of the existing management team to the immediate and near term operations of the Group is likely to be of central importance and the experience of these individuals will be a factor contributing to the Group’s future success and growth. The loss of one or more of these individuals could have a material adverse effect on the Group’s business prospects. Labour and employment matters A significant proportion of the employees of the Group and its joint venture companies are employed outside of the UK (principally in Sierra Leone and China). While the Group and its joint venture companies have good relations with their employees and seek to comply with applicable local employment law, these relations may be impacted by changes in employment law which may be introduced by the relevant governmental authorities. Adverse changes in such legislation may have a material adverse effect on the results of operations, financial condition and prospects of the Group. Environmental regulation All phases of the activities of the Group and its joint venture companies are subject to environmental regulation in the various jurisdictions where they operate. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which may result in stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. The Group may require further approvals before it can undertake activities which may affect the environment. There may be existing or future unforeseen liabilities from the Group’s activities or the activities of previous owners or operators of the Group’s mining areas (in particular in China and Sierra Leone), where the mines were previously operational, which could potentially adversely affect the Group’s financial condition and/or the viability of the Group’s projects. There is no assurance that future changes in environmental regulation will not adversely affect the activities of the Group and/or its joint venture companies. Mine closure and rehabilitation plans There are currently no mine closure or rehabilitation plans for any of the Group’s principal projects, nor has any financial provision for closure been made. The Company (with its relevant joint venture partners) intends to develop mine closure and rehabilitation plans for each of its principal projects. There is a risk that if the financial provision for closure is greater than the Directors currently envisage it could impact on the commercial viability of a project which could, in turn, have a material adverse effect on the results of operations, financial condition and prospects of the Group. Foreign operations The Group currently has interests in exploration, development and operating projects in Sierra Leone, Saudi Arabia, Greenland and China, with other investments in South Africa, Colombia, Chile and Mexico. It is also looking at opportunities to expand its activities in other developing countries in the future. Therefore the activities of the Group and its joint venture companies are exposed to varying degrees of political and economic risk and other risks and uncertainties. These risks and uncertainties vary from country to country and include, but are not limited to: hyperinflation; labour unrest; risk of war or civil unrest; expropriation and nationalisation; renegotiation 46
- 47. or nullification of existing concessions, licences, permits and contracts; illegal mining; changes in taxation policies; restrictions on foreign exchange and repatriation; terrorist activities; extreme fluctuations in currency exchange rates; and changing political conditions, currency controls and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Currency risk The Company’s functional currency is US dollars (“USD”). Although the Group’s primary operations and cash flows from iron ore sales are typically denominated in USD, the Group has certain costs that are not denominated in USD. These include head office salaries that are denominated in Pounds Sterling (“GBP”) and project and development costs in Australian dollars (“AUD”), Chinese Renminbi (“RMB”), Sierra Leone Leones (“SLL”), Norwegian Krone (“NOK”), Danish Krone (“DKK”), South African Rand (“ZAR”), Colombian Peso (“COP”) and Saudi Arabian Riyal (“SAR”). The Group may undertake hedging activities against these potential fluctuations, however, there are no assurances that hedging strategies, if implemented, would be successful. Exchange rate fluctuations Fluctuations in exchange rates can have an impact on the Group’s financial results in the event that the GBP, AUD, RMB, SLL, NOK, DKK, ZAR, COP and SAR (and any other currency in which the Group’s costs and those of its joint venture companies are incurred in the future) appreciate significantly against the USD. Significant strengthening of these currencies against the USD could increase both capital and operating costs, although where sales prices are denominated in local currency, there may be a mitigating increase in revenue. Repatriation of earnings and withholding tax With the exception of China and Sierra Leone where foreign exchange controls do apply, currently there are no limits on the levels of repatriation of earnings or capital to foreign entities in any of the jurisdictions in which the Group currently operates. However, there can be no assurance that any such limits on repatriation of earnings or capital from such countries or any other country where the Company may invest will not be imposed in the future. China and Sierra Leone maintain foreign exchange controls that require approvals from regulatory bodies before earnings can be repatriated. If the Group is not able to get the necessary amounts, or is otherwise unable to repatriate earnings from those countries, such foreign exchange controls could have a material adverse effect on the results of operations, financial conditions and prospects of the Group. Some of the jurisdictions in which the Group and its joint venture companies operate impose withholding taxes on dividends with the effect that a specified proportion of any gross dividend paid by a subsidiary or joint venture company must be deducted and accounted for to the local tax authority. Where this occurs, the Company will receive a correspondingly reduced amount of cash by way of dividend. Any changes to the current rules relating to withholding tax in any relevant jurisdiction could have a material adverse effect on the results of operations, financial condition and prospects of the Group. B RISKS RELATED TO EXPLORATION AND PRODUCTION OF IRON ORE AND COAL Operational hazards and insurance Substantial operational hazards are involved in the exploration and operation of iron ore and coal mines including explosions, fire, pollution, landslides, flooding, snow falls, avalanches, seepage or leaks, earthquake activity, unusual or unexpected geological conditions, adverse environmental conditions, industrial accidents, labour disputes, and other hazards which may delay or ultimately prevent, the exploitation of such fields or may result in cost overruns or substantial losses or other extensive liabilities to the Group due to substantial environmental pollution or damage, personal injury or loss of life, clean-up responsibilities, regulatory investigation and penalties or suspension of operations. Such hazards can also severely damage or destroy equipment, surrounding areas or property of third parties. 47
- 48. Although the Group maintains such insurance as it considers reasonable to protect against these risks in such amounts as it considers reasonable and seeks to ensure that its sub-contractors, operators and joint venture companies do likewise, such insurance will not cover all the potential risks associated with a mining company’s operations and may not be adequate to cover any particular liability. Insurance against risks such as environmental pollution or other hazards as a result of exploration, development and operating activities is not generally available to companies in the industry on acceptable terms. Losses arising from events that are not insured or are not adequately insured may cause the Group or its joint venture companies to incur significant costs that could have a material adverse effect upon their financial performance and results of operations. Commercial viability Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; commodity prices which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, and the combination of these factors could result in the Group not receiving an adequate return on invested capital. There is no certainty that the expenditures made by the Group and its joint venture companies in their search for and evaluation of mineral deposits will result in discoveries of commercially viable quantities of iron ore and coal. Additional ore/mineral reserves Because mines have limited lives based on proven and probable ore/mineral reserves, the Group and its joint venture companies must continually replace and expand their ore/mineral reserves in order for a mine to continue production. The life-of-mine estimates for the anticipated operations of the Group and its joint venture companies may not be correct, and ultimately, the ability to maintain or increase anticipated annual production will be dependent on the ability of the Group and its joint venture companies to bring new mines into production and/or to expand ore/mineral reserves at their then existing mines and to find new projects into which to invest. Competition The mining industry is highly competitive in all of its phases. The Group and its joint venture companies face strong competition from other mining and exploration companies in connection with the acquisition and exploration of properties capable of profitably producing the commodities they seek. Many of these companies have greater resources than the Group and, as a result, the Group and its joint venture companies may be unable to acquire or maintain attractive properties on terms they consider acceptable, in which case their exploration activities, development activities and financial condition could be adversely affected. Logistics Bulk commodities, such as iron ore and coal, need to be transported to the end consumer. To do this, logistics solutions are required, such as road, rail and port facilities which may require governmental and third party consents. While the Company is highly focussed on logistics solutions, if an iron ore or coal mining operation cannot obtain an economically viable logistics solution or the necessary consents to implement such a solution, it will not be possible to sell its product to a suitable end consumer which could have a material adverse effect on the Group’s operations and financial performance. Commodity prices Both iron ore and coal prices are unstable and are subject to significant fluctuation. The factors giving rise to these fluctuations are generally out of the control of the Group and its joint venture companies, being largely driven by external global economic factors. Fluctuations in iron ore and coal and, in particular, a material decline in the price of iron ore and coal could render the exploration, development and mining activities of the Group and its joint venture companies economically unfeasible until such 48
- 49. time as the price recovers. These declines could result in a re-calculation of life-of-mine plans, reserve calculations and the viability of the Group’s projects which could have a material adverse effect on the Group’s business, financial condition, ability to pay dividends and results of operations. The performance of an iron ore and coal exploration and production company’s share price may, but will not necessarily, exhibit a correlation with the price of oil and gas. Any material decline in prices could result in a reduction in the Group’s net production revenue. The market perception of junior resource companies is volatile and this will impact on the value of investors’ holdings and the Group’s ability to raise further funds. Increasing commodity prices may lead to an increase in competition and high demand for capital equipment and labour. Government regulation The exploration, development and operating activities of the Group and its joint venture companies are subject to various laws governing exploration, development, mining, processing, taxes, labour standards and occupational health and safety, toxic substances, transportation, land use, water use, land claims of local people and other matters. No assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner which could limit or curtail production or development. Amendments to current laws and regulations governing exploration, development and operating activities or more stringent implementation thereof could have a material adverse effect on the results of operations, financial condition and prospects of the Group. Government approvals and permits are required in connection with the activities of the Group and its joint venture companies. To the extent approvals and permits are required and not obtained, the Group or its joint venture companies may be curtailed or prohibited from proceeding with planned exploration, development or operation of mineral properties. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities, pursuant to which the Group or its joint venture companies may be required to cease or curtail its operations or take corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties, such as the Group and/or its joint venture companies, engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of their exploration and development activities and may be subjected to civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments to current laws, regulations and permits governing operations and activities of mining and exploration companies, or more stringent implementation thereof, could have a material adverse effect on the Group and/or its joint venture companies and cause increases in exploration expenses or require abandonment of, or delays in, the exploration and development of new mining properties. C GENERAL RISKS Investment in AIM-listed securities Investment in shares traded on AIM is perceived to involve a higher degree of risk and be less liquid than investment in companies whose shares are listed on the Official List. An investment in the Ordinary Shares may be difficult to realise. Prospective investors should be aware that the value of an investment in the Company may go down as well as up and that the market price of the Ordinary Shares may not reflect the underlying value of the Company. Investors may therefore realise less than, or lose all of, their investment. Share price volatility and liquidity The share price of quoted companies can be highly volatile and shareholdings illiquid. The price at which the Ordinary Shares are quoted and the price which investors may realise for their Ordinary Shares will be influenced by a large number of factors, some of which are specific to the Company and 49
- 50. its operations and some of which may affect quoted companies generally. These factors could include the performance of the Company, large purchases or sales of the Ordinary Shares, legislative changes and general economic, political or regulatory conditions. Dividends Dividend growth in the Ordinary Shares will rely on underlying growth in the Group’s businesses and those of its joint venture companies and, in particular, the dividend policy mentioned in section 11 of Part 1 of this document should not be construed as a dividend forecast. Any change in the tax treatment of dividends or interest received by the Company may reduce the level of yield received by shareholders. The market value of the Ordinary Shares can fluctuate and may not always reflect their underlying asset value. There can be no guarantee that the Company’s objectives will be achieved. Future sales of shares The Company is unable to predict when and if substantial numbers of Ordinary Shares will be sold in the open market following Admission. Any such sales, or the perception that such sales might occur, could result in a material adverse effect on the market price of the Ordinary Shares. Taxation Any change in the Company’s tax status or in taxation legislation could affect the Company’s ability to provide returns to shareholders. Statements in this document concerning the taxation of investors in Ordinary Shares are based on current tax law and practice which is subject to change. The taxation of an investment in the Company depends on the individual circumstances of investors. General economic climate Factors such as inflation, currency fluctuation, interest rates, supply and demand of capital and industrial disruption have an impact on business costs and commodity prices and stock market prices. The Group’s operations, business and profitability (and those of its joint venture interests) can be affected by these factors, which are beyond the control of the Group. 50
- 51. PART 3 COMPETENT PERSON’S REPORT PREPARED BY WARDELL ARMSTRONG INTERNATIONAL LIMITED 3 November 2009 The Directors London Mining plc 39 Sloane Street London SW1X 9LP The Directors Liberum Capital Limited CityPoint, 10th Floor One Ropemaker Street London EC2Y 9HT The Directors GMP Securities Europe LLP 4 Albemarle Street London W1S 4GA Dear Sirs London Mining plc – Competent Person’s Report Background London Mining plc (“LM”), Liberum Capital Limited (“Liberum”) and GMP Securities Europe LLP (“GMP”) commissioned Wardell Armstrong International Ltd (“WAI”) to prepare a Competent Person’s Report (“CPR”) for inclusion in the “Admission Document” dated 3 November 2009 in connection with the proposed admission of the ordinary shares of LM to trading on the AIM market of the London Stock Exchange plc (“AIM”). WAI hereby consent to the inclusion of this letter and the CPR in the Admission Document, with the inclusion of its name, in the form and context in which it appears in the Admission Document, to be published in connection with LM’s AIM application. In compliance with Schedule 2 of the AIM Rules, WAI are responsible for this letter and the CPR as part of the Admission Document and declare that we have taken all reasonable care to ensure that the information contained in this letter and the CPR is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. The principal current assets in which LM is interested comprise a working iron ore mine in China and important iron ore projects in Saudi Arabia, Sierra Leone and Greenland at various stages of exploration and development, all of which are discussed in detail in the CPR. WAI considers that the relevant areas have sufficient technical merit to justify proposed programmes and associated expenditures. The Admission Document contains an appropriate summary of each of the assets, and WAI is satisfied with the integrity of the information contained in the Admission Document based on the limited validation work performed by WAI, but more importantly, reliance on the legal due diligence performed by the Group’s respective lawyers in the projects geographical locations. 51
- 52. WAI has not been requested to provide an Independent Valuation nor has it been asked to comment on the Fairness and Reasonableness of any vendor or promoter considerations. Requirement and Structure of the CPR WAI has prepared the CPR in accordance with the rules as defined within the “AIM Note For Mining And Oil & Gas Companies – June 2009” as prepared by the London Stock Exchange. WAI has reviewed the resources and reserves as presented by LM and shown in the CPR, and as far as possible, has compared them with the 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”). The CPR has been structured on a technical discipline basis into sections on Geology, Mineral Resources and Ore Reserves, Mining Engineering, Mineral Processing, Infrastructure, Occupational Health and Safety, Environmental Management, and a Financial Assessment for each of the Mineral Assets. Site visits were made by WAI to the various assets including: • Sierra Leone visited by O Mihalop, C Osmond and KM Clothier from 26 to 29 July 2009; • Saudi Arabia visited by M Owen and L Meyer from 2 to 5 August 2009; • Greenland visited by L Carroll from 25 to 30 July 2009; and • China visited by O Mihalop, L Carroll, P King and J Eyre from 10 to 14 of August 2009. Verification, Validation and Reliance The CPR is dependent upon technical, financial and legal input. The technical information as provided by LM to, and taken in good faith by, WAI has not been independently verified by means of re-calculation, but all reserve and resource estimates have been substantiated by evidence from WAI’s site visits and observations, are supported by details of exploration results, analyses and other evidence and take account of all relevant information supplied by LM. WAI has however conducted a review and assessment of all material technical issues likely to influence the future performance of the Mineral Assets, which included the following: • Inspection visits to the mining operations, processing facilities, surface structures and associated infrastructure, undertaken in July and August 2009, with: • discussion and enquiry following access to key on-site and corporate personnel; • an examination of historical information and results made available by LM in respect of the Mining; • a review of the LM’s resource estimates; • a review of the LM’s production forecasts and costs; • Undertaken all necessary investigations to ensure compliance with the AIM Rules and the JORC Code (where appropriate) in terms of the level of disclosure. Several resource estimates in the CPR have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. No assurance can be given that any resources which LM may report to an internationally recognised standard in the future will be in line with these estimates or that the tonnages and grades referred to will be achieved. Investors should therefore place no reliance on these estimates. WAI has placed reliance on LM that the following information provided by LM to WAI is both valid and accurate for the purpose of compiling the CPR: • All technical information; • That the legal ownership of all mineral and surface rights has been verified and save as disclosed in the CPR that no significant legal issues exists which would affect the likely viability of a project and/ or the Mineral Resources and Ore Reserves as reported herein. 52
- 53. Limitations, Declarations, Consent and Copyright Limitations LM has confirmed to WAI that to its knowledge the information provided by LM was true, accurate and complete and not incorrect, misleading or irrelevant in any aspect. WAI has no reason to believe that any facts have been withheld. The achievability of production forecasts and costs are neither warranted nor guaranteed by WAI. The forecasts as presented and discussed herein have been proposed by LM management and adjusted where appropriate by WAI, and cannot be assured. They are necessarily based on economic assumptions, many of which are beyond the control of LM. Resource Estimates Unless stated otherwise, resource estimates contained in the CPR have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. No assurance can be given that any resources which the Company may report to an internationally recognised standard in the future will be in line with these estimates or that the tonnages and grades referred to will be achieved. Investors should therefore place no reliance on these estimates. Declarations WAI will receive a fee for the preparation of the CPR in accordance with normal professional consulting practice. This fee is not contingent on the outcome of the listing or value of LM and WAI will receive no other benefit. WAI does not have, at the date of this letter, and has not had within the previous two years, any shareholding in or other relationship with LM or the principal current assets in which LM is interested which comprise of a working iron ore mine in China and important iron ore projects in Saudi Arabia, Sierra Leone and Greenland and consequently considers itself to be independent of LM. In the CPR, WAI provides assurances to the Directors of LM that certain Technical and Economic data including production profiles, operating expenditures and capital expenditures, of the Mineral Assets as provided to WAI by LM and reviewed and where appropriate modified by WAI are reasonable, given the information currently available. The CPR includes technical information, which requires subsequent calculations to derive subtotals, totals and weighted averages. Such calculations may involve a degree of rounding and consequently introduce an error. Where such errors occur; WAI does not consider these to be material. Furthermore, WAI is responsible for this letter and the CPR as part of the Admission Document and declares that it has taken all reasonable care to ensure that the information contained in this letter and the CPR is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. Consent and Copyright WAI consents to the issuing of this letter and the CPR in the form and content in which it is to be included in the Admission Document. Neither the whole nor any part of this letter and the CPR nor any reference thereto may be included in any other document without the prior written consent of WAI regarding the form and context in which it appears. Copyright of all text and other matter in this letter and the CPR, including the manner of presentation, is the exclusive property of WAI. It is an offence to publish this document or any part of the document under a different cover, or to reproduce and or use, without written consent, any technical procedure and or technique contained in this letter and the CPR. The intellectual property reflected in the contents resides with WAI and shall not be used for any activity that does not involve WAI, without the written consent of WAI. 53
- 54. Responsibility for the Competent Person’s Report and No Material Change WAI accepts responsibility for the CPR for the purposes of a competent person’s report under the AIM Guidance Note. The Competent Person’s Report is complete up to and including 11 October 2009. Having taken all reasonable care to ensure that such is the case, WAI confirms that, to the best of its knowledge, the information contained in the Competent Person’s Report is in accordance with the facts, contains no omission likely to affect its import, and no material change has occurred from 11 October 2009 to the date hereof that would require any amendment to the Competent Person’s Report. Qualification of Consultants WAI comprises over 50 staff, offering expertise in a wide range of resource and engineering disciplines. WAI’s independence is ensured by the fact that it holds no equity in any project. This permits WAI to provide its clients with conflict-free and objective recommendations on crucial judgment issues. WAI has a demonstrated track record in undertaking independent assessments of resources and reserves, project evaluations and audits, MER’s and CPR’s, and independent feasibility evaluations to bankable standards on behalf of exploration and mining companies and financial institutions worldwide. The CPR has been prepared based on a technical and economic review by a team of consultants sourced from the WAI offices in Europe over a 3 month period. These consultants are specialists in the fields of geology, resource and reserve estimation and classification, open pit mining, rock engineering, iron ore processing, hydrogeology and hydrology, tailings management, infrastructure, environmental management and mineral economics. The individuals listed below have provided input to the CPR and have extensive experience in the mining industry and are members in good standing of appropriate professional institutions: • Phil Newall, MCSM, BSc, PhD , CEng, FIMMM, is Director of Minerals and Geologist with WAI and has practised his profession as a mine and exploration geologist for over 25 years for both base and precious metals; • Mark Owen, MCSM, BSc, MSc, CGeol, EurGeol, FGS, is a Technical Director and Geologist with WAI and has over 25 years international experience as a mine and exploration geologist in both surface and underground mining operations; • Che Osmond, MCSM, BSc, MSc, ProfGradIMMM, CGeol, FGS, is a Principal Geologist with WAI with over 15 years experience of implementation and management of geological, geotechnical, environmental and civil engineering contracts; • Liv Carroll, ARSM, BSc, MSc, DIC, MIMMM, FGS, MSEG, is a Senior Geologist with WA, and has nearly 10 years experience as an exploration geologist working predominantly in Africa, but recently involved in a large technical due diligence for a multi-client in Kazakhstan; • Owen Mihalop, MCSM, BSc, MSc, CEng, MIMMM, is a Technical Director and Mining Engineer with WAI and has over 15 years broad based experience in the mining and quarrying industries; • Lewis Meyer, ACSM, MCSM, BEng, MSc, PhD, CEng, FIMMM, is a Principal Mining Engineer with WAI, and has nearly 20 years experience in mining, underground civil construction and rock mechanics of surface and underground mining operations; • Phil King, ARSM, BSc, FIMMM is a Technical Director and Metallurgist with WAI and has over 25 years experience within the minerals industry in both process testwork and design for metallic and industrial minerals worldwide; • John Eyre, FRICS, MIMMM, MRIN, MIQ, CEnv, is a Technical Director and Environmental Scientist with WAI, and has over 30 years experience in the international minerals industry as, variously, mineral surveyor, minerals and environmental manager, lecturer, consultant and mineral agent in over 30 countries throughout the world; and • Kim-Marie Clothier, BSc, MRes, AIEEM, Grad IMMM, MIEMA, is Senior Environmental Scientist with WAI, and has over 10 years experience, mainly dealing with Environmental and Social Impact Assessments on mining projects overseas. 54
- 55. The CP who has supervised the production of the CPR is Dr Phil Newall who is Director of Minerals with WAI and a Geologist with over 25 years experience in the mining industry. Yours faithfully for and on behalf of Wardell Armstrong International Ltd P Newall Director of Minerals 55
- 56. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc TABLE OF CONTENTS EXECUTIVE SUMMARY 60 SIERRA LEONE 60 SAUDI ARABIA 61 GREENLAND 62 CHINA 63 1.0 INTRODUCTION 65 1.1 Background 65 1.2 London Mining – Overview 65 2.0 OVERVIEW OF THE REGIONS, LOCATIONS AND ASSETS 66 2.1 Introduction 66 2.2 Sierra Leone 66 2.3 Saudi Arabia 66 2.4 Greenland 67 2.5 China 67 3.0 SIERRA LEONE 69 3.1 Introduction 69 3.2 Property Description and Location 69 3.3 Accessibility, Physiography, Climate, Local Resources and Infrastructure 73 3.4 History 73 3.5 Geology and Mineralisation 74 3.6 Exploration 81 3.7 Mineral Resources 82 3.8 Mining 88 3.9 Mineral Processing and Metallurgical Testing 90 3.10 Transport and Infrastructure 94 3.11 Environment, Health, Safety and Community Issues (EHSC) 98 3.12 Capital and Operating Costs 102 3.13 Conclusions and Recommendations 103 4.0 SAUDI ARABIA 105 4.1 Introduction 105 4.2 Property Description and Location 105 4.3 Accessibility, Physiography, Climate, Local Resources and Infrastructure 106 4.4 History 107 4.5 Geology and Mineralisation 108 4.6 Mineral Resources 113 4.7 Mining 116 4.8 Mineral Processing and Metallurgical Testing 117 4.9 Environment, Health, Safety and Community Issues 123 4.10 Capital and Operating Cost Estimates 126 4.11 Conclusions and Recommendations 129 56
- 57. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 5.0 GREENLAND 130 5.1 Introduction 130 5.2 Location 131 5.3 Licence 131 5.4 Accessibility, Physiography, Climate, Local Resources and Infrastructure 132 5.5 History 133 5.6 Geology and Mineralisation 135 5.7 Exploration 136 5.8 Mineral Resources 138 5.9 Mining 140 5.10 Mineral Processing and Metallurgical Testwork 140 5.11 Transport and Infrastructure 142 5.12 Environmental, Health, Safety and Community Issues 142 5.13 Conclusions and Recommendations 143 6.0 CHINA 144 6.1 Introduction 144 6.2 Property Description and Location 145 6.3 Licence 145 6.4 Accessibility, Physiography, Climate, Local Resources and Infrastructure 146 6.5 History 147 6.6 Geology and Mineralisation 147 6.7 Exploration 149 6.8 Historical Mineral Resources 150 6.9 Mining 151 6.10 Mineral Processing and Metallurgical Testing 156 6.11 Transport and Infrastructure 164 6.12 Environment, Health, Safety and Community Issues 164 6.13 Conclusions and Recommendations 166 DEFINITIONS AND GLOSSARY OF TERMS 168 LIST OF TABLES Table 2.1: Summary Table of Assets 68 Table 2.2: Summary of Mineral Resources 68 Table 3.1: Beacon Co-ordinates of the Marampa Licence 71 Table 3.2: Sierra Leone Rainfall and Temperature 73 Table 3.3: Marampa Tailings Resource (Austromineral 1981)1 84 Table 3.4: Tailings Resource Division (above & below water table) (Austromineral 1981)1 85 Table 3.5: Marampa Tailings Samples (Sofremines 1988) 85 Table 3.6: Summary of Hollow Stem Auger Holes (2007-08) 86 Table 3.7: Marampa Mineable Primary Resource (Gouldson 1985)1 87 Table 3.8: Additional Primary Resource (LKAB 1978)1 87 Table 3.9: Marampa Tailings Proposed Mining Schedule 89 Table 3.10: 2009 Bulk Sample Mineralogy 92 Table 3.11: 2009 Bulk Sample Chemical Analysis 92 Table 3.12: Magnetic Pre-Concentrate Bench Test Results 93 Table 3.13: Combined Sample Magnetic Pre-Concentrate Test Results 93 Table 3.14: Two Stage Magnetic Separation Bench Scale Results 93 57
- 58. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Table 3.15: Two Stage Magnetic Separation Pilot Scale Results (<1.0mm Material) 93 Table 3.16: Two Stage Magnetic Separation Pilot Scale Results (<0.3mm Material) 94 Table 3.17: Marampa Tailings Project Estimated Operating Costs 102 Table 3.18: Marampa Tailings Project Capital Expenditure 103 Table 4.1: Life Of Mine (LOM) Tonnage and Grade 117 Table 4.2: Snowden Preliminary Mine Operating Cost Estimate 127 Table 4.3: Ausenco Base Case Operating Cost Estimate 128 Table 4.4: Ausenco Base Case Capital Costs 128 Table 5.1: Co-ordinates of the Licence Block 132 Table 5.2: Summary of Greenland Assets 132 Table 5.3: Average Temperatures in Southern Greenland during the Summer Months 132 Table 5.4: Weighted Average Grade of all Samples (IMC) 133 Table 5.5: Drill Hole BIF Intersections and Assay Results (Marcona Corporation 1971) 134 Table 5.6: Summary of Studies and Exploration 134 Table 5.7: Global Resource to 600m depth (IMC 2006) 138 Table 5.8: Global Resource by Fe Cut-Off Grade (Snowden 2009) 139 Table 5.9: LOM Tonnage and Grade of the Snowden Conceptual Pit 140 Table 6.1: Xiaonanshan Iron Ore Body Characteristics (SRK) 2008 148 Table 6.2: Matang Ore Body Data 149 Table 6.3: Xiaonanshan Mine Equipment Fleet 153 Table 6.4: Mine and Plant Production Data (tonnes) 163 LIST OF FIGURES Figure 2.1: Location of London Mining Projects 66 Figure 3.1: Republic of Sierra Leone Location 70 Figure 3.2: Marampa Mining Licence Boundary 72 Figure 3.3: Approximate Location of the Marampa Project 76 Figure 3.4: Location of the Ore Zones at Masaboin and Ghafal Hills 77 Figure 3.5: Outline of Ore Zones at Masaboin Hill (LM) 78 Figure 3.6: Profiles through Masaboin Hill Displaying the Folded Zones (LM) 79 Figure 3.7: Outline of Ore Zones at Ghafal Hill (LM) 80 Figure 3.8: Plan of Marampa Tailings (LM) 83 Figure 3.9: Location of Tawfayim Barge Loading Facilities on Port Loko Creek 95 Figure 3.10: Water Balance during Hydraulic Mining Operations 97 Figure 4.1: Wadi Sawawin Deposits and Licence Areas 106 Figure 4.2: Wadi Sawawin Western Group Deposits 109 Figure 4.3: Regional Geology 110 Figure 4.4: Typical Section of Wadi Sawawin (British Steel) 113 Figure 4.5: Wadi Sawawin Iron Ore Deposits 114 Figure 4.6: Location of Drillholes (Deposits N1-N2 = Numbers 1-5) 115 Figure 4.7: 3D Interpretation of Main Jaspilite Unit 115 Figure 4.8: Interpretation of 3D Block Model 116 Figure 4.9: Location of the Main Project Infrastructure 122 Figure 4.10: Proposed Site Layout for the Coastal Beneficiation and Pellet Plant 122 Figure 5.1: Map of Greenland Showing Project Location 131 Figure 5.2: View of Isua Outcrop 135 58
- 59. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Figure 5.3: Borehole Collar Locations 137 Figure 5.4: Grade-Tonnage Curve 139 Figure 5.5: Aerial View of Proposed Location of the Port 142 Figure 6.1: Location of Xiaonanshan Mine 145 Figure 6.2: Approximate Outline of Xiaonanshan Licence Area 146 Figure 6.3: Xiaonanshan Mine-Illustrating Poor Slopes and Benching (August 2009) 152 Figure 6.4: Loading and Hauling at Adjacent SBQ Property 154 Figure 6.5: Xiaonanshan Dry Plant 157 Figure 6.6: Xiaonanshan Dry Plant Flowsheet 158 Figure 6.7: Sudan Plant Secondary Milling and Magnetic Drum Separators 160 Figure 6.8: Sudan Plant Flowsheets 161 Figure 6.9: Production Data April – July 2009 163 59
- 60. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc EXECUTIVE SUMMARY Wardell Armstrong International (‘WAI’) was commissioned by London Mining Plc (‘LM’) for the preparation of a Competent Person’s Report (CPR) of the iron ore assets for the purposes of fulfilling the requirements of the AIM Rules and AIM Notes for Mining and Oil and Gas Companies (June 2009) for a proposed admission of ordinary shares of LM to trading on AIM, a market operated by the London Stock Exchange plc (‘AIM’). London Mining Plc was formed in 2005 with an objective to develop mines for the global steel industry. The initial acquisition of the Isua project (Greenland) was closely followed in 2006 by the acquisition of the former operating iron mine at Marampa, Sierra Leone. In 2007 LM purchased an operating iron ore mine in Brazil that was sold to ArcelorMittal in 2008 yielding a US$664M profit after 16 months of ownership and continued development. During 2008 LM also established a Saudi Arabian joint venture to develop the Wadi Sawawin project that was followed up in 2009 by entry into another joint venture to form China Global Mining Resources to acquire the Xiaonanshan iron ore project in the Anhui Province of China. SIERRA LEONE In 2006, LM acquired a 100% interest in the formerly producing Marampa Iron Ore Project located close to the town of Lunsar in the Port Loko district of Sierra Leone. Governmental approvals are being sought to begin refurbishment of the mine and infrastructure prior to installing a proposed 1.5Mtpa concentration plant. Initial production will focus on re-processing the tailings but medium term initiatives include an additional 1.5Mtpa concentration plant and recommencement of primary open pit mining, subject to further drilling and feasibility studies. Due to the majority of historic data being destroyed in the civil war, drilling is required to confirm previous unclassified resource estimates and enable a robust and approved resource estimate to be generated to international standards. Exploration and geological investigations by LM initially focused on the re-evaluation of the tailings deposits with the completion of a 240 hole auger drilling programme. The preparation of a resource estimate to international standards is underway. Investigation of the primary deposit has also now commenced with diamond core drilling at Ghafal Hill forming part of a 54 hole programme. Historical records report the deposit contains some 84Mt of primary ore resources at 37% Iron (Fe) as well as a further 48Mt of tailings at 28% Fe that may be suitable for re-processing. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. LM commissioned a preliminary feasibility study from local mining consultants CEMMATS Group Ltd, for the mining and processing of tailings from Marampa. LM has produced a process flowsheet based upon bench and pilot scale testwork which recommends a two-stage wet high intensity magnetic separation (WHIMS) process. The initial mining of the tailings deposits is likely to utilise dry mining techniques employing diesel- hydraulic excavators and dump trucks. Near the water table, as dry mining becomes impractical, hydraulic methods are proposed employing a high pressure water hose (or monitor) to break up the tailings and form a slurry that can be pumped directly to the processing plant through a network of pipes. There is currently no definitive operating plan for the mining of primary ore as production is not envisaged to commence until 2013 at the earliest. However, it is likely that standard open pit drill and blast techniques will be employed for both ore and waste mining, along with a contractor owned and operated fleet of diesel-hydraulic excavators and mining trucks to transport ore to the primary crusher and waste to the tip. 60
- 61. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Previous processing campaigns in the primary ore were largely inefficient due to the “plate or flake-like” shape of the hematite grains. Gravity circuits were unable to successfully separate the Fe minerals from the predominantly micaceous gangue minerals (which also have a plate like structure), resulting in relatively high Fe grade tailings deposits. Current proposals are to utilise a two-stage WHIMS process with both rougher and cleaner stages with the aim of producing +66% Fe concentrate. During the previous period of operations up to 1985, the concentrate product was transported via an 84km railway to a dedicated ship loading facility at Pepel. These facilities are no longer serviceable and require complete reconstruction. LM is currently constructing an 18km graded road, which together with existing public roads will form a 40km route to a proposed new barge loading facility located at Tawfayim, situated on Port Loko Creek. The project will be required to comply with National Legislation. Since the mine site is already a disturbed area there are potential environmental liabilities already present relating to historic operations, which LM needs to separate from its own liability, caused as a result of the proposed operations. Equally, due to the early stage of the proposed operations, LM has yet to establish mechanisms for environmental management, although an Environmental and Social Impact Assessment and a Feasibility Study Report were produced by CEMMATS, in May. The ESIA includes some principles for mine closure but no formal Mine Closure and Rehabilitation plan or financial provision for closure is currently in place. SAUDI ARABIA LM has a 50/50 joint venture to develop the Wadi Sawawin iron ore deposits in Saudi Arabia. LM’s joint-venture partner in the Wadi Sawawin deposits is the Saudi Arabian-based National Mining Company (‘National Mining’). LM and National Mining have created a joint venture named Saudi London Iron Limited (‘SLI’) to develop the deposits. These exploration licences, together with an exploitation licence are held by National Mining. The above licences are in the process of being transferred from National Mining to SLI. The Wadi Sawawin deposits are located in the northwest of Saudi Arabia, approximately 60km from the Red Sea port of Duba. They were discovered in 1953 and are between 600masl and 1,100masl in mountainous country. The average grade of the deposits is approximately 41% Fe, with the ore containing an average of 30% silica. The ore is fine grained and suitable for direct reduced iron (‘DRI’) production after further beneficiation using the conventional mineral processing and pelletizing steps. Various organisations surveyed the deposits and conducted metallurgical testing between 1953 and 1975 on behalf of the Saudi Directorate General for Mineral Resources (the ‘DGMR’). In 1975, the DGMR appointed the British Steel Corporation (Overseas Services) Limited (‘British Steel’) to investigate the deposits. British Steel investigated a 2Mtpa project but this was found to be uneconomic at market prices of the day. Following the creation of SLI in early 2008, LM initiated a desk-top study to re-estimate the mineral resource and capital and operating costs, review the mining plan, conduct further pilot plant testwork, and to undertake marketing and logistics studies. The study was based on the production of 5Mtpa of pellet feed concentrate, with consideration for the future expansion of the facilities to 10Mtpa. The positive outcome of this study has lead LM to progress to commissioning further work towards the development of a bankable feasibility study. Snowden Consultants has estimated a preliminary unclassified resource for the Western Group deposits of 230Mt at an average grade of approximately 41% Fe and 30% SiO2 at a cut-off grade of 30% Fe. This unclassified resource is based on historic data. Further drilling, QA/QC work and metallurgical testing are ongoing to upgrade this historic resource to comply with the guidelines of the JORC Code 61
- 62. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc (2004), which is to be completed in November 2009. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. WAI believes there is significant potential to increase the resource, subject to positive results, through further infill drilling of the deposit and extension to the project within neighbouring licence areas. LM has identified a growing local Middle East market for DR pellets, via a report commissioned from CRU Strategies (CRU). In their Market Study for the Wadi Sawawin Project (2009), CRU expects DRI production in the Middle East to increase in the longer term. SLI expects to be selling into a growing market with a 2013-2019 growth prediction of 5.6%. Due to a current lack of information currently available, it has not been possible to assess whether LM is currently in compliance with National or International Environmental and Social regulatory requirements, although LM states that there is an experienced team in place who are aware of these requirements, and that these will be adhered to at all project stages. Given the potential for historic contamination, and thus potential environmental liability at the historical plant site located at the coast, it will be important to collect adequate baseline information to ensure that the site is accurately characterised. An EHSIA is being undertaken by Worley Parsons, which will ensure that management and mitigation measures are adequate to protect the local environment, and is intended to satisfy both national and international requirements. There is currently no Mine Closure and Rehabilitation Plan, or financial provision for closure in place, however LM states that this will be developed when more information on the extent of the deposit is available. GREENLAND The Isua iron ore deposit is located approximately 155km south of the Arctic Circle, approximately 150km northeast of Nuuk and 200km south of Kangerlussuaq international airport. The property is situated on the south western edge of the inland ice cap with varying elevations of between 800masl and 1,150masl. The Isua property is situated within the Isua Greenstone Belt (IGB) dated at approximately 3.8Ga. The IGB is approximately 40km in length and up to 4km in width, forming an arcuate outcrop. The greenstones are several kilometres long by several hundred metres wide and comprise large ultramafic bodies with subordinate mafic volcanic rocks and banded iron formation (BIF) deposits. The Isua deposit comprises a magnetite-rich banded iron formation, intruded by basaltic and dolerite dykes and sills, with a greenstone schist footwall and a quartzite hanging wall. LM holds the exploration licence No. 2009/16 at Isukasia covering the Isua property, an area of 26km2; the licence is effective to 31 December 2013. During 2005, International Mining Consultants Limited (IMC) produced an outline resource estimation, which they then amended in 2006. The resource estimation was based on a review of all data held by LM, the Geological Survey of Denmark and Greenland (GEUS), the Copenhagen Geological Museum and examination of historical core where available. In June 2009, Snowden Consultants (Snowden) produced an updated resource estimate of 507Mt at 35% Fe(Sol) to a depth of 350m based on the area of drilling to date. This has been classified as an Inferred Mineral Resource in accordance with the guidelines of the JORC Code (2004) based upon geological data, mineralisation interpretations and data supplied by LM. 62
- 63. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc New exploration targets have been identified by a recent magnetic survey over the Isua exploration license area that lie in close proximity to the main orebody and may be suitable for economic open pit mining; Snowden recommended that these, along with the areas where no drilling information currently available, should be investigated. Snowden also undertook a mining scoping study and a conceptual mine design and propose using conventional open pit techniques requiring partial removal of a glacier that impinges on the proposed pit outline. Stripping of the glacier using a bucket-wheel excavator and conveyor belt and spreader has been suggested, although LM has informed WAI that alternative engineering design options are to be considered. A considerable amount of processing and testwork has been conducted to date which demonstrates that the Isua deposit is amenable to the production of high quality iron ore concentrates. Transport and infrastructure options have been studied in considerable detail throughout exploration and investigation of the Isua prospect. Several different locations for the port have been considered based on access from land, and bathymetric surveys. A baseline environmental study including archaeological investigations has been undertaken for the Isua project. Before work on the environmental baseline study commenced, a proposal with a scope of works was submitted to the Bureau for Minerals and Petroleum (BMP), which was approved. BMP has issued guidelines for preparing an environmental impact assessment report for mineral exploitation in Greenland, which are largely based on EU legislation and are therefore considered by WAI to be more than adequate. A monitoring plan is also a requirement of the Social Impact Assessment (SIA). WAI understands that LM will undertake and develop these in due course. Similarly a mine closure and rehabilitation plan, and appropriate financial surety will need to be developed. CHINA The Xiaonanshan project is held through China Global Mining Resources Ltd (CGMR), a wholly owned subsidiary of a BVI registered company CGMR (BVI) Ltd which is a 50/50 joint venture between LM and Wits Basin Precious Minerals Incorporated. CGMR acquired the property in April 2009. Although currently in production, the Xiaonanshan deposit is considered by WAI to effectively still be at the exploration stage as a significant drilling and resource evaluation programme is required to confirm the full potential of the deposit. The licence area is flanked by actively producing mines belonging to Ma Steel to both the north and south. CGMR also has an option to acquire the nearby Matang iron ore deposit, which is also at the exploration stage. The Xiaonanshan mine is located close to the city of Ma’anshan in the Anhui Province of China, 270km west of Shanghai. The Sudan processing plant is 5.5km east of the Xiaonanshan mine, but is located in neighbouring Jiangsu Province. A new mining licence has been issued for the Xiaonanshan mine which consolidated two other small open pit mines under one licence. Essentially, the licence area covers three mines, the Xiaonanshan mine itself, the Sanbanqiao mine (which includes Guqiao) to the north which belongs to a local company called SBQ and a disused mine to the west. CGMR is currently negotiating with SBQ and expects to acquire the northern portion of the licence in due course, subject to satisfactory due diligence and commercial terms. A Memorandum of Understanding between CGMR and SBQ has been signed recently. Although no formal agreement exists regarding the disused property to the west, LM has been advised by CGMR that CGMR has the mining rights to this portion of the licence. The Xiaonanshan Mine is located within the Ningwu (Nanjing-Wuhu) Late Jurassic to Early Cretaceous, continental volcanic basin, which covers an area of 1,000km2 in total. Regionally, the Ningwu basin contains significant resources including iron, copper, sulphur and gold. 63
- 64. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Historical mineral resources for the Xiaonanshan deposit have been calculated and verified using several Chinese systems. However, there is no unequivocal mineral resource estimate for the CGMR Xianonanshan licence area. The most recent (2007) Chinese mineral resource for the Xiaonanshan deposit (including the Xianonanshanne and the Sanbanqiao mines which CGMR does not yet own) is estimated at 31.2Mt of magnetite ore at an average grade of 23.6% Fe(total) to a depth of -500masl. Notably, 27.54Mt of the resources is within the -30masl to -500masl elevation boundary and therefore outside the current CGMR licence. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. Although no mineral resources prepared in accordance with the guidelines of the JORC Code (2004) exist at this time, LM is moving towards this going forward. In WAI’s opinion, this historical resource estimate is broadly comparable to a JORC Inferred category mineral resource, but due to the absence of adequate QA/QC checks and supporting data, it remains unclassified at this time. QA/QC checks on the assay data can be obtained through twinning of historical drill holes (5-10%) and additional drilling (in the absence of historical drill core). Although the current drill spacing is considered sufficient for an Inferred category resource estimate, in-fill drilling would be required in order to classify the resource in the Indicated category. CGMR currently only have confirmed title over the Xiaonanshan Pit to a depth of -28masl. Historical resources, to a depth of -30masl, have been quoted by SRK Consulting (SRK) (as estimated by 322 Geological Brigade as of March 2007) as 3.69Mt of ore grading 27.94% Fe(total). If successful negotiations with SBQ can be concluded, then CGMR will hold title over the combined total to a depth of -28masl, purported to be 6.97Mt of ore at 20.6% Fe(total). These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. The Xiaonanshan mine is currently in a poor condition and appears to have suffered from “high-grading” by the previous operator, leading to over-steepened slope angles which may result in slope failure if not addressed soon. Grade control within the pit is non-existent and a system of accurate sampling, assaying and surveying must be introduced so that the pit can be mined to the desired cut-off grade. The pit is constrained by the neighbouring operations and in order to guarantee the long term future of the mine, negotiations with SBQ must be prioritised. If the operations are not combined to form one pit, it is unlikely that the available resources within the Xiaonanshan licence area will be fully extracted to -28masl, as the slope angle required to achieve this will be too steep for the pit walls to remain stable. Current production is in the region of 360ktpa of concentrate which requires approximately 1.4Mtpa of ore to be mined at a nominal 12% Fe(total) cut-off grade. The current strip ratio is believed to be low, in the region of 1:1, waste to ore. The main economic iron mineral present in the Xiaonanshan ores is magnetite and hence magnetic separation techniques are used as the main method of concentration. CGMR operate two processing sites: a dry plant located near the Xiaonanshan pit, and two wet concentrate plants at Sudan, some 5.5km to the east of the pit. The Sudan No.1 Plant started treating ore in late 2006, the Sudan No.2 Plant started operation in mid 2008. The capacity of each of the Sudan plants is 600ktpa of feed. The capacity of the Dry Plant has yet to be established. All equipment in the plants is of Chinese manufacture. All iron ore concentrate is currently sold into the local Chinese market on an Ex Works basis. Local demand for iron ore appears to be high and as a result there are currently no plans to export iron ore outside China or even further afield within China. The operations are considered to be in compliance with national environmental, health and safety and community (EHSC) requirements. LM has stated their aim to achieve compliance with international standards and a work programme will need to be established to meet this objective. LM is developing a 64
- 65. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc formal mechanism for in-house environmental, health and safety management, and WAI recommends employment of an EHS Managers at both site and corporate level to achieve this. Community consultation and development is proactively managed and several initiatives have been funded by agreement with local authorities and villages, rather than in response to a formal Community Development Plan. There is currently no mine closure and rehabilitation plan in place, and no financial provision made for closure costs. WAI recommends that a Closure Plan and Environmental and Social Section plan be developed. 1.0 INTRODUCTION 1.1 Background Wardell Armstrong International (‘WAI’) was commissioned by London Mining Plc (‘LM’) for the preparation of a Competent Person’s Report (CPR) of the iron ore assets for the purposes of fulfilling the requirements of the AIM Rules and AIM Notes for Mining and Oil and Gas Companies (June 2009) for a proposed admission of ordinary shares of LM to trading on AIM, a market operated by the London Stock Exchange plc (‘AIM’). To undertake this commission, WAI personnel undertook site visits to various LM assets in Sierra Leone, Saudi Arabia, Greenland and China during July and August 2009. 1.2 London Mining – Overview 1.2.1 Iron Ore LM has interests in undeveloped iron ore resources in Sierra Leone, Saudi Arabia and Greenland, China and production of around 0.36Mtpa from its operating mine and concentrator in the Anhui and Jiangsu Provinces of the Peoples Republic of China. 1.2.2 Study Strategy The basic strategy for this CPR has been to examine and report on the existing information available on the properties held globally by the Client, which includes geological, resources/reserves, mining and metallurgical data and basic economic parameters. During the visits, further information was gathered on infrastructure, equipment, costs, potential mining methods, permitting and environmental issues. Locally-based and publicly available documentation was viewed by WAI and in addition, WAI held meetings with key staff at the project sites. 65
- 66. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 2.0 OVERVIEW OF THE REGIONS, LOCATIONS AND ASSETS 2.1 Introduction This CPR covers all the main project technical areas including geology, resources, mining methods, processing, infrastructure, markets, Capex, Opex and environmental. The core assets form the basis of the CPR and comprise the following as shown in Figure 2.1 below. Figure 2.1: Location of London Mining Projects 2.2 Sierra Leone In 2006, LM acquired a 100% interest in the formerly producing Marampa Iron Ore Mines located close to the town of Lunsar in the Port Loko district of Sierra Leone. Final feasibility studies and governmental approvals are being sought to commence refurbishment of the mine and infrastructure prior to installing a new 1.5Mtpa plant to produce 66% Fe iron ore concentrate. Initial production will focus on re-processing the tailings, but medium term initiatives include an installation of an additional 1.5Mtpa concentration plant and recommencement of primary open pit mining, subject to feasibility studies. The deposit is believed to contain some 84Mt of primary ore resources at 37% Fe (unclassified historical resources) and 48Mt of tailings at 28% Fe, which may be suitable for re-processing. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 2.3 Saudi Arabia LM has formed a 50/50 joint venture company, Saudi London Iron Ltd (‘SLI’), with Saudi-based National Mining Company (‘National Mining’), to develop the Wadi Sawawin iron ore project near the west coast of Saudi Arabia. SLI plans to utilise licences held by National Mining, which are to be transferred to SLI, to create a 5Mtpa iron ore mining and pelletising operation to produce DR pellets. The project is located in the Northern Hijaz region of the Kingdom of Saudi Arabia, 900km north of Jeddah and 60km from the Red Sea coast. A preliminary unclassified mineral resource has been prepared with some 230Mt at 41% Fe using a 30% Fe cut-off. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 66
- 67. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 2.4 Greenland LM has 100% ownership of the Isua project with an Inferred (JORC) mineral resource of 507Mt at 35% Fe(Sol) already demonstrated. Scoping, metallurgical, hydropower, pipeline and harbour studies are currently being completed and have confirmed that the Isua project could support a sizeable open pit mining operation starting at approximately 5Mtpa of +71% Fe magnetite direct reduction pellet feed. The project also benefits from a potential deepwater port site with year round shipping. Synergies with the Wadi Sawawin project are being studied. 2.5 China LM entered into a 50/50 joint venture agreement in April 2009 with Wits Basin Precious Minerals Incorporated, an OTC Bulletin Board listed company domiciled in the USA, to form a BVI registered company called China Global Mining Resources (BVI) Ltd. Through its subsidiary, China Global Mining Resources Ltd (CGMR), China Global Mining Resources (BVI) Ltd holds title over the Xiaonanshan mine and Sudan processing plant. The Xiaonanshan mine is located close to the city of Ma’anshan in the Anhui Province, China, 270km west of Shanghai. The Sudan processing plant, also owned by the joint venture, is 5.5km east of the Xiaonanshan mine but is located in neighbouring Jiangsu Province. A new mining licence, to a depth of -28masl, has been issued which consolidates three mines including the Xiaonanshan mine itself, the Sanbanqiao mine to the north which belongs to a local company (SBQ), and a disused mine to the west which is believed to belong to the local community. The deposit as a whole (including the Xiaonanshan and the Sanbanqiao mines which CGMR does not yet own) is believed to contain 31.2Mt to a depth of -500masl, of magnetite ore at an average grade of 23.6% Fe(total) estimated in accordance with the most recent (2007) Chinese standards. Notably, 27.54Mt of the resources is within the -30masl to -500masl elevation boundary and therefore outside the current CGMR licence. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. Current production from the Xiaonanshan Mine is in the region of 360ktpa of concentrate which requires approximately 1.4Mtpa of ore to be mined by conventional open pit methods at a nominal 12% Fe(total) cut-off grade. Crushing and grinding with wet/dry magnetic separation forms the basis of the process circuit and produces a concentrate product that is sold at the mine gate to the local market. 67
- 68. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Table 2.1: Summary Table of Assets Interest Licence Expiry Asset Holder (%) Status Date Licence Area Comments Marampa London Mining Pilot Scale testing completed. Resource statement due by end of 100 Development 31 August 2034 13.82km2 Sierra Leone Company Limited year (to JORC standards) Wadi 23 June 2010 65G 45.189km2 Sawawin National Mining Exploration 23 June 2010 64G 74.963km2 London Mining and National Mining have created Saudi London Saudi Arabia 50 Iron Limited to develop the project. Company 23 June 2010 66G 91.029km2 The licences are currently being transferred to SLI. Exploitation 7 September 2032 3.57km2 Isua London Mining Pre-feasibility study commissioned and due for completion in early 100 Exploration 31 December 2013 26km2 2010 68 Greenland Greenland A/S Xiaonanshan Maanshan Consolidation of the licence area is under negotiation. Current China Xiaonanshan 50 Production 10 February 2014 0.66km2 licence is limited to a depth of -28masl. Drilling and feasibility Mining Company studies required to confirm resources and reserves. Limited *Under Article 34 of the Saudi Mining Investment Code an exploration licence may renewed or extended for a period or periods not exceeding five years. Table 2.2: Summary of Mineral Resources (in accordance to the guidelines of the JORC Code (2004) Asset Measured Indicated Inferred Operator Tonnes Grade Tonnes Grade Tonnes Grade (Mt) (% Fe) (Mt) (% Fe) (Mt) (% Fe) Marampa, Sierra Leone - - - - - - London Mining Company Wadi Sawa, Saudi Arabia - - - - - - Saudi London Iron Limited Isua, Greenland - - - - 507 351 London Mining Greenland A/S Xiaonanshan, China - - - - - - Green Earth Mineral Resources 1 Grade quoted as Fe(Sol)
- 69. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.0 SIERRA LEONE 3.1 Introduction In 2006 LM acquired a 100% interest in the former producing Marampa Iron Ore Mines located close to the town of Lunsar in the Port Loko district of Sierra Leone. Final feasibility studies and governmental approvals are being sought to commence refurbishment of the mine and infrastructure prior to installing a new 1.5Mtpa concentration plant with the aim to produce a +66% Fe fine sinter concentrate. Initial production will focus on re-processing the tailings but medium term initiatives include recommencement of primary ore open pit mining and an additional associated 1.5Mtpa plant. The primary deposit is believed to contain some 84Mt of resources at 37% Fe (unclassified resource as quoted by International Mining Consultants Group Consulting Ltd. (IMC) based on historical records) and 48Mt of tailings at 28% Fe, which are considered suitable for re-processing. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 3.2 Property Description and Location 3.2.1 Location and Background The Marampa iron ore deposit is located in the Port Loko District of the Northern Province, Sierra Leone, some 125km east-northeast of the capital, Freetown. Journey time to the concession from Freetown is approximately 2 1⁄ 2 hours (118km), on mainly tarmac roads. The concession boundary falls within a former iron ore mining area of the DELCO works site, approximately 2km from the town of Lunsar to the west, although the south-eastern extension of this town is located within the concession boundary. The rest of the concession area lies to the east and south of the town. Lunsar, and the concession, are accessed via the Freetown-Makeni highway, also connecting the area with the District Headquarter town of Port Loko, located around 35km from the concession. Sierra Leone, previously a British Colony, gained independence in 1961. It has a land area of approximately 72,000km2, and 465km of coastline with the Atlantic Ocean to the west. The country has land borders with the Republic of Guinea to the north and east, and the Republic of Liberia in the south (see Figure 3.1). The current population is estimated at 6.4M, growing at an annual rate of 2.6%. It is divided into four main geographical regions: the coastline, interior lowland plains, interior plateau and the mountains. Main rivers include the Great Scarcies, Little Scarcies, Rokel, Jong, Sewa, Moa and Mano, and administratively the country is divided into four provinces with a total of 13 districts. 69
- 70. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Figure 3.1: Republic of Sierra Leone Location 3.2.2 Mining Licence The licence area is located in the Marampa Chiefdom in the Port Loko District, and covers an area of approximately 13.82km2. Figure 3.2 shows the lease boundary, with the lease being valid for 25 years from 31 August 2009. The operation must comply with the Sierra Leone Mines and Minerals Act of 1966 and Amending Acts and Rules and Regulations under the Act. 70
- 71. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The parcel of land, occupying the licence area, is situated within 28N Grid zone in the Marampa and Masimera Chiefdoms in the Port Loko District, Northern province (Republican State of Sierra Leone) whose dimensions are defined as the beacons presented in Table 3.1 below. Table 3.1: Beacon Co-ordinates of the Marampa Licence Beacon ID X Co-ordinate Y Co-ordinate UTM Datum 1 770,000 960,450 28 WGS 84 2 771,000 960,800 28 WGS 84 3 771,000 960,000 28 WGS 84 4 772,000 960,000 28 WGS 84 5 772,000 961,150 28 WGS 84 6 774,220 962,660 28 WGS 84 7 776,300 961,000 28 WGS 84 8 774,230 959,030 28 WGS 84 9 772,950 958,550 28 WGS 84 10 772,800 958,850 28 WGS 84 11 770,850 958,200 28 WGS 84 The Marampa mining licence is subject to an annual rent of US$25,000 payable yearly in advance. 71
- 72. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 72 Figure 3.2: Marampa Mining Licence Boundary
- 73. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.3 Accessibility, Physiography, Climate, Local Resources and Infrastructure 3.3.1 Accessibility The mine site is accessible by road from the capital city, Freetown, located some 125km to the west, over predominantly asphalt roads. Given the absence of a working rail network in Sierra Leone, road transport will be the only means of accessing the site. Freetown is the largest natural harbour on the African continent, comprising two deep-water berthing locations, Queen Elizabeth II Quay and Government Wharf, which provide port facilities for both passenger and freight cargo. Freetown-Lungi International Airport provides limited air transport links with the major cities in various other West African nations, as well as with London, UK and Brussels, Belgium. 3.3.2 Geography and Climate The geography surrounding the Marampa iron ore project generally comprises low hills, with the Masaboin and Ghafal Hills forming prominent features. Other low ridges adjacent to the project area have also been shown to contain potentially economic grades of iron. The hills in the region rise to approximately 150masl above the surrounding terrain, with a maximum elevation above sea level of approximately 230masl. The climate in the area is tropical, with distinct wet and dry seasons (May-November, and December- April respectively). Maximum rainfall is usually recorded in August, with an average of 556.4mm precipitation. Table 3.2 below shows mean rainfall and temperature in the country. Table 3.2: Sierra Leone Rainfall and Temperature Climactic Variable Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Mean Rainfall 4.2 5.3 30.9 81.0 216.0 300.5 401.0 556.4 489.5 344.0 188.0 22.7 (mm) Mean Max 32.5 33.6 34.7 34.1 32.9 31.1 29.4 28.5 29.9 31.2 31.2 31.4 Temp (°) Min 20.9 33.6 21.9 22.3 22.4 22.4 22.0 22.0 22.0 21.8 21.9 21.2 3.3.3 Local Resources and Infrastructure The two settlements closest to the Marampa project, Port Loko and Lunsar, have extremely limited facilities, with no regular water or electricity supplies. Potable water in Lunsar is provided by a well, with electricity provided by diesel generators. Communication by mobile telephone is possible in the region. 3.4 History The deposit was discovered by N.R. Junner in 1926 and developed by James Campbell who founded the Sierra Leone Development Company (DELCO) in 1930. The first ore was shipped in 1933. During the Second World War, the mine became an important source of raw material for the United Kingdom’s iron and steel industry resulting in the building of a concentrator at the mines by the UK Ministry of Supply in 1944. DELCO was superceeded in 1971 by MOREP (Marampa Ore Reserve Evaluation Project), but operations ceased in 1975 due to technical, managerial and financial problems. The Sierra Leone government then kept the property on a care and maintenance basis, during which time Indian experts made a study of the Marampa reserves in 1975 and Luossavaara-Kiirunavaara AB International (LKAB) of Sweden made recommendations on its future exploitation in 1978. Meanwhile the Geological Survey made an assessment of the Marampa tailings over the period 1976 – 77. 73
- 74. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc In 1982 Austromineral, a subsidiary of Voest-Alpine, took over operations under a management contract, having “first refusal” on any production from the mine. After preliminary work and a re-design of the concentrator circuits, the project was officially opened in December 1982, and designed to produce 1Mtpa at full capacity. Both primary ore and tailings were treated. By February 1985 Austromineral had withdrawn, having shipped around 750,000t of concentrate during its 2 1⁄ 4 years of operation. It is understood that the gravity process plant’s very limited flexibility to treat the different ore feeds made the operation uneconomic. The mine has not operated since that time. Following Austromineral’s withdrawal, Sofremines, the French organisation, made a technical assessment of the operation in 1986, and in 1988 carried out laboratory scale test work on ore and tailings materials. The mine was over-run by insurgents in the early 1990s which resulted in the site being vandalised and with the destruction of most of the buildings and facilities. All documentary records and samples at the mine were lost. Following the UN peace agreement in 2002, International Incorporated Companies Limited (TECSBACO) obtained a mining licence for the old DELCO lease in 2005 and carried out a series of investigations. LM acquired the property from TECSBACO in September 2006 and commissioned due diligence on the property by International Mining Consultants Group Consulting Ltd. (IMC), pilot plant test work and flowsheet development by TRICAL of Australia and a re-evaluation of the tailings resources by LM’s Chief Geologist in Sierra Leone T.S.C. Gouldson (former Senior Mineralogist and Acting Director Geological Survey, Ministry of Mineral Resources). These studies will form the basis of further work. 3.5 Geology and Mineralisation 3.5.1 Introduction The Marampa deposit is divided into the Masaboin Hill and Ghafal Hill areas (Figure 3.4). The current structural interpretation and geological understanding is based on both the work of MOREP and the ongoing resource/reserve estimation. LM has commenced a diamond drilling programme (2009) to both confirm these historical data as well as improve the level of knowledge of the deposits and enable a new and more accurate resource estimate to be completed. The initial area being drilled is at Ghafal Hill as this is considered to offer the easiest (least overburden) opportunity to recommence open pit mining and supply primary ore to the plant, this programme is expected to be completed in December 2009 subject to drill rig availability. In addition, there are numerous tailings deposits that offer a further opportunity for early ore material. LM has already completed a 240 hole auger drilling programme over the majority of the tailings deposits and a new resource estimate is currently being undertaken with completion expected in December 2009. An internal resource estimate for the primary deposit is expected to be completed in March 2010, with completion in accordance with the guidelines of the JORC Code in May 2010. 3.5.2 Historical Exploration Following discovery in 1926 a period of exploratory work was conducted from 1927 to 1930 by the African and Eastern Trade Corporation Ltd., which transferred the deposit to the Sierra Leone Development Company Ltd (SLDC) in December 1933. Between 1953 and 1959 geological surveys were undertaken under the direction of Drs Beeck and Wood but their interpretation was challenged and further work was subsequently completed in 1962 and 1965. 74
- 75. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc In September 1970, DJW Jones from the consultancy Mackay and Schnellman Ltd was appointed as Mining Geologist to design MOREP. MOREP commenced in July 1971 and in addition to a comprehensive diamond drilling programme, the project included auger drilling and geological mapping. The current structural interpretation and geological setting of Marampa are still based on the findings of this work. From 1971 to 1973 a total of 74 diamond drill holes was completed for 20,412ft (6,221.6m) at Masaboin and Ghafal Hills. Of these holes 26 were classified as strategic and 48 as tactical. During the same period 83,000ft (25,298.4m) of auger drilled holes using 3 mobile units were also completed. Auger drilling was only used for the ‘softer’ units of the deposits. In 1972 a Geological Department was established at Marampa to oversee future geological investigations. However, the work completed by MOREP was evaluated and compiled at the Head Office in the UK and supervised by Mackay and Schnellman Ltd who took responsibility for the calculations and the geological and structural interpretation. LKAB completed a further review of the project in 1978 and the Geological Survey of Sierra Leone completed an assessment of the tailings between 1976 and 1977. Austromineral took over the operations in 1982, having completed a drilling programme and resource assessment of the tailings deposits in 1981, but withdrew in February 1985. Sofremines completed assessments in 1986 and 1988 but in 1990 the mine was overrun by insurgents who destroyed most of the original documentary records at the mine, including geological maps, plans, reports and samples. 75
- 76. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.5.3 Regional Geology The Marampa deposit is hosted within the Precambrian Marampa schist formation (Figure 3.3) and consists of banded quartz-hematite schist hosted by quartz-mica schist. The banded iron formation is considered to have been formed by the deposition of iron-bearing sediments in a quiet marine environment dated at between 2.1 and 2.2Ma. The formation has been subject to a period of intense folding, during the Precambrian period, followed by low-grade metamorphism (greenschist facies) and subsequent degrees of weathering. Figure 3.3: Approximate Location of the Marampa Project 76
- 77. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.5.4 Local Geology The banded iron formation, which forms the main ore body, is considered to consist of a single main horizon that has been subjected to intense deformation resulting in a succession of tight isoclinal folds and thrust faults. The formation has a maximum thickness of 65m (Ore zone D), with an average nearer 30m, and in the main part of the deposit dips at 45° to 85° ESE. It is observed to have a distinct and sharp contact with the quartz mica schist host rock. The repeated synclinal ore zones at Masaboin Hill are identified as A to E (Figure 3.4). Figure 3.4: Location of the Ore Zones at Masaboin and Ghafal Hills The main part of the deposit is located within Masaboin Hill and comprises a series of repeated synclinal ore zones that strike NNE-SSW over a distance of some 750m. These ore zones thin out to the north and merge to form the Matukia Ridge, which lies outside the concession area. To the south ore zone D extends southeast to the Campbell town ridge whilst ore zone E continues along the Hospital ridge and onwards to Ghafal Hill, a distance of some 2km. These are near vertically plunging synclinal and anticlinal structures which at Ghafal include a low-grade central core. Beyond Ghafal, the Ghafal SW Extension leads to the Mafuri Orebody, 5km outside the current concession area. The tailings deposits occupy low ground immediately to the north and east of Masaboin Hill. 3.5.5 Mineralisation As a consequence of weathering, the quartz-hematite schist developed a superficial, secondarily enriched ore that provided the early free digging material grading around 56% Fe after washing. This ‘Red Ore Cap’ has been mined out leaving the harder, lower grade (typically 36.5% to 40% Fe) primary ore below. This primary ore comprises specular hematite with minor amounts of magnetite and martite. Previous work by DELCO has resulted in four ore types being recognised within the different ore bodies as follows: • Type 1 – Hard, fine grained primary ore consisting of granular hematite in a hard quartzite matrix; • Type 2 – Hard platy, specular hematite; 77
- 78. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc • Type 3 – Medium hard hematite with schistose texture; and • Type 4 – Soft, weathered ore consisting of friable medium to fine grained hematitic quartzite and hematite-quartz-mica schist. The ore mineral is a variety of hematite known as specularite. There are however some other minor iron oxides which occur in certain parts of some ore zones which have ore value. The tailings dams contain a mixture of hematite and other iron bearing minerals. The main iron ore mineral is micaceous hematite with a very distinct flake structure whilst one of the main gangue minerals is muscovite mica that has the same flake structure as the hematite. WAI Comment: Recognising and understanding the mineralogical make up of the primary mineralisation and tailings deposits is crucial to realising the full potential of the deposits at Marampa. The platy, or flake shaped, mineral grains have in the past caused inefficiencies in the processing circuit resulting in the elevated grades seen in the numerous tailings deposits. As a result of this LM have avoided the use of gravity concentration (as used in the past) and focused on magnetic separation to overcome the shape problems associated with the hematite. 3.5.6 Structure 3.5.6.1 Masaboin Hill The mineralisation at Masaboin Hill consists of five ore zones denoted by the characters A, B, C, D and E. There are an additional two smaller zones designated ‘C/D’ (between C and D) and ‘E of A’ (east of A). Figure 3.5: Outline of Ore Zones at Masaboin Hill (LM) It is believed that all the ore zones represent the same layer of quartz-hematite schist that has been intensely folded and is traversed by a number of small faults. Zones E and D constitute the lower limb of a large isoclinal synform with an approximate horizontal fold axis and an axial plane dipping gently to the southeast whilst zones A, B and C comprise the upper limb, which has been subjected to subsidiary isoclinal folding. 78
- 79. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Figure 3.6: Profiles through Masaboin Hill Displaying the Folded Zones (LM) This theory is supported by the presence of a manganese bearing zone at the extremes of the large synform. There is also a marker bed of white to violet quartz chert containing particles of magnetite that represents the hanging wall of zone D and the footwall of zone A. In addition the fine grained hanging wall, and hematite rich zone, becomes coarser grained towards the footwall. Zones A, B and C Zones A, B and C form the upper limb of the large synform with B and C forming the limbs of a smaller synformal fold that is overturned to the west. Zone B continues eastwards in a sharp antiform that merges into a gentle synform of zone A. Zones D and E Zones D and E constitute the eastern and western limbs of an antiformal fold of the quartz-hematite schist layer. Zone D dips about 40° to the east and continues to a considerable depth as shown in Figure 3.6 and indicated in drill hole S7 in the north field. If this theory is correct, and that all the zones represent the same hematite schist layer, then zone D may continue all the way under Masaboin Hill and occur under and east of zone A. However, it may equally fold back on itself, or possibly represent another hematite schist layer or be the consequence of faulting; only additional and deeper drilling can confirm or disprove any or all of these theories. Zone C/D The structures of zone C/D are complex and interpretation difficult. In the southern parts there are strong indications that the zone consists of a thin layer of hematite schist folded into an overturned synform. The same lithological variations as observed in zones B and C recur in the C/D hematite schist layer. In the northern part the zone has been subject to severe faulting that makes interpretation almost impossible. Consequently the structure of this zones needs further investigation before a detailed assessment can be made and its resource potential realised. 79
- 80. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Continuation from Masaboin Hill The antiform that constitutes the transition between zones A and B continues north as the low K-Ridge and to the east as another low R-ridge. However, these areas are poorly surveyed and no detailed structural interpretation has been conducted. The southern extension of zone D is the Campbell Town Ridge and dips gently to the northeast, striking NW-SE. The layer of hematite schist of zones D and E extend southwest, via Hospital Ridge, and on to the Ghafal SE extension whereupon it folds back and coalesces with the main Ghafal Hill. 3.5.6.2 Ghafal Hill Ghafal Hill forms a prominent fold axis dipping steeply to the southwest, and the limbs are considered to dip steeply towards the core of the fold. The hill forms an outer border of richer specularite schist, with grades around 40% Fe, and a core of quartz-mica-hematite schist of around 31% Fe. The limbs of the fold continue to the south, where they form the Ghafal SE and SW extensions. The SE extension curves back northwards where the layer has been traced to Mafuri (some 4km to the west). Figure 3.7: Outline of Ore Zones at Ghafal Hill (LM) WAI Comment: The structural control and morphology of the Marampa deposit is as important a factor to its future development as the mineralisation of the ore. It is clearly evident that the deposit has undergone an intense period of folding that as yet is not fully understood. Consequently there remains the possibility of discovering additional mineralised schist layers both below the current known zones and as deeper extensions to the prominent hills. 80
- 81. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.6 Exploration The earliest known systematic exploration at Marampa was carried out during the period 1953 to 1959 and consisted of 54 diamond drill holes, seven adits, 19 trenches, 986 pits and 161 Banka drill holes. However, none of the information from this exploration remains and it is understood that the samples arising from the work disappeared from the mine as early as 1970. From 1957 to 1960, Professor Kennedy acted as consultant geologist to DELCO and it was as a consequence of his perceptive work that the basic structure of the deposit was established. This structural interpretation was largely confirmed by the later MOREP exploration programme. Until then, the deposit’s structure had been the subject of several alternative interpretations. Over the period 1971 to 1973, MOREP undertook an exploratory campaign comprising 62 cored holes for a total of 16,919ft (5,157m) together with surface mapping and short auger drill holes. A total of 23 S series (strategic), 4 R series, and 35 T series (tactical) holes were drilled over Masaboin Hill. Drill hole separation along strike was typically 75m to 150m and overall core recovery was recorded as 96%. After logging the core, ore intersections were split over continuous 5ft (1.5m) intervals with one half being sent for analysis while the other was retained for reference. Analyses were carried out at the mine’s laboratory for Fe, Mn, SiO2 and Al2O3 using an X-ray spectrograph. Fe was also determined by wet chemical methods, as were the occasional P, Ti and S determinations. Check samples were sent for analysis to DC Griffith and Co in the UK. Samples were also taken for mineral dressing tests, specific gravity determinations, and to make thin sections. It is understood that Austromineral did not carry out any exploration of the primary ore at Marampa during the period of its management contract (1982 – 1985). It did, however, undertake a 45 hole auger drilling programme on the tailings. From 1986 Sofremines did some trenching over Ghafal Hill and the A, B, C, D and E ore zones at Masaboin Hill to obtain material for laboratory scale test work. Grade control (and the establishment of proved reserves) was effected by drilling vertical 63ft (19.2m) deep auger holes at a separation of 25ft (7.62m) along section lines 50ft (15.24m) apart. The auger cuttings were sampled at 5ft (1.5m) intervals and analysed for the same suite of elements as was the MOREP drill core. Working benches were also sampled in trenches in 10ft (3.0m) sections, and at a spacing of 50ft to 100ft (30.5m). In 1971, blast hole sampling was tested as an alternative to auger sampling for grade control purposes, partly because of the increasing hardness of the ore. In a test campaign, the average grade obtained from 19 paired samples between blast hole and auger samples was close (39.17% Fe and 39.36% Fe respectively) but correlation between them was very poor (0.20). It is not clear whether, as a result of this study, one method was selected in preference to the other. Exploration and geological investigations by LM initially focused on the re-evaluation of the tailings within the concession area (240 hollow stem auger holes completed during 2007-08) a resource evaluation is currently being undertaken. Investigation of the primary deposit has now commenced, as witnessed by WAI during the site visit in July 2009, with diamond core drilling at Ghafal Hill, with expected completion in December 2009. Drilling on the tailings deposits is expected to be completed in October 2009. WAI Comment: No historical exploration data remains and any records are scant. It is understood that no comparisons between the estimated and actual tonnage and grade of ore produced were undertaken on a regular or systematic basis. Had this been available it may have been possible to review and lend support to the confidence and reliability of the resource estimates. The absence of historical data and samples means that any reassessment of the mineral resource requires new drill hole data to be obtained. This has been recognised by LM as is evident from the auger programme undertaken on the tailings deposits within the first year LM acquired Marampa and current diamond drilling at Ghafal Hill. 81
- 82. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.7 Mineral Resources 3.7.1 Introduction At the time of preparing this report no mineral resource estimate had been completed to an internationally recognised reporting standard such as the JORC Code (2004). Several resource estimates have historically been produced for both the primary (in-situ) deposits and the material found in the tailings deposits. Unfortunately the historical data, including samples or pulps, no longer exists and therefore any supporting information, as required under the guidelines of the JORC Code (2004), is unavailable. An updated resource statement is expected to be prepared for the tailings deposit in December 2009. 3.7.2 Tailings Resources 3.7.2.1 Introduction The tailings deposits are a product from the previous processing plant operations located to the east of the Masaboin Hill deposits, Figure 3.8, and generated from a gravity concentration plant processing a ‘flake’ shape hematite ore with high mica content. These comprise a central cluster of deposits (East Swamp, Batabana (1 and 2), and Valleys A, B and C1 and 2) that collectively account for approximately 85% of the total estimated tailings tonnage. These are largely free from cultivation and agricultural activity. East Swamp is the oldest deposit and Valley B and D the most recent as operated by DELCO and Austromineral respectively. A further five peripheral or satellite deposits (North Swamp, Kissay and Rokel (K & R), Hospital, Golf Course and Chendata), some of which are farmed, account for the rest of the resource. The tailings deposits comprise alternating millimetre thick bands of hematite (rich and poor) and clay material. With increased moisture content the tailings material becomes viscous and below the water table is virtually in a fluid state. It is understood that 60 to 70% of the tailings resource lies below the water table. Within the deposits the Fe content and grain size varies both horizontally and vertically as a consequence of their depositional characteristics. However, and as expected, there is a general decrease in both Fe content and grain size away from the locations of the discharge points that generally occur along the perimeter walls and/or along the central axis. It has also been noted that some of these tailings deposits (including East Swamp and Batabana 1 and 2) contain an elevated level of manganese and can be traced to known areas of mining from the primary deposit that contained psilomelane, pyrolusite and manganite. These areas include the hanging walls of B and C ore bodies, the footwall of the overturned D ore body, the outer walls of the entire Ghafal Hill and parts of the C/D and E ore bodies. 82
- 83. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Figure 3.8: Plan of Marampa Tailings (LM) 83
- 84. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.7.2.2 Historical Tailings Resource The tailings deposits have been subjected to two principal geological assessment programmes. The Geological Survey carried out the first from 1976 to 1977 using a Banka drill when 51 holes were drilled over East Swamp, Batabana, and Valleys A, B and C on a 500ft (150m) grid and sampled at 5ft (1.5m) intervals. Some of the holes did not penetrate the full thickness of tailings due to difficulties during the drilling. In 1977, the Geological Survey estimated ‘proved reserves’ of 46.2Mt of tailings at 19.75% Fe over the East Swamp, Batabana, and Valleys A, B and C with an additional 4.5Mt of ‘indicated reserves’ at the same grade. However, this reported tonnage was estimated using an inappropriately high bulk density factor of 2.94t/m3 and the reserve is not considered to be to an international standard. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. Austrominerals carried out a second check drilling programme in 1981 of 33 holes over the same areas as the Geological Survey using a track mounted open flight auger. The location of these holes is not known but the implication is that they were sited close to the Geological Survey holes, though this cannot be substantiated. A further 12 auger holes were drilled in the five peripheral deposits that had not been drilled by the Geological Survey. In 1981, Austrominerals reported a tailings ‘resource’ as summarised in Table 3.3 below. Table 3.3: Marampa Tailings Resource (Austromineral 1981)1 Location Tonnage Grade Fe % East Swamp 12,339,400 30.20 Batabana 5,828,100 26.90 Valley A 1,756,700 14.20 Valley B 12,989,700 25.60 Valley C 9,905,800 33.40 North Swamp 2,077,600 27.80 K and R Swamp 2,228,900 29.90 Hospital Swamp 1,710,700 28.90 Golf Course 629,500 36.30 Chendata 1,679,200 28.50 TOTAL 51,145,600 28.28 1 These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. The Austrominerals’ resource estimate includes the Geological Survey drilling results as far as tailings thickness is concerned, but only uses the Austrominerals assay results. Austrominerals revised the area of the tailings ponds and used a more appropriate bulk density factor (of 1.8t/m3) than that used previously by the Geological Survey, based on its own measurements. During Austrominerals’ dredging operation, up to 1985, some 3.3Mt of tailings at a grade of 30.85% Fe was extracted. The resultant resource estimate should therefore read 47.8Mt at 28.10% Fe (1981 resource estimate minus production to 1985). All of the resource estimates quoted above have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. WAI Comment: There is a substantial difference between the average reported grades in the Austrominerals’ (1981) estimate (28.28% Fe) and the Geological Survey (19.75% Fe). Austrominerals explained this difference as being due to “systematic errors committed by the Geological Survey during 84
- 85. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc the assays of the Banka drill samples” but without further elaboration. The Geological Survey had used X-ray spectrographic methods to determine its Fe values, whereas Austrominerals used wet chemical methods but it is unlikely that the difference can be explained by this alone. Another possible reason is that during Banka drilling the relatively dense hematite minerals were preferentially lost during sample recovery, particularly when drilling below the water table, though how this problem was avoided in the auger drilling is unclear. Some support for this suggestion may be seen in the fact that of the 46 Geological Survey holes for which analytical data is available, 32 showed grades tending to decline with depth, through 12 showed increasing grades with depth. No trend was discernable in the remaining two holes. However, this account is equally not conclusive. The division between resources lying above and below the water table in the five main tailings areas is summarised in Table 3.4 below. This division is based solely on the Austrominerals auger drilling results. The Geological Survey made no such distinction in its estimate. Table 3.4: Tailings Resource Division (above & below water table) (Austromineral 1981)1 Reserves (Mt) Above Below Water Table (Depth m) Location Water Table 0.0-7.5 7.5-10.0 10.0-15.0 15.0-20.0 +20.0 Total East Swamp 3.6 3.1 1.0 2.1 2.1 0.4 12.3 Batabana 1.5 2.8 0.9 0.6 5.8 Valley A 0.9 0.9 1.8 Valley B 3.7 5.1 1.1 1.7 1.1 0.3 13.0 Valley C 4.0 2.7 0.8 1.5 0.5 0.4 9.9 TOTAL 13.7 14.6 3.8 5.9 3.7 1.1 42.8 % 32 34 9 14 9 3 100 1 These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. WAI Comment: As can be seem from the above table 68% of the ‘resource’ is located below the water table. This has a significant impact on the possible mining method applied as well as potential recovery. Sofremines carried out a brief sampling campaign in 1987 to collect tailings material for laboratory scale test work. Sofremines collected further material by means of channel samples from the slopes of the dredge pond excavated by Austromineral. The Sofremines samples are as summarised in Table 3.5 below. Table 3.5: Marampa Tailings Samples (Sofremines 1988) Sample No. Location Fe (%) Comment 15 Catchment 1 29.1 Channel sample, tailings pond wall 16 East Swamp 32.0 Channel sample, tailings pond wall 17 Batabana 1 25.3 Channel sample, tailings pond wall 18 Catchment 2 33.8 Channel sample, tailings pond wall 19 Batabana 2 17.7 Composite sample from 5 auger holes 20 East Swamp 13.3 Composite sample from 3 auger holes 21 East Swamp 17.0 Composite sample from 4 auger holes 22 Catchment 1 30.9 Composite sample from 1 auger hole Average 24.9 At the end of 2005 Mr Gouldson (Chief Geologist for LM Sierra Leone since 2007) collected samples on behalf of LM that were mixed to form an 800kg composite sample. The sample was subject to laboratory 85
- 86. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc scale test work by Trical Mining and Metallurgical Services (TRICAL) which reported a head grade of 35% Fe. The individual samples forming the composite were taken from the following locations: • Valley B: (channel sample on perimeter wall and two pits, 2.5m deep); • Valley C: (channel sample on perimeter wall and two pits, 2.5m deep); and • East Swamp: (channel sample on perimeter wall and three pits, 2.5m deep). With a head grade of 35% Fe the LM composite sample appeared high-grade and not representative of the tailings deposit as a whole. This could be attributed to the inclusion of an appreciable quantity of material collected from the dam perimeter wall close to where the tailings had been discharged. In August 2006, Trical Mining and Metallurgical Services removed samples from the same seven pits and one from the pilot plant site. These were collected to test for variability and provide basic data for process design. The samples had an average grade of 31.86% Fe, thus closer in grade to the average estimated for the deposit than the original samples, but still appreciably higher than individual grades for the deposits sampled. From 2007 to 2008 the tailings deposits were drilled (LM drill campaign) by hollow stem auger to ascertain the geology of the deposits and produce a surface map. The drilling, where completed, was conducted on a 75m x 75m grid and a total of 240 holes were completed to recover 1,355 samples (1.5m sample length). This also enabled accurate profiles of the tailings deposits to be generated and a resource estimation to be undertaken (mineral resource estimate expected December 2009). Table 3.6: Summary of Hollow Stem Auger Holes (2007-08) No. of Samples No. of Samples No. of Total No. of above below Deposit Holes Samples Water Table Water Table East Swamp 37 293 120 173 Catchment 1 and 2 33 218 114 104 Batabana 1 and 2 7 41 22 19 Hospital Swamp 20 82 43 39 Hamlet Swamp 39 138 20 118 Chendata 26 128 65 63 Valley A 10 55 32 24 K and R 13 82 41 41 Golf Course 21 67 32 37 Valley D 26 61 37 24 Valley B (less than 15% covered) 8 95 68 27 Total 240 1,355 683 672 3.7.3 Primary Resource 3.7.3.1 Historical Primary Assessment Mr Gouldson, previously Acting Assistant Director of the Geological Survey, estimated the primary resources at Marampa in 1985. This was confined to the principal ore bodies lying above the water table (at an elevation of 300 feet [≈91.4m]). An earlier 1978 study by LKAB reported additional reserves below the water table and in peripheral deposits. It should also be stressed that in the past, primary mineralisation at Marampa has been classified into four types in terms of texture, grinding and concentration properties as follows: • Hard, fine-grained ore; • Hard, flaky specularite; • Medium hard ore; and • Soft ore (almost entirely mined out). 86
- 87. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc WAI Comment: These characteristics need to be considered in both the mineral resource model and estimate (through application of domains) for their continued distinction, if deemed necessary, as these characteristics limited the ability and efficiency of their processing. The primary resource was estimated from diamond drill holes, supplemented by shallow auger holes, pits or trenches, spaced on a close (to within 50ft or approximately 15m) and systematic pattern. Some areas were also based on ‘reasonable projections’ from data points but with less confidence. For the primary resource estimate completed in 1985 only mineralisation above the water table was considered with a maximum stripping ration of 2:1 and Fe cut-off grades of 30% and 35% for Masaboin and Ghafal respectively. Cross-sections were drawn at 100ft (≈30m) intervals across strike. A planimeter measured 2D areas and equidistance projections to adjacent section lines were applied to estimate volumes; whence a density factor generated tonnage. Using the resource estimation methods and guidelines outlined above, the 1985 estimate is shown is shown in Table 3.7. Table 3.7: Marampa Mineable Primary Resource (Gouldson 1985)1 Deposit Volume (m3)2 Density2 Tonnes Fe % Waste (m3) S/R A 1,316,695 2.94 3,864,500 37.20 179,200 0.14 B/C 3,203,631 3.25 10,411,800 39.00 1,472,500 0.46 C/D 712,372 3.12 2,222,600 36.50 322,800 0.45 D 3,656,570 3.09 11,298,800 39.30 2,756,900 0.75 E 949,369 3.17 3,009,500 39.70 175,300 0.18 Ghafal 3,356,176 3.19 10,706,200 36.30 971,900 0.29 Ghafal SW 655,391 2.43 1,592,600 42.20 129,600 0.20 TOTAL 13,850,203 3.11 43,106,000 38.28 6,008,200 0.72 1 These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 2 Volumes are back calculated based on average densities from Austromineral records. S/R is the stripping ratio expressed as m3 of overburden to m3 of ore WAI Comment: The historical resource estimate given in Table 3.7 above is not supported by any technical or economic feasibility studies that are required in an estimate produced in accordance with the guidelines of the JORC Code (2004). In addition there is no account of mining loss and dilution and neither a breakdown in categories nor ore types is presented. However, it does indicate the potential mineral resource available in the primary deposits. Equally it was prepared by a competent person, with direct knowledge of Marampa and undertaken in a diligent manner and applying rational parameters. In its 1978 report to the government, LKAB quoted additional resources below the water table (300 feet) at Marampa as shown in Table 3.8 below. Table 3.8: Additional Primary Resource (LKAB 1978)1 Location Long Tons Fe % B/C Ore body (below 300ft level) 1,900,000 35.8 D Ore body (below 300ft level) 23,800,000 36.0 E Ore body (below 300ft level) 800,000 35.0 Campbell Town Ridge (above 300ft level) 4,300,000 38.7 K Ridge – extension to A and B Ore bodies (above 300ft level) 5,500,000 37.0 R Ridge – extension to A Ore body (above 300ft level) 4,500,000 37.0 TOTAL 40,800,0002 36.5 1 These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 2 Equivalent to 41,454,714t 87
- 88. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc IMC (2006) believed that the estimate of the ore body made by Gouldson to be a sound estimate, as is that by LKAB and that their resource figures of 43.1Mt at 38.28% Fe and 41.4Mt at 37.41% Fe be combined to form a total historical mineral resource of 84.6Mt at 37.88% Fe. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 3.7.4 Conclusions It is evident that Marampa contains a reasonable resource, in terms of tonnage and grade, in both tailings and primary deposits. However, with the loss of historical data, including drill core and samples, there is no supporting evidence or corroboration as to the accuracy and validity of historical resource estimates. Consequently it is not possible to satisfactorily audit the various resource estimates and the only comment that can be made is that they appear to have been undertaken in a diligent manner, applying acceptable methods, and are therefore probably reliable. It is also not possible to quantify the long term potential of the primary deposits as these, along with those of the tailings deposits, lie below the present water table. Assessment of the various tailings deposits have been undertaken at different times with different results, particularly for grade. It is clearly apparent that both types of deposit (tailings and primary) require re-evaluation in an effort to establish a robust resource base for future planning and economic potential. LM has addressed these issues with the initial completion of a 240 auger drill hole programme to cover the majority of the tailings deposits and the instigation of a 54 diamond drill hole programme (circa 7,000m) on the primary deposits, initially at Ghafal Hill and later at Masaboin Hill. The results of these drilling exercises and subsequent resource modelling and estimates is paramount to establishing the validity of the mineral resource base at Marampa and its subsequent development into ore reserve. WAI understands that all resource estimates will be established in accordance with the guidelines of the JORC Code (2004) by December 2009 for the tailings and by May 2010 for the primary deposit. There are grade distribution and moisture content issues with the tailings deposits that must be clearly understood from the modelling exercise as these will have a direct impact on mining methods and mine planning to ensure optimum feed to the processing plant. Equally, the mineral distribution and structural control in the primary ore need to be clarified and understood for efficient ore reserve estimation and mine planning. 3.8 Mining 3.8.1 Current Mining Operations There is currently no active mining at Marampa; however, approximately 300-400kt of tailings have been mined and stockpiled for use in future pilot processing operations and plant commissioning. 3.8.2 Tailings Mining Operations 3.8.2.1 Introduction LM has commissioned a feasibility study from local mining consultants CEMMATS Group Ltd, for the mining and re-processing of tailings from Marampa. The CEMMATS/LM mining plan is based upon mining at a rate of up to 750tph to yield 4.5Mtpa of historical tailings material and produce a nominal 1.5Mtpa of concentrate at 63.5% Fe. Two mining methods will be employed; above the water table (at the commencement of mining operations), standard truck and shovel mining operations will be used and below the water table, hydraulic mining methods will be employed. CEMMATS considered a range of mining methods in their study including truck and shovel (or dry mining), hydraulic mining and dredging. Hydraulic mining was chosen over dredging due to lower capital and operating costs and the difficulties and cost involved in 88
- 89. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc moving the dredge between dams. In order to achieve the required feed grade to the plant, more than one tailings dam may be required to be in operation at any one time, therefore, more than one dredge would be required and this would be too expensive in both capital and operating cost terms. 3.8.2.2 Dry Mining At the commencement of operations, dry mining is likely to be employed as the material above the water table is considered to be easily recovered using this method. The equipment, comprising a fleet of diesel- hydraulic excavators and diesel mining trucks, will be contracted in order to reduce capital costs and lead times. No specific mining contractor has been selected for the dry mining operations but numerous contractors capable of this type of work are available within West Africa. The dry tailings will be excavated directly from the old tailings dams and trucked to the processing plant where they will be slurried-up prior to processing. Approximately 300-400kt of tailings has already been mined using this method and stockpiled for use in plant commissioning trials. 3.8.2.3 Hydraulic Mining Once the mining activities begin to extend below the water table, it will become virtually impossible to operate heavy equipment on the dams even if equipped with low ground pressure tyres and tracks. Therefore, just prior to reaching the water table hydraulic mining operations will commence. Hydraulic mining of the tailings deposits will involve using a high pressure water hose, or monitor, to break up the tailings and form a slurry. This slurry will then be pumped directly to the processing plant through a network of pipes. In order to make the hydraulic mining operations efficient a low point or sump will need to be established in one area of the tailings dam. A slurry/gravel pump will be positioned in the sump, usually on a semi-mobile carrier to facilitate raising and lowering of the pump. The monitor will direct high pressure water at the face of the tailings dam and the resulting slurry will flow back to the sump, from where it will be pumped directly to the plant. Control of the slurry/gravel pump is very important during hydraulic mining operations to ensure that sufficient solids are pumped away to prevent re-beaching of the tailings between the monitor and the sump. The advantages of hydraulic mining over dredging are that it is flexible and relatively simple and the equipment is low cost and portable, meaning that more than one tailings dam can be in production at any one time and multiple monitors can be employed inside a single dam. The main disadvantages of hydraulic mining are that it requires a reasonably large reservoir of water, careful water balancing and efficient solid-liquid separation to control density into the plant and clarify the water returning to the main reservoir. Without good density control plant recovery may suffer and if water returning to the reservoir is not sufficiently clarified then this can lead to a build up of tailings within the main water reservoir, also resulting in lower recoveries. In addition, poor clarification will lead to a constant re-circulating load of fine particles within the water system that cause wear in pumps and pipelines and reduce the efficiency of the whole operation. With the use of modern hydro-cyclones, thickeners (either conventional or lamella) and if necessary flocculants, these problems can usually be overcome very simply. 3.8.2.4 Proposed Mining Schedule The proposed LM mining schedule for the Marampa tailings project for the next 10 years is given in Table 3.9 below. Table 3.9: Marampa Tailings Proposed Mining Schedule Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Ore Mined (Mt) 0.1 1.3 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 41.9 Concentrate Produced (Mt) 0.4 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 13.9 89
- 90. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc WAI Comment: The proposed mining schedule is based on mining 41.9Mt at a 23% Fe feed grade, with a recovery of around 80%. At the time of writing there is no classified resource upon which to substantiate the above mining schedule; however, given the recent level of auger drilling, sampling and pilot test work performed in order to establish a resource, this schedule may prove to be achievable. In the meantime, it is adequate for preliminary mine costing and pre-feasibility studies. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 3.8.3 Primary Ore Mining There is currently no definitive operating plan for the mining of primary ore from the Masaboin and Ghafal deposits, as production is not contemplated to commence until 2013. However, it is likely that standard open pit drill and blast techniques will be employed for both ore and waste mining, along with a contractor owned and operated fleet of diesel-hydraulic excavators and off-highway mining trucks to transport ore to the primary crusher and waste to the tip. Historically, the DELCO and Austromineral operations employed four RB-110 electric rope shovels for excavating both ore and waste. The pits were mined with 10m high benches, an overall slope angle of 45° and a waste to ore stripping ratio of approximately 2:1. It is likely that a similar pit design will result from the forthcoming primary ore design and feasibility work. Modern open pit optimisation techniques will need to be employed, to ensure the optimal design in terms of profitability, along with further geotechnical studies to determine the most appropriate pit slope angles. The LM primary ore mining operations will most likely be sized to produce between 1.5Mtpa and 3.0Mtpa of concentrate at 63% – 64% Fe, which will involve mining between 3.0Mtpa and 6.0Mtpa of primary ore, assuming an in-situ grade of 37% Fe and a recovery of around 88%. Approximately 6.0Mtpa to 12.0Mtpa of waste rock will also have to be mined in order to support this scale of ore production. In terms of scale this would be a medium to large mining operation and would require considerable investment to improve the infrastructure within the local area. 3.9 Mineral Processing and Metallurgical Testing To date, all mineral processing testwork has concentrated on re-processing the tailings. 3.9.1 Historical Processing Operations The main ore mineral present within the Marampa primary ore is a variety of hematite known as specularite. This iron ore mineral has a distinctly micaceous nature with a flaky structure. In addition to this, the main gangue mineral within the primary ore is muscovite mica, which also has a flaky texture. The main period of processing operations at the Marampa mine were conducted between 1933 and 1975 under DELCO’s ownership of the site. During this period the main processing techniques employed were gravity based methods and difficulty was encountered in separating the specularite from muscovite, hence the poor recoveries and relatively high iron grades contained within the tailings dams. During the Austromineral period of operations between 1981 and 1985, an attempt was made to reprocess some of the DELCO tailings utilising a dredge and the original DELCO gravity processing plant located at Masaboin Hill. Recoveries during this period were again poor. 3.9.2 Historical Testwork 3.9.2.1 LKAB (1978) Following the closure of the DELCO operations, LKAB of Sweden conducted feasibility studies on the Marampa operations at the behest of the Government of Sierra Leone. The LKAB testwork concentrated on the primary ores in an effort to produce a sinter or pellet feed product. 90
- 91. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc LKAB recognised the need for secondary and tertiary grinding, although the specific grinding energy was unknown. It is known that the hematite grains are very hard and demand high energy consumption when grinding. Using rod mills resulted in rapid liberation of the coarse hematite grains. The best beneficiation method for fine hematite is wet high intensity magnetic separation (WHIMS). Tests using this method yielded a concentrate with an Fe content of 65-66% and an Fe recovery of 90-95%. Indicative tests with silica flotation using ammines were made to assess an alternative to magnetic separation. The results indicated that although a two stage flotation process gave recoveries of Fe comparable to magnetic separation, the Fe content decreased to only 48.2%. LKAB did not recommend flotation. 3.9.2.2 Charnonnages de France (CdF) Sofremines and Lia (1986) Charnonnages de France (CdF) Sofremines and Liat visited the mine in February 1986 to discuss potential rehabilitation. A review of the flowsheet suggested issues with the magnetic separation at DELCO arising from mechanical problems, removal of coarse particles and difficulty in keeping various operational parameters like water delivery under control. 3.9.2.3 ROCHE (2003) TECBASCO contracted ROCHE to carry out metallurgical test work on the tailings deposits. TECBASCO sent two drums (gross weight 128Kg) of five test samples to Roche Mining’s (RMMT) laboratory during September 2003 for characterisation, metallurgical test work and flowsheet development. Five samples of specularite tailings were characterised in terms of particle size and specific gravity in order to determine Fe distribution and liberation properties. Initial flowsheet test work on the five samples of specularite tailings for densimetric and particle size characterisation suggested that the specularite was highly liberated and should be amenable to upgrading using convention gravity separation processing equipment. Gravity separation using spirals was therefore carried out but this test work failed to achieve the requisite target grade of 65% Fe. Wet magnetic separation using WHIMS was employed in order to upgrade the gravity concentrate. The performance of the WHIMS stage treating cleaner spiral concentrate was quantified on a stand-alone basis. Upgrading to 68% Fe was achieved at a mass yield of 85% and a Fe recovery of 93%. Given the superior performance of WHIMS in treating spiral concentrate, it was decided to test a WHIMS only circuit. On a comparative recovery basis between the spiral/WHIMS circuit test work and WHIMS only test work, the WHIMS only option produced a concentrate in excess of 65% Fe at good recovery. The magnetic concentrate produced from a single stage of WHIMS separation easily achieved the 65% Fe grade target at high recovery of Fe of 78%. This was in the order of 10% higher than would be achieved using a multi-stage gravity plus WHIMS circuit. As a result a WHIMS only circuit was selected as the preferred processing option on the basis of a significantly higher Fe recovery and much simpler circuit without the high re-circulating load that would be required in a gravity circuit. A metallurgical flowsheet was developed based on the test data. In addition a significant reduction in material handling equipment such as sumps and pumps would result as well as a reduced processing plant footprint. 3.9.2.4 TRICAL Mining and Metallurgical Services (2005) In 2005, LM contracted TRICAL to carry out metallurgical test work and develop an appropriate flowsheet that could be used to recover an Fe concentrate product from the tailings dams. Following good results obtained from an 800kg sample of tailings, LM authorized the construction of a pilot plant for testing of various samples from the tailings dump. Sixteen bulk samples were taken and representative head samples sent to TRICAL for pilot plant testing to test the process technology and produce data to develop a flowsheet and mass balance. 91
- 92. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Following the successful bulk sample testing, a flowsheet was developed and LM authorized the construction, commissioning and operation of a pilot plant. The pilot plant flowsheet comprised a modern hydrosizer as the primary separation stage, which allowed the feed material to be divided into two separate size fractions and a gravity concentration (spiral) circuit. The circuit was able to recover a high- grade product – greater than 66% Fe – at high recovery (greater than 80%). The main problems which faced the pilot plant included the following: • The main iron ore mineral is micaceous hematite – with a very distinct flake structure; • One of the main gangue minerals is muscovite mica which has the same flake structure as the hematite; and • High slime content – 21.6% average (with some samples as high as ≈35%). TRICAL developed a conceptual process flowsheet based on the bulk sample test work. It was designed to produce 1.77Mt of product per annum at a plant throughput of 750tph and a recovery of 80%. WAI Comment: Following the TRICAL testwork and pilot plant trials both CEMMATS and LM considered a redesign to be necessary. The use of a predominately gravity based processing flowsheet was not considered appropriate given that the original primary ore was processed through a gravity circuit. In addition previous test work had shown the advantages of using WHIMS as opposed to a purely gravity based circuit. 3.9.3 Current Testwork (2009) In order to expedite the testwork programme and have a plant design ready in time to meet LM’s production plan, a 3t sample of tailings was sent to a Setor de Tecnologia Mineral do Centro de Desenvolvimento da Tecnologia Nuclear (The Nuclear Technology Development Centres Mineral Technology Centre) in Brazil (CDTN). The study requisite was to obtain a final concentrate with an Fe grade of ≥65%, SiO2 ≤3.0% and Al2O3 ≤1.0%, with the aim of producing a concentrate suitable for use as a pellet feed. Both bench scale and pilot scale trials have indicated that it is possible to produce a Sinter Feed and Pellet Feed product as well. However, it will be necessary to add a grinding operation to the planned Sinter Feed plant if a Pellet Feed production is considered. Samples were collected from 3 tailings dams; Batabana, Catchment and East Swamp. Mineralogical and Chemical analyses are shown in Table 3.10 and Table 3.11 below. Table 3.10: 2009 Bulk Sample Mineralogy (%) Batabana Catchment East Swamp Muscovite 30 30 10 Quartz 40 30 60 Gypsum 7.5 12.5 <3 Hematite 15 12.5 15 Magnetite < 0.1 < 0.1 < 0.1 Table 3.11: 2009 Bulk Sample Chemical Analysis (%) Batabana Catchment East Swamp Fe 27.6 22.2 20.2 SiO2 39.4 45.3 51.0 A2O3 16.5 18.6 15.8 MnO 0.59 0.68 0.80 P 0.030 0.035 0.034 92
- 93. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Bench scale high intensity magnetic separation trials were performed on the 3 individual tailings samples and a combined sample. The results are summarised in Table 3.12 and Table 3.13 below. Table 3.12: Magnetic Pre-Concentrate Bench Test Results (%) Batabana Catchment East Swamp Feed – Fe grade 35.00 28.06 23.04 Mag. Concentrate – Fe Grade 57.70 59.66 59.42 Feed – SiO2 grade 38.48 44.66 49.42 Mag. Concentrate – SiO2 Grade 10.50 7.19 7.68 Mass recovery 38.6 32.4 30.0 Metallurgical recovery 63.7 68.9 77.3 Table 3.13: Combined Sample Magnetic Pre-Concentrate Test Results (%) Combined Sample Feed – Fe grade 25.60 Mag. Concentrate – Fe Grade 51.44 Feed – SiO2 grade 46.00 Mag. Concentrate – SiO2 Grade 15.00 Feed – Al2O3 grade 16.20 Mag. Concentrate – Al2O3 Grade 10.00 Mass recovery 42.90 Metallurgical recovery 86.50 Following the initial high intensity magnetic separation to produce a pre-concentrate several options were considered in order to produce a saleable final concentrate. The first method considered was a second cleaner stage high intensity magnetic separation. The second alternative considered was a flotation cleaner stage. Results from option one are indicated in Table 3.14 below. Table 3.14: Two Stage Magnetic Separation Bench Scale Results (%) Combined Sample Global Mass Recovery 23.70 Global Metallurgical Recovery 64.70 Final Product Grades: Fe 64.35 SiO2 2.93 A2O3 3.92 MnO 0.75 P 0.019 Following the encouraging results from the bench scale testwork, CDTN commenced pilot scale trials using a two-stage magnetic separation process with a top size of >1.0mm and 0.3mm for both the rougher and cleaner stages. The pilot trials were run using the same composite sample derived from the 3 tailings dams, which varied between 20.2% Fe and 27.6% Fe and were combined into a single sample grading 25.6% Fe. The results with the material <1.0mm was aimed to produce a fine Sinter Feed. Results are shown in Table 3.15. Table 3.15: Two Stage Magnetic Separation Pilot Scale Results (<1.0mm Material) (%) Combined Sample Global Mass Recovery 31.8 Global Metallurgical Recovery 81.4 Final Product Grades: Fe 65.5 SiO2 2.54 A2O3 2.90 93
- 94. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Further pilot scale trials carried out under similar conditions, although with granulometry for the cleaner stage reduced to >0.3mm were also conducted. Results are shown in Table 3.16. Table 3.16: Two Stage Magnetic Separation Pilot Scale Results (<0.3mm Material) (%) Combined Sample Global Mass Recovery 29.8 Global Metallurgical Recovery 79.9 Final Product Grades: Fe 67.1 SiO2 1.20 A2O3 2.19 Both trials yielded a final concentrate which is considered to be suitable as a sinter feed and a pellet feed too. CDTN also concluded that in order to produce an acceptable concentrate using the coarser cleaner stage required lower plant throughput, lower solids concentration, lower intensity magnetic field and higher volumes of process water. These factors must be taken into account in the final plant design and specification as the solids feed rate will be lower and the water consumption greater than would normally be recommended by plant manufacturers. CDTN were unable to produce an acceptable concentrate using a WHIMS rougher circuit followed by a flotation cleaner circuit. WAI Comment: The results of the bench and pilot scale testwork have confirmed that it is possible to produce saleable iron ore concentrates (Sinter Feed and Pellet Feed) from the Marampa tailings, however, according to CRU, the most valuable product is a Sinter Feed for the European market. A lower operating cost is expected to lower for producing Sinter Feed, the coarser product, as there is no need for a grinding operation. The composite sample used in the bench and pilot scale trials had a feed grade of 25.6% Fe. WAI believes that this feed grade may be hard to achieve in practice due to the difficulties of adequately controlling grade in hydraulic mining operations. However, with suitable blending of feeds from different tailings dams it may be possible. WAI concurs with LM and CDTN that, based on the above testwork, a two-stage rougher/cleaner WHIMS circuit is the most appropriate plant design. Care should be taken to ensure that CDTN’s comments regarding throughput and solids concentration are incorporated into the final plant design and specification as this will have a large impact on the overall recovery and plant performance. 3.9.4 Conclusions and Recommendations The mineral processing testwork has demonstrated that a saleable sinter feed product can be produced and that a two-stage magnetic separation flowsheet is the most appropriate concentration method for the Marampa Tailings Processing Plant. When full scale production begins, WAI believes that the main problems encountered will concern density and grade control and the unique characterisation of the ore (the flaky texture). These factors need to be adequately addressed in both the plant design and the scheduling of the mining operations. The grade of the individual tailings dams varies widely, therefore, scheduling of the hydraulic mining activities to ensure consistent feed grades will be of prime importance. 3.10 Transport and Infrastructure 3.10.1 Historical Transport Operations During the period when the Marampa mining operations were controlled by DELCO (1933 to 1975) and Austromineral (1981 to 1985), the iron ore concentrates were transported from the mine site to a dedicated ship loading facility at Pepel, via an 84km railway line. The railway line and the ship loading facility are both derelict and would require complete re-construction but in any case do not form part of the mining licence or proposed transport options. 94
- 95. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.10.2 Proposed Transport Operations LM proposes to transport iron ore concentrates by road from Marampa to a new barge loading facility located at Tawfayim, situated on Port Loko Creek 40km west of the mine. Works have commenced on the construction of a new 18km road, concentrate stockpiling facility, barge loading system and wharf. Barges will be used to transport the iron ore concentrates from Tawfayim a location which can support transhipment onto ocean going hardymax, Panamax or cape size bulk carrier in to the large natural harbour at Freetown. The location of the barge loading facilities is illustrated in Figure 3.9. Figure 3.9: Location of Tawfayim Barge Loading Facilities on Port Loko Creek LM has surveyed Port Loko Creek and conducted shipping studies in association with CEMMATS and Clarkson Shipping and concluded that it is possible to accommodate a self-propelled or pusher style barge, with a maximum barge capacity of 10,000 DWT and a size of 91.5 x 24.4 metres (300 feet by 80 feet), along the entire 37NM route from Tawfayim to the trans-shipment point. Clarkson Shipping has also proposed loading the concentrate on to the ocean going vessels using floating cranes. WAI understands that LM will contract the barge loading, transport and trans-shipment operations to a third party and are working with Clarkson Shipping to finalise the arrangements. The road transport operations between Marampa and Tawfayim will be conducted using a dedicated fleet of 30t road trucks. The type and number of trucks is yet to be determined, however, it is proposed that these operations will be contracted to a local haulier. The road haulage route involves using an existing paved road for 22km between Marampa and Gberi and then a newly constructed road for the remaining 18km to Tawfayim. Construction of this road by LM commenced in April 2009 and is due for completion in early 2010. The road will be a gravel road maintained through regular grading to ensure efficient haulage operations. Three bridges are required along the route together with numerous culverts. 95
- 96. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.10.3 Water, Tailings, Power and Other Infrastructure Requirements 3.10.3.1 Water CEMMATS estimates a water requirement of approximately 1,800m3/hr for the hydraulic mining activity and an additional 1,800m3/hr for the processing plant. Giving a total water requirement of 3,600m3/hr. Water management will be a crucial element in the operations and careful design will be required to ensure efficient operations. A key part of the water reticulation consideration is the need to develop effective and efficient recycling and replenishment mechanisms to minimize the chances for depletion of water, whilst maintaining the water clarity required (especially in processing). CEMMATS proposed water system for hydraulic mining and processing is given in Figure 3.10 below. WAI Comment: The water management plan is still in the conceptual design stage and requires further work to ensure an efficient balanced system with adequate clarification capacity for both the mining and processing operations. 96
- 97. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Replenishment periodically (as required); Replenishment Katik ~3.55km (for ~4 months in Pump ~800m before gravity flow the year) Dredge Pond ~1800m3/h; Batabana [1km] 1800m3/h (Initial rate); Steady state rate: Spillway ~800m3/h; Cyclone ~1800m3/h; ~1.4km Concentrate @ 90% [1.1km] Ore, with solids; Water: 35m3/h Mining 83m3/h Concentrate (water) Ore Overflow: Trucking Station Face Stockpile 955 m3/h (water) 97 Plant Thickeners 1717m3/h 500m3/h 500m3/h Tailings 500m3/h Slurry; 810 500m3/h Reservoir 1 m3/h ~717 m3/h Reservoir 2 ~350m ~350m Thickener Sludge; Thickeners with ~500m3/h water; Final Tailings Ponds Thickener Sludge ; 455m3/h (various locations) ~350m to S of E Swamp ~1,250m3/h; ~[300m (from South of East Swamp)] Key: Water Flow into the Mining/processing system Water Flow back to the Sources/Replenishment Movement of Ore in Slurry Movement of Ore (moist or dry) Movement of Tailings or Slimes Slurry Figure 3.10: Water Balance during Hydraulic Mining Operations
- 98. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.10.3.2 Tailings Disposal During the first 2 years of operations it is proposed to deposit the tailings from the processing operations on a new site adjacent to the East Swamp tailings dam, located 350m from the proposed site of the new processing plant. After this time, the old tailings dam sites will be re-filled with tailings once the existing material contained within them has been mined and re-processed. WAI Comment: No detailed operational plans for tailings management have been designed at this stage. WAI consider this to be an important item which needs to be addressed prior to project start up. Although a cost provision has been included in both the capital and operating budgets, without more detailed engineering it is not possible to accurately estimate the full cost of the tailings management operations. A tailings deposition plan needs to be devised in conjunction with the mining plan to ensure that all likely blending and scheduling scenarios can be accommodated. In addition, it would be prudent to verify that the proposed tailings deposition areas do not sterilise any potential primary ore mining targets. 3.10.3.3 Power Two power generation facilities are required for the LM Marampa operations, one at the mine site and one at the Tawfayim loading facility. CEMMATS has estimated the total connected electrical load for the Marampa site to be 7.4MW, which is broken down as follows: • Mining and processing operations: 3.9MW • Support operations: 1.0MW • Residential: 1.0MW • Pumping Stations: 1.5MW In order to generate and supply sufficient electrical power CEMMATS propose a 10MW fixed thermal plant containing 4 x 2.5MW units. Three units will be required at all times with one unit on standby. These units will be base-load, medium speed and run on diesel/MFO or HFO. This will ensure flexibility and availability of a sufficient and reliable power supply, providing for peak demand, spinning reserve and standby for maintenance. Power will generally be transmitted via overhead lines to the major load centres, and thence by underground cable to the various facilities. The Tawfayim power plant will be a 600KVA semi-mobile containerised unit running on diesel/MFO. 3.10.3.4 Other Infrastructure Numerous other infrastructure items have been proposed, designed and costed by CEMMATS including site roads, mining and processing facilities, foundations, workshops, offices, laboratories and a labour camp. It is proposed to re-furbish/re-use many of the previous DELCO buildings and foundations in order to reduce capital costs. WAI Comment: The general site infrastructure plans put forward by CEMMATS appear to be well designed and sensible with adequate cost estimates at this stage in the development of the project. 3.11 Environment, Health, Safety and Community Issues (EHSC) 3.11.1 Introduction WAI has assessed the potential EHSC impacts arising from the Marampa Iron ore project at Lunsar as it currently stands, and herein reports on any potential liabilities associated with these. 98
- 99. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc WAI also: • Evaluated existing environmental monitoring; • Assessed environmental and community management requirements or current policies and practices; and • Recommended options for reducing the environmental and social impact of the project in the local area, to avoid contraventions of International standards and to assess the environmental cost of the project. The above was achieved via site visits to the Marampa iron ore project at Lunsar, a trip following the proposed ore shipment route up the Port Loko River to Tawfayim, the proposed transhipment facility site, and a visit to the construction site of the haulage route connecting the mine with the transhipment facility. Discussions were also held with representatives from LM who will be part of the mine site team, with the local environmental contractors, and with the Minister of Mineral Resources and Affairs, and the Minister of Finance. During the course of the visit and thereafter, WAI has also reviewed relevant EHSC documents provided by the company. Comment on the findings of the documents has been incorporated into this report where necessary. 3.11.2 Current Project Status The planned project description is outlined in earlier sections of this report. Since 1985, the mine site has largely re-vegetated, with significant evidence of previous industrial activity including old tailings dumps and infrastructure across the site. 3.11.3 Legislative Requirements The project will be required to comply with National Legislation. This will include submission of an Environmental Impact Assesment (EIA). Rehabilitation of damaged areas may be included as a condition, with appropriate financial provision. The EIA will be submitted for board inspection and public comment. The outcome of this inspection dictates subsequent requirements. It was reported to WAI that no specific environmental controls will be applied to the project with regard to the environmental impacts of dredging, but that as part of the project construction, appropriate compensation agreements are in place. WAI Comment: WAI considers that LM is currently compliant with conditions set out in the reviewed legislation, but requirements of imminent legislative updates will need to be taken into account. As a general principle, it would be recommended to minimise land take where possible, and to limit vegetation destruction and consequently habitat loss. 3.11.4 Current Environmental Studies An Environmental and Social Impact Assessment and a Feasibility Study Report were produced by CEMMATS, a local consultancy in May and June 2009 respectively. The ESIA covers the mine site at Lunsar and the proposed transhipment site at Tawfayim, and an additional ESIA is being produced for the haulage route construction site. The CEMMATS ESIA is based on limited primary data, with many of the conclusions regarding potential impacts being drawn from consultation of secondary data sources. The mining licence area has been approved by the government, and appears to materially cover the same footprint as the ESIA and as such should be adequate for the purpose. WAI Comment: WAI would wish to review updated information to assess compliance with National and International requirements. WAI considers that the ESIA for the transhipment facility and mine site would meet National requirements. 99
- 100. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc To date, LM has not needed to demonstrate compliance with international best practice, since monies for project development have been sourced internally. However, should finance be sought from international financial institutions, it will be necessary to demonstrate compliance with international guidelines, and that further work would be required to achieve this. WAI would suggest that an ESIA addendum be produced, in order to address shortcomings in the existing ESIA, with regard to international best practice, with additional baseline data collected as required. 3.11.5 Environmental Liability Since the mine site is already a disturbed area, there are potential environmental liabilities already associated with the site, e.g. stability of existing tailings dumps, and potential water pollution. WAI Comment: It will be important for LM to separate its own liability caused as a result of proposed operations from any historic liabilities. WAI would recommend that LM approaches the government in this regard, to ‘write off’ historic liabilities, and then characterises the site prior to LM operational activity. Financial provision for this should be made. 3.11.6 Corporate Environmental and Social Management Given the early stage of project development, LM has not yet developed mechanisms for environmental management, and WAI would suggest that this is an excellent opportunity to implement systems now, such that when operations commence, good strategies for environmental and social management are already in place. In general, WAI would suggest that an Environmental Manager should be dedicated to the project, in country, to ensure that National environmental legislative requirements are met. WAI would also recommend that LM designates an Environmental Manager at corporate level, to ensure that site specific requirements are fed back and represented at board level and to ensure that environmental management is appropriately resourced and managed. Subsequent to the appointment of individuals, external support may be required to ensure international compliance. As a first step, WAI would suggest that an Environmental and Social Action Plan (ESAP) be developed to address priority objectives, and schedule the actions necessary to achieve these tasks. 3.11.7 Security When sites are fully operational, WAI has been informed that site security will be provided. The proposed measures are considered appropriate given the size of the site, and the type of operations planned. 3.11.8 Health and Safety Given the early stage of the project, health and safety is covered through corporate policies, which will need to be translated to meet site requirements in due course. 3.11.9 Current Environmental Expenditure There is a current environmental budget of ~US$1M/yr. This is intended to include requirements for national permitting and management, but does not currently include any sums to cover meeting higher international standards. WAI Comment: WAI would recommend budgets be developed in response to ESAPs, and Environmental Management and Monitoring Plans (EMMP). 100
- 101. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 3.11.10 Mine Closure and Rehabilitation No Mine Closure and Rehabilitation Plans (MCRP) are currently in place, although principles for closure are included in the ESIA. Similarly, no financial provisions are currently being made for closure and rehabilitation costs. WAI Comment: WAI would suggest that a draft MCRP be developed, to cover options for closure at the mine and port facility. WAI would suggest that such a study be undertaken at an early stage, culminating in a draft MCRP that would be updated throughout the life of the mine. The plan should also include requirements for environmental monitoring both during and post closure phases. A closure fund will also be required to ensure that at the end of the mine life, this is sufficient to cover closure and post closure costs, with adequate securities in place to protect the community from closure liabilities. 3.11.11 Community Development During the course of the visit, WAI attended local community meetings with representatives from Lunsar and Tawfayim, and it is clear that there is strong community support for the project, with high expectations of local employment as a result. LM has engaged the affected communities at an early stage, and is maintaining an open dialogue with community members. LM has a budget for community development (approximately US$2M/yr), and has already funded various worthy local projects. Further community works are also planned and 3-4 members in the community liaison team who are the point of contact for people wishing to develop projects, or for any concerns or grievance There is currently no formal Community Development Plan (CDP), although it is planned to develop one, to accompany the existing development budget. LM intends to employ local people wherever possible. Similarly, project infrastructure will be available to local people for use, which will improve the current infrastructure in the area. LM is also working with local NGOs on various community projects, to ensure community benefits. There are communities currently living within the mining licence area, and if they are likely to be affected by the project, resettlement may be necessary. WAI Comment: WAI is impressed by the proactive attitude to community development demonstrated by LM. LM is working in an open, transparent manner, and is maintaining dialogue with local communities. Care will need to be taken to ensure that expectations are carefully managed. WAI would suggest that a formalised CDP should be developed as a matter of priority to ensure that LM can continue to convey community benefits, in a structured manner, without requests becoming too burdensome. WAI would recommend that the potential issue of resettlement be investigated more throughly, and if community resettlement is considered likely, a Resettlement Action Plan (RAP) will be needed. 3.11.12 EHSC Recommendations The list below details WAI’s main recommendations for further work: • An ESIA addendum should be produced, to address existing shortfalls between national and international requirements, to ensure that project financing options are not limited in the future; • The government should be contacted with regard to signing off potential historic environmental liabilities at the site. If liabilities exist, financial provision should be made in respect of these; • An Environmental Manager should be appointed at the local level to be responsible for environmental compliance, permitting, management and monitoring plans, reporting and environmental training; • An Environmental Manager should be appointed at a corporate level, to represent site related concerns, and to ensure that environmental management is appropriately resourced; 101
- 102. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc • An ESAP should be drafted to address priority environmental and social objectives and to schedule these; • Environmental budgets should be provisioned in response to ESAPs, Environmental Management and Monitoring Plans, and permitting requirements; • A draft MCRP and funding mechanism should be developed based on a realistic assessment of closure and rehabilitation requirements; • The issue of the potential for resettlement should be clarified, and if required a RAP should be developed; • Community expectations should be carefully managed, particularly given the high level of support for the project; and • A formal CDP should be developed. 3.12 Capital and Operating Costs Capital and operating cost estimates have been produced by CEMMATS and LM during their 2009 scoping level study of the Marampa Tailings Project. 3.12.1 Operating Costs The main operating cost components in the Marampa Tailings Project are: • Mining costs; • Processing cost; • Haulage, barge loading, transportation and trans-shipment costs; • General and administrative costs; and • Power costs. The estimated steady state operating cost parameters (after the first year) for the tailings project are summarised in Table 3.17 below. Table 3.17: Marampa Tailings Project Estimated Operating Costs Operating Cost Units Cost Hydraulic Mining US$/t of dry concentrate 1.94 Processing US$/t of dry concentrate 6.74 Haulage, Loading and Transport US$/t of dry concentrate 11.87 Overheads1 US$/t of dry concentrate 10.66 Royalties2 US$/t of dry concentrate 1.65 Total OPEX US$/t of dry concentrate 32.86 1 Includes U$0.40/t production royalty to DF & Tecsbaco, 0.10% agriculture levy, 6% selling cost. 2 3% to Government of Sierra Leone The operating costs have been built up from a series of estimates, quotations and assumptions; these are not definitive as this stage. 3.12.2 Capital Costs The capital expenditure required to bring the Marampa tailings project into production is estimated to be in the region of US$70.16M. 102
- 103. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc These costs, subdivided by category, are summarised in Table 3.18 below. Table 3.18: Marampa Tailings Project Capital Expenditure Category Value US$M Roads & Site Preparation 3.47 Mining 4.76 Processing 25.00 Haulage Loading and Port Facilities 11.10 Power Generation and Distribution 12.95 Facilities 8.03 Studies 0.85 Sundry Capital Expenditure 0.50 Dredging River 1.50 Contingency 2.00 Total CAPEX 70.16 The capital costs were originally estimated by CEMMATS and LM, with the plant capex later being re-estimated by LM based on the results of the pilot testwork conducted by CDTN in Brazil. The plant capex was originally estimated to be US$14.06 (single-stage WHIMS) but later re-estimated at US$25M (two-stage WHIMS). A substantial proportion of the capital expenditure for the project is allocated to construction of the new road and barge loading facilities at Tawfayim, the processing plant and the power generation plant. Initial dry mining operations will be contracted. WAI Comment: WAI considers the capital and operating cost estimates produced by CEMMATS and LM to be appropriate for the level of study undertaken; however, as the project advances it may be necessary to revise these estimates. 3.13 Conclusions and Recommendations LM has completed a substantial amount of work on the Marampa project and the project is now heading towards the final development stage. LM’s legal tenure over the mining licence was subject to a dispute; however, as of August 2009 an agreement has been reached with both African Minerals and the Sierra Leone Government with the boundaries of the mining licence having been confirmed. In regard to the geology, resources and reserves the Marampa Mines project needs to be separated into the tailings project and the primary ore project. The tailings project has been well defined and LM/ Snowden will shortly (December 2009) complete a tailings resource estimate classified in accordance with the guidelines of the JORC Code (2004). Until the Snowden resource estimate is completed and made available it is not possible to comment further; however, based on previous investigations it is evident that an appreciable resource exists, that subject to positive testwork, can be utilised in a mine plan. Notwithstanding the above comments, WAI has some concerns that the density of drilling in the different tailings deposits is not consistent and this may have an impact on Snowden’s ability to produce a classified resource for certain areas, most notably in Valley B, where only 8 exploration drill holes were completed. The 2009 Snowden resource estimate should, however, clarify the suitability of the drilling/ sampling completed on these deposits and highlight areas where additional drilling may be required to improve the quality and confidence of the estimate. In the case of the primary ore deposits, the exploration programme is only just getting under way and a classified resource is not scheduled to be ready until May 2010. WAI does not see this as an impediment to the tailings project, which should be treated as a stand-alone entity. The primary ore 103
- 104. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc project is envisaged to commence production after Year 2 of the tailings operations, which does give sufficient time to complete the feasibility studies required; however, the schedule is demanding and will require careful management by LM in order to complete the primary ore project on time. In terms of tailings mining, a feasibility study has been completed by CEMMATS. This study highlights a number of concerns with the hydraulic mining method including grade control, scheduling/blending and water management. WAI concur that these elements will require attention but they are not operationally insurmountable. The operating and capital cost estimations are good budget estimates for this stage in the development process. Processing and metallurgical studies for the Marampa tailings project are well advanced and the results of pilot scale testing indicate that it is possible to produce a saleable concentrate suitable as a Sinter Feed and Pellet Feed. Transport, loading and shipping studies are advanced with construction of the new haul road underway and due for completion in early 2010. LM is considered to currently be in compliance with National Environmental and Social regulatory requirements, although it is considered that further works would be required to achieve international compliance. The current Environmental and Social Impact Assessment (ESIA) is considered to satisfy national requirements, but it is suggested that an ESIA addendum be produced, to address shortfalls between National and International requirements, and to ensure that impacts are accurately characterised across the approved licence area. The existing ESIA is largely based on secondary data sources, and WAI considers that further baseline information should be collected in some areas, to ensure that the site is accurately characterised, and to highlight any historic environmental liabilities existing at the site. The provision of an ESIA addendum would enable international requirements to be satisfied, and ensure that choices for future project financing are not limited. LM does not currently have a mechanism for in-house environmental management, and it would be recommended to employ Environmental Managers at site and corporate level to achieve this. Community liaison representatives are in place, and community consultation and development is proactively managed, although initiatives are funded on an ad hoc basis, rather than in response to a formal Community Development Plan. The potential for resettlement should be assessed, and if necessary, a Resettlement Action Plan should be developed. There is currently no Mine Closure and Rehabilitation Plan in place, and no financial provision made for closure costs. WAI recommends that a plan be developed, with a supporting accounting mechanism for accrual of funds. WAI considers that LM is in an excellent position to implement mechanisms for Environmental and Social management at this early stage, to ensure that future operations are responsibly and proactively managed, and would suggest that tasks to achieve this be incorporated in the formation of a time-bound Environmental and Social Action Plan. WAI believes that both the capital and operating cost estimates undertaken by CEMMATS and LM are reasonable given the current knowledge of the resource and the amount of testwork that has been performed to date. Updated resource and testwork results are due imminently and these will provide a greater degree of certainty as to the economic viability of the project. Once more metallurgical testwork has been performed and LM has a better understanding of the likely product quality and markets that are suited to the Marampa concentrates, it will be possible to update the marketing assumptions undertake an economic assessment of the project and possibly enter into negotiations with potential off-take partners. 104
- 105. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 4.0 SAUDI ARABIA 4.1 Introduction LM has entered into a 50/50 joint venture to develop the Wadi Sawawin iron ore deposits in Saudi Arabia. LM’s joint-venture partner in the Wadi Sawawin deposits is the Saudi Arabian-based National Mining Company (‘National Mining’). LM and National Mining created Saudi London Iron Limited (‘SLI’) to develop the deposits. The Wadi Sawawin deposits are located in the north-west of Saudi Arabia, approximately 63km from the Red Sea port of Duba. They were discovered in 1953 and are between 600masl and 1,100masl in mountainous country. Preliminary works suggest that the average grade of the deposits is 41% Fe, containing an average of 30% SiO2. The ore is fine grained and testwork has shown that it may be suitable for direct reduced iron (‘DRI’) production with the application of appropriate beneficiation. Various organisations evaluated the deposits in the past and conducted metallurgical testing on behalf of the Saudi Directorate General for Mineral Resources (the ‘DGMR’). In 1975, the DGMR appointed the British Steel Corporation (Overseas Services) Limited (‘British Steel’) to investigate the deposits in detail. Following the creation of the joint venture, LM initiated a study to re-estimate the mineral resources, review proposed capital and operating costs; review the mining plan; conduct further pilot plant test work; and to undertake marketing and logistics studies. This study was conducted by SEI Consultoria de Projetos Ltda (‘SEI’), PSI do Brasil Engenharia Ltda (‘PSI’), Sandwell Engenharia Ltda (‘Sandwell’) and Ausenco Services Proprietary Limited (‘Ausenco’). PSI, Sandwell and Ausenco Services Proprietary Limited are part of the Ausenco group of companies (‘the Ausenco Group’). The study was based on the production of 5Mtpa of pellet plant feed concentrate, with consideration of the future expansion of the facilities to 10Mtpa. Corus consulting are now engaged in various studies including metallurgical testwork (variability studies) to define economic recovery for the ores, for inclusion in the current re-evaluation of the mineral resource estimate being undertaken by Snowden. Previous resource estimates for Wadi Sawawin have not been undertaken to internationally acceptable standards and were considered by LM to be inadequate for the purposes of mine planning and project evaluation. At the present time, there are no classified resources for Wadi Sawawin. 4.2 Property Description and Location 4.2.1 Location and Background The Wadi Sawawin deposit is located in the Tabuk Emirate, in the north-west of Saudi Arabia, some 750km north of the major coastal city of Jeddah, and 1,100km north west of the capital Riyadh. The nearest towns are the port of Duba (63km to the south west, 110km by road) and Tabuk (90km north east, 130km by road), located on the Red Sea coast. Tabuk city had a 2004-census population of 441,351. Journey time to the concession from Tabuk Airport is approximately 1 1⁄ 2hours. The Kingdom of Saudi Arabia is the largest country on the Arabian Peninsula, covering a land area of approximately 2,150,000km2 with an estimated population of 28M, growing at an annual rate of 1.9%. The country has land borders with Jordan, Iraq and Kuwait in the north, Quatar in the east, and United Arab Emirates, Oman and Yemen in the south and southeast. Saudi Arabia also has approximately 2,600km of coastline, mostly with the Red Sea to the west; but also the Persian Gulf to the east. Administratively the country is divided into 13 Emirates, with a total of 118 governates. 4.2.2 Mining Lease and Licence National Mining holds exploration leases over three groups of Wadi Sawawin deposits – the Western Group, the Eastern Group and Wadi Alhamra. It also has an ‘exploitation’ (mining) licence for part of the Western Group deposits. The exploitation licence is for an area centred at co-ordinates of approximately 35.77° east, 27.92° north. • Exploration licence (Western Group) #EL65G expires on 23 June 2010 (45.189km2); • Exploration licence (Eastern Group) #EL64G expires on 23 June 2010 (74.963km2); 105
- 106. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc • Exploration licence (Wadi Alhamra) #EL66G expires on 23 June 2010 (91.029km2); and • Exploitation (mining) licence (Western Group) Royal Decree ML31/M expires on 7 September 2032 (3.57km2). The above licences are in the process of being transferred from National Mining to SLI. Figure 4.1 below shows the Wadi Sawawin deposits and licence areas. Figure 4.1: Wadi Sawawin Deposits and Licence Areas 4.3 Accessibility, Physiography, Climate, Local Resources and Infrastructure The site of the Western Group of Deposits is accessible by road from the two closest towns of Tabuk and Duba (130km and 110km by road respectively). A main highway (Route 80) links Duba and Tabuk, with access to the site possible by a dirt road connecting with the main highway. There is no rail connection to the site. The topography surrounding the Wadi Sawawin deposit comprises mountainous terrain, with the altitude of the area increasing towards the east (the city of Tabuk on the eastern side of the Jabal al-Hejaz mountain range having an altitude of 700-750m above sea level). The region surrounding the deposit has altitudes ranging from 500m above sea level in the valley areas, to 1,000m at mountain peaks. The climate of Saudi Arabia is characterised by extreme heat and aridity with summer temperatures on occasion rising as high as 50°C. Average winter temperature ranges from 8-20°C in January in interior cities such as Riyadh and 19-29°C in Jeddah, on the Red Sea coast. Occasional frost or snow is possible in the interior of the country or at high altitudes. The summer temperature (July) ranges from 27-43°C. Annual precipitation is usually sparse (100mm or less in most regions), although sudden downpours can lead to violent flash floods in valleys and/or riverbeds. The town of Tabuk has a rail link with Jordan in the north, although no rail links with other cities in Saudi Arabia. Tabuk Regional Airport provides air links with other major cities within the country. The closest international airport to the deposit is located in the City of Medina, with limited international flights to neighbouring countries. The slightly more distant international airport at Jeddah has flight connection to most nations in the Middle East and Europe. 106
- 107. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 4.4 History 4.4.1 Previous Exploration works and Studies by British Steel Consultants Ltd The formations of the Wadi Sawawin deposit were discovered in 1953 and during the following 40 years they were investigated by various authorities, principally British Steel, under service contracts managed by the Directorate General of Petroleum and Mineral Resources (DGMR). Historical resource and reserve estimates undertaken by British Steel identified and classified a total 412Mt of resources at an average grade of 42% Fe and 28% SiO2. The Measured reserves within the target deposit for initial exploitation were estimated at 84Mt. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. The Western Group deposits were geologically mapped at a scale of 1:1,000 and a total of 61 holes were drilled involving 5,657m of diamond drilling. In addition, exploration works included two exploration adits, one quarry and 30 rotary percussive drill holes. British Steel (1976-1994) investigated the Project in four phases, each designed to evaluate a specific aspect of the overall project. The findings of British Steel are summarised as follows: • The proposed mining method follows conventional open pit mining practices; • A beneficiation process has been developed to produce a concentrate from Sawawin ore with at least 67% Fe and containing less than 2.2% total acid gangue (silica plus alumina) at iron recoveries approaching 75%; • The beneficiation process proposed by the previous works comprised grinding, selective flocculation and a multiple stage reverse anionic flotation of silica; • Despite the fine grained nature of the Sawawin concentrate, it has been shown through extensive testwork, that high quality pellets for direct reduction can be produced from the concentrate, exhibiting chemical, physical and metallurgical properties comparable with those found in commercially acceptable direct reduction grade iron ore pellets; and • Sawawin pellets are typified by their superior handling characteristics which results in low fines generation in the oxide state, low breakdown during reduction and more than adequate strength after reduction. 4.4.2 Snowden Study (2007) In 2007, Snowden Consultants (Snowden) was engaged by Saudi-based Saudi Canadian Mining Services on behalf of National Mining to complete a desktop study of the Wadi Sawawin project in order to determine if the project was now potentially viable. This original Snowden study was based upon a 3Mtpa pellet plant operation and it concluded that the project was potentially viable and additional studies of a more detailed nature were justified. 4.4.3 Snowden Study (2008) Snowden consolidated the desk-top study report (2007), included some options analysis, optimisation effort, and suggest detailed planning that would be typically completed before a feasibility study. Based on the recommendations of the previous Snowden Desktop Study, LM requested Snowden to complete a new resource estimate and preliminary conceptual mine planning with a focus on final pit optimisation and mine layout, for a 3Mtpa concentrate operation, later changed to 5Mtpa after work had started, including digitising of the existing exploration works and topography. 107
- 108. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The main conclusions and recommendations of this work are as follows: • The mineral resource estimate completed by Snowden is not prepared in accordance with the guidelines of the JORC Code (2004), but Snowden has applied the JORC (2004) classification terminology; • Preliminary unclassified resources of 230Mt at an average grade of approximately 41% Fe and 30% SiO2. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only; • An additional drilling campaign will be necessary to investigate satellite areas with good potential to add significant additional resources; and • The preliminary estimation of resources is considered adequate to sustain a maximum production rate of 5.0Mtpa of pellets, subject to the findings of a full feasibility study which is due to be completed in December 2009. WAI Comment: The resources estimated by Snowden in 2008, although not fully compliant with JORC, are robust and given appropriate QA/QC checks including further density determinations, should fall into line with JORC guidelines. Snowden is believed to be releasing a fully classified resource, prepared in accordance with JORC, in November 2009. 4.4.4 Ausenco Engineering Cost Study (2008) In 2008, Ausenco was commissioned by LM to determine a +/-25% level of accuracy, capital and operating cost study for a beneficiation plant, pelletising plant, transport, and port facilities for the Wadi Sawawin project. The facilities and infrastructure being adequate to produce 5Mtpa iron ore pellets from 11Mtpa of run of mine ore, with considerations for expansion of the facility to 10Mtpa of pellets. The cost estimate was based on an Empresa Mineria de Projectos Ltda (‘EMP’) design, a development of the British Steel process route. 4.4.5 Additional Drilling and Beneficiation Testworks Following recommendations from the previous studies, some additional works were started by SLI during the second half of 2008, as follows: • Approximately 5,000m of diamond drilling to complete a 200 x 200m grid with the objective of identifying additional resources and reserves, especially at the southeast extension of the main orebody on Western Group deposit number 3; and • Beneficiation testwork on a bulk sample delivered to a laboratory in Brazil. WAI Comment: WAI is informed that the additional diamond drilling on the Wadi Sawawin is to be completed in February 2010 and those for the Wadi Sawawin ‘expansion’ be completed in March 2010, though it is understood that both campaigns are intended to be accelerated. 4.5 Geology and Mineralisation 4.5.1 General Background Jaspilitic iron ore has a widespread occurrence in the Wadi Sawawin district, mostly in small deposits that owe their formation to intense tectonics and subsequent erosion. The main jaspilite unit, of the Algoma type, is generally 30-60m thick with grades varying between 40% and 43% Fe. The iron formation is hard, finely laminated rock consisting of hematite and magnetite rich bands alternating with dark red jasper bands. Geological works have concentrated on the Western Group of deposits (numbers 1-5); these are located on the Jabal al Sinfa and extend for a distance of 6km west of Wadi Sahaloolah. 108
- 109. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The general layout of the Western Group deposits located at Wadi Sawawin is shown in Figure 4.2 below. Figure 4.2: Wadi Sawawin Western Group Deposits Geological mapping at 1:1,000 and three drilling campaigns were conducted between 1969 and 1980. A total of 5,675m diamond drilling in 61 was holes completed, which, concentrated on Deposit number 3 (south) totalling 32 holes, together with two exploration adits and one quarry, which were excavated on this deposit and 30 associated rotary percussive holes. The surface distribution of the jaspilite is known from the geological mapping across all deposits. Apart from Deposit 3 (south), data from drilling is more limited. 4.5.2 Regional Geology The Arabian Shield consists of folded and metamorphosed Precambrian volcanic, volcanoclastic, and sedimentary rocks, and a great variety of plutonic and sub-plutonic intrusions. Few isotopic dates are available for this part of the Shield, but elsewhere in the Shield the oldest reliable dates are about 900 million years (Ma) for plutonic rocks. The stratiform Precambrian rocks of the Al Muwaylil quadrangle are the Zaam, Bayda, and Thalbah groups and the Minaweh formation, intruded by the Duba complex, and Muwaylih and Tiryam suites of plutonic rocks, and several unassigned plutons. In addition, on the northern border there is the Sawawin complex (possibly equivalent to the Sadr complex of the Muwaylih suite) and the post-tectonic Atiyah monzogranite, both of which are more extensively developed in the Al Bad’ quadrangle. The oldest exposed rocks of the quadrangle belong to the andesitic Zaam group, whose deposition was followed by that of the Bayda group and intrusion of the Duba complex and Muwaylih suite of granodiorite and tonalite. A major unconformity between the Bayda and Zaam groups is present elsewhere in the region, but in the Al Muwaylil quadrangle the volcaniclastic-volcanic Bayda group has 109
- 110. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc been thrust onto the Duba complex. The clastic sedimentary rocks of the Thalbah group lie unconformably on the Zaam group and elsewhere in the region are interpreted as unconformable on the Bayda group. After deposition of the Thalbah group came a tectonic phase characterised by formation of regional recumbent folds associated with a major horizontal shortening and crustal thickening tectonic regime, and finally the development of ductile shear belts of the Najd wrench-fault system and intrusion of post-tectonic granites. The precratonic elements assembled during a collision that occurred around 690Ma ago (Figure 4.3). The manner in which the oceanic domain closed is generally little understood. However, ophiolitic formations mark the suture lines, and detailed analysis of the faults characterising such terrain boundaries marked by ultra basic formations, provides some keys for understanding this phenomenon. Figure 4.3: Regional Geology 4.5.3 Local Geology of the Western Group 4.5.3.1 Lithological Units The main ore-bearing horizon is a jaspilite unit. The main jaspilite unit is essentially a banded oxide facies iron formation of Algoma type and is interbedded with submarine mafic to felsic volcanic rocks 110
- 111. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc and volcaniclastic graywacke and shale. Most deposits of this type are found in Archean greenstone belts, but some are in younger rocks of similar character. Most Algoma type iron-formation formed in island arc and related suites and was subsequently strongly deformed in orogenic belts. Most candidate ore is oxide facies rock that consists of interlayered magnetite or hematite and metachert; less commonly iron-carbonate facies rocks are mined. The jaspilite is a stratiform unit with a WNW-ESE trending belt of Precambriam pyroclastic and sedimentary rocks, and is associated with metadiabase and other intrusives. Both sets of intrusives often show discordant contacts. The sequence has been strongly folded and faulted and subjected to low grade regional metamorphism. At a later stage the rocks were intruded by diorite and granite plutons and by additional hypabyssal intrusives, and underwent hydrothermal alteration. Further faulting, postdating the second intrusive phase, mainly involved reactivation along pre-existing lines. Since the Precambriam, the area has been stable and there has been extensive erosion giving rise to the present deeply dissected and rugged topography. The thickness of the jaspilite ranges from 5-90m with a typical grade from 40-43% Fe. It includes volcaniclastic horizons usually less than 0.5m in thickness, some of which are stratigraphically persistent. Locally, thicker barren interbeds are present or sections of poor grade siliceous, jasper-rich jaspilite occur. The footwall beds consist of volcaniclastics, chiefly tuffaceous sandstones and siltstones, and tuffs with intercalations of ferruginous beds, including some thin, impersistent jaspilite bands. Immediately underlying the main jaspilite unit, there is a sub-unit of banded ferruginous argillite, around 7.0m in thickness and grading about 22% Fe. Its contact with the main jaspilite unit is usually sharp. The hanging wall rock consists of ferruginous tuffs of interbanded iron formation and volcaniclastics, which rest directly on the main jaspilite unit. They may include thin jaspilite bands, and the magnetite content is often relatively high. Their thickness ranges up to around 12m and typically contains grades of 25-35% Fe. The contact with the main jaspilite unit is gradational and difficult to define. The overlying hanging wall beds proper consist chiefly of coarse tuffaceous sandstones and tuffs, with further thin intercalations of ferruginous material including jaspilite bands. Essentially, the fall-off in Fe content above the main jaspilite unit is gradual and the location of the cut-off level will be a matter for local, detailed study as mining progresses. 4.5.3.2 Structure The main folds trend east-southeast – west-northwest to E-W and have varying plunges. They are markedly disharmonic and tend to have steeply inclined limbs and flat-lying crests and troughs. Parasitic folds are common in some areas. The major folds are: • A complex syncline extending from west to east along the lengths of deposit number 1 and 2; • A synclinal flexure forming much of deposit number 3 and 4; and • An anticline, complementary to and north of the syncline (along the length of deposit number 1 and 2), forming the northern parts of deposits number 1 and 2. The major faults are: • A fault trending east-west along Wadi Odei and Wadi Mahatta at the volcaniclastics-diorite complex contact; • A fault trending west-northwest – east-southeast passing through the adit portal and subdividing deposit number 3 into north and south parts; and 111
- 112. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc • A fault also trending west-northwest – east-southeast to the north of and parallel to deposit number 2. This fault is interpreted as continuing westwards across deposit number 2 where it cuts out part of the southern limb of the main syncline. The main structural features of the geology of the 5 individual deposits which make up the Western Group are as follows: • Deposit number 1, the westernmost, is on the summit and northern flanks of a ridge and has mainly a synclinal structure; • Deposit number 2 has a “V” shaped jaspilite outcrop on two ridges separated by a central valley. The latter feature follows the trough of the major syncline. There is a detached area (deposit number 2A) across Wadi Odei to the northeast; • Deposit number 3 has a broad “U” shaped outcrop resulting from a basinal synclinal structure. It is divided into two parts (north and south deposits) by a major fault; • Deposit number 4 is a further erosional remnant of the synclinal flexure forming deposit number 3. In its higher part it contains much interleaved metadiabase; and • Deposit number 5, the easternmost, has a complex structure with much interleaved and discordant metadiabase. 4.5.3.3 Mineralogy and Grade Variability The jaspilite and associated rocks are metamorphosed, well indurated and little affected by weathering. The chief minerals within it are hematite (50%), quartz (22%) and magnetite (9%), making up around 80% of the mineral composition. The quartz is mainly in the form of chert and jasper. Other common minerals are calcite, ferro-chlorite, sericite, apatite and pyrite. The jaspilite is characteristically banded, most bands having a thickness from 1 to 10mm. Individual bands vary widely in mineralogy, the extremes being almost wholly of jasper, or iron oxide, or calcite, or volcaniclastic minerals. The form of banding is also variable, ranging from uniform to irregular. A preponderance of one more band types gives rise to lithological subtypes, the main variants from the typical jaspilite being iron- rich, siliceous and tuffaceous jaspilites. A significant proportion of the iron oxides are present as a matted intergrowth subsidiary gangue in Fe-rich bands, but much hematite is closely interlocked with chert and forms tiny platelets around 0.007mm by 0.001mm in size within composite bands. Much of the magnetite has a coarser grain size, occurring as disseminated crystals between 0.01 and 0.1mm in diameter or in individual bands. Very fine grained magnetite can be present in composite bands The average grade of the jaspilite for deposit number 3 (south) is: • Fe: 42.5%; • SiO2: 28.3%; • P: 0.31%; • S: 0.11%; and • Fe3O4 (Magnetite): 9.0%. The other deposits are of somewhat lower grade with Fe contents ranging between 39% and 41.5%. The average grade of the jaspilite from the adit on number 3 deposit is as follows: • Fe: 45.8%; • SiO2: 26.7%; • P: 0.29%; • S: 0.08%; and • Magnetite: 15.3%. 112
- 113. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The adit was driven through a higher quality zone of the deposit, with preponderance of Fe-rich bands and especially of magnetite. The main lateral variation in grade across deposit number 3 (south) is at its eastern end where jaspilite of poor quality results from numerous tuffaceous intercalations. Another regionalised variation is shown by the magnetite content. On the other deposits (N1 and N2), lateral variation in grade is still unclear due to the exploratory nature of the drilling. The principal feature on deposit number 2 is the occurrence of thick sections of siliceous jaspilite, a type virtually absent on deposit number 3 (south). The average grade of this siliceous jaspilite is typically: • Fe 35.3%; • Si02 35.4%; • P 0.19%; and • Fe3O4 (Magnetite) 4.9%. The main variation in grade across the stratigraphic thickness of the jaspilite is shown by magnetite and phosphorus contents and by local variations in the amount of tuffaceous material. Figure 4.4 represents a typical section of the Wadi Sawawin deposit. Figure 4.4: Typical Section of Wadi Sawawin (British Steel) WAI Comment: A considerable amount of geological study work has been completed on the number 3 deposit. WAI considers that the geology for number 3 deposit is well understood; however only a limited amount of data has been collected for deposit numbers 1 and 2. 4.6 Mineral Resources 4.6.1 Introduction Previous resource estimates for Wadi Sawawin have not been undertaken to internationally acceptable standards and were considered by LM to be inadequate for the purposes of mine planning and project evaluation. At the present time, there are no classified resources for Wadi Sawawin. 113
- 114. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 4.6.2 Snowden 2008 In 2008, Snowden was commissioned by LM to complete a preliminary resource estimate using current industry best practice, the results of which are not yet fully reported. All data and reports available to Snowden were restricted to the iron ore deposits of the Western Group (Figure 4.5). Figure 4.5: Wadi Sawawin Iron Ore Deposits 114
- 115. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The location of drillholes defining the five deposits (N1 to N5) within the Western Group is shown in Figure 4.6. A large gap in drillhole information is evident between deposits N1 – N2 and N3 – N4. Figure 4.6: Location of Drillholes (Deposits N1-N2 = Numbers 1-5) Data from a total of 59 drillholes and 2 adits have been digitised by Snowden, including all assayed variables, including: Fe, SiO2, CaO, Al2O3, P, S, Magnetite, Tuff Index, Fe in Concentrate, SiO2 in Concentrate, P in Concentrate, Weight Yield, Fe Recovery Yield, 60% Fe Yield, 54% Fe Yield, and Specific Gravity. Nineteen vertical sections have been digitised and the topography of the project area was obtained by digitising 50m contour lines. Snowden reviewed the geological sections interpreted by British Steel and considered them appropriate for this project stage. Figure 4.7 shows 3D interpretation of the main jaspilite unit. Figure 4.7: 3D Interpretation of Main Jaspilite Unit 115
- 116. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Snowden opted to use one set of variogram models to describe the Main Jaspilite, Siliceous Jaspilite, Footwall, and Hanging wall zones. Block size parameters were selected principally based on drillhole spacing, mineralised domain geometry, and possible mining selectivity. Qualitative kriging neighbourhood analysis (QKNA) was used to determine the sensitivity of estimation quality to block size. Block models were created using the mineralised domain models, the cell size of the block model is 12.5 x 12.5 x 5m (Figure 4.8). Figure 4.8: Interpretation of 3D Block Model WAI Comment: It seems that the estimation process with a single variography direction in the kriging system does not accurately represent the directional change between cross sections. A dynamic anisotropic or unfolded estimation approach would be more appropriate and return more accurate results. The preliminary resources classified by Snowden in 2008, although not compliant with JORC, appear robust and given appropriate QA/QC checks including further density determinations, should fall into line with JORC guidelines. Snowden is believed to be releasing a fully classified resource, prepared in accordance with JORC, in November 2009. From these works, Snowden has prepared a preliminary unclassified mineral resource for the Wadi Sawawin at some 230Mt at 41% Fe using a 30% Fe cut-off. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 4.7 Mining Conceptual mining studies for the Wadi Sawawin deposits have been undertaken by British Steel (1993) and Snowden (2008). The proposed Wadi Sawawin mining operations will most likely involve conventional open pit mining techniques with medium-size mine equipment to move approximately 354Mt of material over the life of mine, with 157Mt of ore moved directly to either the primary crusher or primary stockpile, and 197Mt of waste to the waste dumps. 4.7.1 Geotechnical Data A British Steel report (1993) gives recommendations for the geotechnical design aspects of the Wadi Sawawin Project. The bulk of the exploratory geotechnical study was carried out on deposit number 3 (South Deposit), but some information was also made available for the other deposits. 116
- 117. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 4.7.2 Open Pit Optimisation The main parameters used for the conceptual open pit optimisation were a bench height of 5m, and overall slope angle of 57.5°. Bench face angles were set at 90°, road and berm widths of 20m and 3.2m, respectively and a maximum ramp gradient of 8.0°. WAI Comment: Further geotechnical investigation is required to increase the confidence in the open pit design. This work would include undertaking geotechnical site investigations to characterise the orebody and adjacent rocks; developing geotechnical and rock-mass structure models of the deposits and slope design parameters for the open-pit. Snowden used Datamine’s NPV Scheduler software to determine a preliminary open pit design based on their resource. The pit optimisations were aimed at providing resource shells for the ultimate pit design as well as preparing indicative mine production schedules and determining a mining inventory. Life of Mine (LOM) tonnages and grades of the designed final pit are summarised in Table 4.1. Note that the Inferred resources inside the final pit are considered as waste and this work is preliminary in nature and depends on the definition of robust resource and reserves, classified in accordance with the guidelines of JORC Code (2004). Table 4.1: Life Of Mine (LOM) Tonnage and Grade Snowden Conceptual Pit Waste Stripping Mt Fe % SiO2 % Al2O3 % P % CaO % (Mt) Ratio Ore 157.0 41.06 29.55 2.08 0.28 4.04 196.9 1.25 4.7.3 Mine Scheduling Conceptual mine scheduling was also carried out using Datamine’s NPV Scheduler software. The final conceptual mining schedule produced a total product tonnage of 5.0Mtpa from year 2 onwards at a stripping ratio of approximately 1.25 (waste to ore). 4.8 Mineral Processing and Metallurgical Testing 4.8.1 Introduction Extensive beneficiation and metallurgical testwork have been conducted on the Wadi Sawawin ore over the exploration phase of the project to date. A summary of these findings are as follows: • A beneficiation process has been developed to produce a concentrate from Sawawin ore with at least 67% Fe and containing less than 2.2% total acid gangue (silica plus alumina) at iron recoveries approaching 75%; • The beneficiation process proposed by the previous works comprised grinding, selective flocculation and a multiple stage reverse anionic flotation of silica; • Despite the fine grained nature of the Sawawin concentrate, it has been shown through extensive testwork, to exhibit chemical, physical and metallurgical properties comparable with those found in commercially acceptable direct reduction (DR) grade iron ore pellets; and • Sawawin pellets are typified by their superior handling characteristics which results in low fines generation in the oxide state, low breakdown during reduction and more than adequate strength after reduction. 4.8.2 Metallurgical Test Work A considerable amount of metallurgical test work was completed by British Steel up to 1993. These testing campaigns included the extensive 18 month campaign at the purpose built pilot plant facility located on the Red Sea coast and further smaller scale pilot plant testing at Lakefield, Canada. The pilot campaign demonstrated that the base case flow sheet was able to achieve a final product grade of 117
- 118. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 64.5% Fe at a 73% overall Fe recovery for the three discreet packets of ore (Adit 1, Adit 2 and Quarry 12 bulk samples). By 1986, the market requirements for concentrate feed grade to pellet plants had increased, and British Steel revised the required product grade requirement to 67.5% Fe. The Phase 4 Extension test work programme was initiated to demonstrate the ability to produce this final product grade of 67.5% Fe from the Wadi Sawawin deposit. A further 7 month mini-pilot campaign was undertaken at Lakefield in 1991 as part of Phase 4 Extension programme, this demonstrated that the base case flow sheet was able to achieve a final product grade of 67.5% Fe at a 74% overall Fe recovery for the Quarry 12 bulk sample. The Phase 4 Extension test work programme also considered magnetic separation. The magnetic separation results were not encouraging; however, the Quarry 12 bulk sample used in the test work programme had a low magnetite content of 3%, compared to a run-of-mine magnetite content of 10%. The British Steel reports indicate a significant variation (from 0% to 52%) in magnetite content by drill hole and throughout the deposit. The run-of-mine average is understood to be approximately 10% magnetite in the ore. The percentage of hanging wall and footwall material in the run-of-mine ore has a moderate effect on the grade/recovery curve, but can result in a corresponding 5% to 10% reduction in Fe recovery at the target final product grade. Due to the fine particle size, dewatering the final product is problematic and moisture levels of 14% to 15% w/w H2O are typical with conventional vacuum and pressure filtration systems. Filtration test work using pressure filtration at elevated temperatures (130°C using dry steam) achieved a final product moisture content of 7–9% w/w H2O, which is required as pellet plant feed. The Phase 4 Extension pilot campaign demonstrated that a final product grade of 67.5% Fe was achievable at an overall iron recovery of 74% from Quarry 12 bulk sample, the least representative of the bulk samples with the highest Fe grade. It was concluded from the Phase 4 Extension pilot campaign that the inclusion of low intensity magnetic separation in the grinding circuit was not justified given the low magnetite content of the Wadi Sawawin ore, but again the testing was done on Quarry 12 bulk sample with a low Magnetite content and significantly lower than the average magnetite content of the Deposit No. 3 (South). In an Ausenco engineering cost study (2008), Ausenco questioned the representativeness of the bulk samples (Adit 1, Adit 2 and Quarry 12 bulk samples) used in the British Steel Phase 4 and Phase 4 Extension pilot plant campaigns. The report titled ‘Wadi Sawawin Project Phase 4 Report (Bulk Sample Geology)’ stated the Adit 2 bulk sample, although slightly higher in Fe content, was most like the overall composition of Deposit No. 3 (South), but Adit 2 bulk sample only represented 31% of the feed to the pilot plant and the largest proportion of the pilot plant feed (43%) was from the Quarry 12 bulk sample, which was reported to be the least representative of the three bulk samples. Apatite flotation formed part of the British Steel flowsheet. The conclusions of the testwork showed that almost all the phosphorous in the feed material is associated with apatite. The current proposed flowsheet, based on the British Steel testwork, removes most of the gangue minerals (including apatite) using selective flocculation and flotation. Consequently, the phosphorous content of the DR pellet feed appears to be acceptable. WAI Comment: The extent and variability of magnetite in the ore will have a significant effect on the selection of the optimum flow sheet and the performance of the final product in the pelletising plant. Corus Consulting are currently conducting variability metallurgical testwork in Australia on selected drill hole core in order to finalised the proposed process flowsheet. 4.8.3 Process Plant Design 4.8.3.1 Introduction The basis for the proposed process design was the adoption of the beneficiation process flowsheet developed by British Steel in the 1980s and 1990s. This design has subsequently been modified and 118
- 119. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc updated for LM by Empresa Mineira de Projetos Ltda (‘EMP’). More recent work on the project was an Engineering Cost Study, conducted by SEI Consulting and Ausenco, which was reported to LM in February 2009. LM has engaged Corus Consulting (‘Corus’), which is the repository for historical British Steel information and employs former British Steel technical personnel associated with the project. Corus has endorsed the process design basis developed for the current Feasibility Study. 4.8.3.2 Production Schedule The design production rate for the project is 5Mtpa of pellets, which is the same as the previous Engineering Cost Study, but significantly greater than the British Steel Feasibility Study, which was based on a production rate of 2.2Mtpa of pellet. The design plant feed grade of 41.1% Fe is based on an average composition of the ore. This value is consistent with the head grade used for the Engineering Cost Study, as supplied by LM/Snowden, but is lower than the stated range (41.6% to 42.8% Fe) for ‘run of mine’ ROM feed grade in the British Steel Feasibility Study. The design pellet grade is 67.5% Fe, which equates to an acid gangue composition of <2.2% w/w, making the pellets suitable feed for Direct Reduction (‘DR’) iron production. This differs from the value of 64.5% targeted by British Steel in pilot plant operations conducted in Saudi Arabia. The design basis iron recovery used was 75%, which is at the upper limit of that achieved by British Steel in testing. 4.8.3.3 Crushing The crushing circuit design is based on the use of a primary gyratory crusher, fed by direct tip from mine haul trucks from the planned open pit. The primary crushed ore is to be conveyed overland to the coastal location of the process plant. 4.8.3.4 Grinding, Classification and Pebble Crushing Ore comminution properties were derived from autogenous grinding testwork conducted by British Steel who derived a total mill work index, for a two-stage autogenous-pebble mill circuit of 34kWh/t. Ausenco added a 10% design allowance to this value, to allow for ore variability in the comminution circuit design and sized the grinding mills and ancillary equipment for the Feasibility Study throughput. The proposed grinding circuit flowsheet is as per that defined by British Steel, with the exception of a simplification in the pebble crushing circuit. The pebble crushing system is common to both milling circuits. Ausenco has nominated two duty units, with one standby, given the expected wear rates of the hard, siliceous material. Whilst the process outcome is the same, Ausenco did not adopt the proposed British Steel flowsheet that showed separate size crushing duties, which required more crushers and a more complex layout. This was accepted by Corus. 4.8.3.5 Selective Flocculation and Deslime The selective flocculation and deslime flowsheet is consistent with the British Steel Feasibility Study. Based on advice from Corus, Ausenco selected multiple (3) selective flocculation thickeners, to provide operating flexibility with respect to rise rate. 4.8.3.6 Flotation The flotation flowsheet is consistent with the British Steel Feasibility Study. Ausenco has selected all mechanical tanks cells for the flotation duty. Whilst the British Steel pilot plant testing incorporated column cells for the scalping duty, Corus accepted that equivalent performance could be achieved with modern mechanical cells. 4.8.3.7 Concentrate Handling and Filtration The ceramic disc vacuum filter flowsheet developed for the Engineering Cost Study was retained for the current study, primarily for expediency in obtaining the cost estimate within the limited time available. 119
- 120. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc There is no specific Wadi Sawawin concentrate filtration testwork to support this basis and so industry norms were previously used to size the filters. The filtration concept proposed by British Steel was steam assisted pressure filtration. Filtration technology has developed significantly since the completion of the British Steel Feasibility Study and so an updated filtration plant design basis should be supported by current vendor testwork on both the pressure and vacuum filtration technologies. 4.8.3.8 Tailings Handling The tails handling flowsheet is consistent with the British Steel Feasibility Study, utilising separate thickeners and associated water recovery circuits for the slimes and flotation tailings. The combined tailings slurry stream is to be deposited in a suitable tailings dam facility. The location of this facility is still to be confirmed by further geotechnical studies, which are being conducted by Worley Parsons. There is no allowance for water recovery from the tailings dam. 4.8.3.9 Water Balance An overall project water balance water balance has been prepared using the same constraints that governed the British Steel Feasibilty Study, whereby: • Saline water cannot be used in the process; • Fresh water input to the process must be desalinated to <100ppm total dissolved solids (TDS); • The grinding and selective flocculation water circuit must be kept separate from the flotation water circuit; and • Excess flotation and filtration circuit water must be disposed of, unless treated to reduce the soluble cation concentration to acceptable values and re-used. 4.8.4 Pelletising Plant Design 4.8.4.1 Overview A pelleting plant has been designed to treat wet iron ore concentrates produced in the beneficiation plant at a coastal location north of Duba (at a precise site that is still to be decided upon). Several steps are required to produce a product suitable for input to a steel mill. The route chosen for processing to a saleable product includes dewatering (filtration), agglomeration (pelletisation) and induration to make a hardened pellet suitable for making direct reduced iron (‘DR’). The only deviation from the original British Steel processing specification was to include a moving grate pellet drying and indurating plant as well as the grate kiln plant. WAI Comment: The British Steel report focused on a more magnetite-rich concentrate than the mining report has indicated (Snowden – ‘London Mining: Wadi Sawawin Additional Studies Project No. V569’ April 2008). This has important implications for the specification and operation of the indurator. Because the oxidation of magnetite delivers thermal energy to the process, the variability of magnetite in the concentrate will need to be understood and managed within the control capability of the processing plant. 4.8.4.2 Design Basis The key project-specific criteria for the Wadi Sawawin pellet plant are: • Producing 5Mtpa of DR grade pellets (suitable also for blast furnace (‘BF’) grade); • Operating the plant 24 hours per day, seven days per week; and • A design operating time of 330 days equating to 7,920 operating hours per year. 120
- 121. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 4.8.4.3 General Description of the Pellet Plant Concentrate is received from the beneficiation plant into agitated holding tanks. The slurry is pumped to filters where it is dewatered to 10% moisture in ceramic disc filters. Filtrate is processed through a clarifier and thickener to clean the water for re-processing. The filter cake is introduced to balling drums or discs along with ground dolomite, an organic binder and recycled fine material. The combined feed to the balling plant is first intimately mixed. Discharge from the balling plant passes over a moving rolls screen before the indurator, which dries and hardens the pellets. The indurator discharge is screened to remove fines and the sized product is stored for transport to a steel mill. 4.8.5 Location of Process Plant – Ausenco Base Case The base case design, developed by Ausenco in 2008, located the beneficiation plant at the mine site and the pelletising plant at a coastal location north of the port at Duba. Various options for the transportation of the concentrate from the beneficiation plant to the coastal-located pelletising plant included rail, road and slurry pipeline. The potential transport options were as follows: • 70km long, 300mm nominal bore diameter slurry pipeline; • 20 to 30 road trains consisting of a 660hp prime mover and 90-120t per load; and • 75km rail route utilising 106 x 103t wagons and 2 locomotives. The tailings facility in the Ausenco base case design was also to be located at the Mine site. 4.8.6 Re-Location of Plant – LM Further optimisation and trade-off studies are now being conducted by LM before finalising the location of the key elements of infrastructure, particularly the process and pelletising plants and the mode of transport of ore to these plants. The most significant proposed changes by LM to the Ausenco base case are to locate the beneficiation and pelletising plants at the former British Steel Pilot Plant facility on the coast, thus removing the need to pump water to a beneficiation plant located at the mine site. Options are now being considered to transport primary crushed run-of-mine ore to a coastal located plant include both a rope conveyor or by rail. The location of the main project infrastructure is shown in Figure 4.9. Twenty-five, 20m deep boreholes for the geotechnical investigation to provide geotechnical design data for infrastructure location, including the tailings dam and potential transport routes, are currently being drilled un the supervision of Worley Parsons (WP) as part of the Feasibility Study. The provisional layout for the beneficiation and pelletising plant, jetty and ship loading facilities to be located at the former British Steel pilot plant site are presented in Figure 4.10. Direct ship loading will be utilised rather than transhipment to bulk carriers offshore from barges, in the base case. LM is also investigating the use of the Doppelmayr/Garaventa rope conveyor system for transportation of the ‘run of mine’ (ROM) ore to the beneficiation plant. WAI Comment: Rope Conveyors are relatively new technology with the longest built to date being 3.4km long, with a vertical descent of 470m, at the Mount Olyphant Bauxite Mine in Jamaica. The Rope Conveyor system is a bulk material and unit load handling conveyor based on ropeway technology, which is unique worldwide. Particular benefits include the capability to cover very long spans and its use in impassable terrain. To be added to these is the relatively low environmental impact coupled with very high availability and transport capacity as well as low operation and maintenance costs. 121
- 122. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Figure 4.9: Location of the Main Project Infrastructure Figure 4.10: Proposed Site Layout for the Coastal Beneficiation and Pellet Plant 122
- 123. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 4.9 Environment, Health, Safety and Community Issues 4.9.1 Introduction WAI has conducted a desk-based review of data related to the Wadi Sawawin, and made comment on potential environmental and social impacts or liabilities. Options for reducing the environmental and social impact of the project, to avoid contraventions of International standards, have also been made where appropriate. WAI has reviewed relevant EHSC documents, provided by LM. 4.9.2 Current Project Status The planned project description is given in earlier sections of this report. From a review of photographs taken at the site, it appears that a large quantity of tailings is present at the plant site, (presumably from previous operations by British Steel), which appear to have simply been dumped at surface, with no containment system. Similarly, a series of drums were present at the site, which may contain fuel or chemical reagents, and an uncovered pile of what is presumed to be a chemical reagent was also present at the plant site. Photographs also showed the presence of a fish farm in the bay, where the installation of the port facility is planned. WAI Comment: Given the waste present at the plant site, it is possible that contamination of the area has already occurred. It will be important for LM to remediate any existing contamination at the site, to avoid any potential worsening of the situation, although LM states that they will work in accordance with the latest environmental procedures during construction, to avoid further worsening of the environmental situation at the site, and that stringent procedures will be applied to design specifications. Similarly, it will be essential to ensure that the Environmental, Health and Social Impact Assessment (EHSIA) to be conducted by WP adequately characterises environmental baseline conditions to assess pre-existing contamination, and to protect LM from any historic environmental liabilities associated with the site. With regard to the existing fish farm, if this needs to be moved, it will be important to agree the move with the farmer, and ensure that he is adequately compensated, and that the EHSIA ensures that all existing habitats are adequately protected. 4.9.3 Legislative Requirements The project will be required to comply with National Legislation. The EHSIA proposal prepared by WP appears fairly comprehensive, but no mention is made of the KSA regulations, although it is stated that the EHSIA will be carried out to meet international lending requirements. WAI Comment: It is reported by LM that the project team consists of experienced personnel, who are experienced in meeting internationally relevant procedures, regulations and laws, and that WP was chosen given their experience in working in KSA, and ability to meet national and international best practice. It will be important to ensure that consultation is held with governmental representatives to ensure that the proposed EHSIA methodology, timeline, and subsequent submission is acceptable to KSA regulatory authorities. 4.9.4 Current Environmental Studies The WP EHSIA proposal seems quite comprehensive, although it is not clear in all areas how much of the baseline data will be based on secondary sources. Similarly, the entire EHSIA process is planned to be complete in approximately 5-6 months. No information has been reviewed for the EHSIA, although it was reported that an initial social survey was being undertaken at the site, and that the EHSIA will be finished in November 2009. 123
- 124. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc WAI Comment: The WP EHSIA will need to ensure that sufficient primary data are collected to allow adequate characterisation of baseline conditions, and hence impacts. This will be particularly important in areas of existing contamination. Similarly, it will be important to ensure that adequate data are collected to represent any seasonal changes, particularly since ESIAs for international acceptance are often based on 12 months of baseline data collection. Hydrogeological conditions will be particularly important with regard to the assessment of impacts on water quality, both at the mine and port sites, and with regard to land based and marine flora and fauna. Proposals for water management, drainage, tailings and waste rock storage will need to address potential environmental impacts and propose appropriate mitigation measures. Similarly, waste rock and tailings will need to be analysed to assess the potential for groundwater contamination, from, e.g. acid rock drainage, or contaminant leachate. LM states that all environmental and environmental management issues are being addressed in the EHSIA and will be the object of further consideration in the BFS and detailed design stages, and that the EHSIA is being performed in line with national and international requirements. WAI has not been presented with details in this regard and updates should be provided to address this. 4.9.5 Environmental Liability Since the plant site is already a disturbed area, there are potential environmental liabilities already associated with the site although no information has been provided regarding these. The most likely form these may take is with regard to stability of existing tailings dumps, and potential water pollution occurring due to the presence of these and other materials. It is reported by LM that topographical and geotechnical studies have been commissioned, together with specific soil testing at both the mine and plant site, to assess existing contamination. The results will be available in October, and rehabilitation measures and a budget will be assigned at this time. WAI Comment: It will be important for LM to separate its own liability caused as a result of proposed operations from any operational activity that has occurred in the past. WAI would recommend that LM approaches the government in this regard. The RGF study should ensure that sufficient baseline survey is performed to characterise the site prior to LM operational activity. WAI is encouraged that a rehabilitation plan for any existing contamination, plus a budget to cover these costs are being planned by LM. 4.9.6 Corporate Environmental and Social Management It is reported that the LM HSE manager is finalising an HSE management system/programme, to deal with the issues mentioned above, to be implemented at a corporate level. WAI would suggest that this is an excellent opportunity to implement systems now, such that when operations commence, good strategies for environmental and social management are already in place. WAI recommends that a designated Environmental Manager be appointed, as Health and Safety is already a large topic, and extra resources may be required for environmental management. WAI also recommends that LM designate an Environmental Manager at corporate level, to ensure that site specific requirements are fed back and represented at board level and to ensure that environmental management is appropriately resourced and managed. Subsequent to the appointment of individuals, external support may be required to ensure international compliance. WAI suggests that an Environmental and Social Action Plan (ESAP) be developed to address priority objectives, and schedule the actions necessary to achieve these tasks. 4.9.7 Current Environmental Expenditure Information is not yet available on environmental expenditure or environmental budgets, but should be addressed in the WP study. WAI Comment: WAI recommends that budgets be developed in response to ESAPs, and Environmental Management and Monitoring Plans (EMMP). 124
- 125. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 4.9.8 Mine Closure and Rehabilitation It is reported that a MCRP will be developed when the extent of the ore body has been assessed. In conjunction with the EHSIA and community involvement, LM will develop a concept and schedule for this MCRP to be initiated and executed. Sums for closure will be assessed. WAI Comment: WAI suggests that a draft MCRP be developed as part of the EHSIA, to cover options for closure at the mine and plant/port facility at an early stage. The plan should also include requirements for environmental monitoring both during and post closure phases. LM is aware that a closure fund will also be required, into which annual sums are deposited, to ensure that at the end of the mine life, this is sufficient to cover closure and post closure costs. Furthermore, adequate securities need to be put in place to protect any affected communities from closure liabilities. 4.9.9 Community Development It is reported that discussion with community members had already started, and that some social assessment was currently being undertaken by WP and is ongoing as part of the EHSIA. WAI Comment: As part of the EHSIA it will be important to identify, characterize, and regularly consult with any communities and local stakeholders that are likely to be affected by the project. It is reported that a Community Development Plan (CDP) will be developed as part of the EHSIA be developed once the above information has been obtained, to ensure that LM can convey community benefits, in a structured manner, without any requests becoming too burdensome. An associated Social Development Fund should also be developed, to provide for community development initiatives. 4.9.10 Conclusions The following is a list of WAI’s main conclusions regarding the environmental aspects of the project: • There is potential for existing contamination at the plant site; • There is a potential requirement for compensation for the fish farm near the proposed port site; • LM states that it is compliant with National or International Environmental and Social Legislative requirements; • The current status of the EHSIA is not known and it is therefore not possible to comment on the adequacy of current studies; • WAI considers that there may be historic environmental liabilities at the plant site, and the potential to generate further liabilities during the operational phase; • Limited information has been provided on Corporate Environmental and Social Management; • No information has been provided on current environmental expenditure or budgets; • An MCRP or financial provision for closure costs have not yet been developed; and • Limited information has been provided on community consultation and development. 4.9.11 Recommendations The list below details WAI’s main recommendations for further work: • Any existing contamination at the plant site should be remediated in line with the findings of the RGF assessment, with appropriate disposal of existing wastes; • Adequate baseline data should be collected to accurately characterise the sites, and seasonal changes, and to highlight any pre-existing environmental liabilities; • Appropriate compensation in line with national requirements, should be made with regard to the fish farm; • The government should be contacted with regard to signing off potential historic environmental liabilities at the site; 125
- 126. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc • Requirements for water management, drainage, tailings and waste rock storage should be assessed, and chemical analyses of waste material should be undertaken; • An Environmental Manager should be appointed at the local level to be responsible for environmental compliance, permitting, management and monitoring plans, reporting and environmental training; • An Environmental Manager should be appointed at a corporate level, to represent site related concerns, and to ensure that environmental management is appropriately resourced; • An ESAP should be drafted to address priority environmental and social objectives and to schedule these; • Environmental budgets should be provisioned in response to ESAPs, Environmental Management and Monitoring Plans, and permitting requirements; • A draft MCRP should be developed at an early stage based on a realistic assessment of closure and rehabilitation requirements with supporting financial provision; • The CDP in the EHSIA should be accompanied by a Social Development Fund. 4.10 Capital and Operating Cost Estimates 4.10.1 Introduction The Ausenco Base Case study and Snowden conceptual mine design provides preliminary estimates of both operating and capital expenditure for all aspects of operations forming part of the Wadi Sawawin project. These cost estimates have been summarised in the following sections: 126
- 127. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 4.10.2 Operating Costs 4.10.2.1 Mining Operating Costs The average unit operating cost for the mine material for Wadi Sawawin has been estimated by Snowden as US$0.92/t of moved material, and US$2.07/t of ore as shown in Table 4.2 below. Table 4.2: Snowden Preliminary Mine Operating Cost Estimate Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 OPERATING COST (US$x1000) Equipment Cost 9,908.7 11,366.9 11,508.0 11,637.3 11,830.5 11,002.7 11,743.9 11,742.7 11,467.5 10,350.2 11,597.7 12,380.4 12,242.6 6,223.9 Labour Cost 5,950.8 6,309.8 6,309.8 6,370.0 6,430.2 6,430.2 6,430.2 6,430.2 6,370.0 6,249.6 6,249.6 6,550.6 6,550.6 4,950.9 Explosive & Accessories Cost 4,217.5 4,956.1 4,995.8 5,125.8 5,083.8 5,123.5 5,143.0 5,110.3 5,105.3 4,840.2 4,784.7 4,942.7 4,972.3 2,258.0 127 Other Cost 905.3 922.3 923.2 925.9 1,175.1 1,176.2 1,177.1 1,175.3 1,175.1 1,169.5 1,170.7 1,173.8 1,173.9 1,112.7 TOTAL 20,982.2 23,555.1 23,736.9 24,059.0 24,519.5 23,732.6 24,494.2 24,458.5 24,117.9 22,609.5 22,802.7 25,047.6 24,939.4 14,545.5 MAT. MOVEMENT (tx1000) Ore 9,925.6 11,620.5 11,710.9 11,849.2 11,862.1 11,807.1 11,893.3 11,716.2 11,682.4 11,617.4 11,716.8 11,926.0 11,925.4 5,752.9 Non-jaspilite >COG 1,387.2 1.355.9 1,341.9 1,057.4 1,080.8 1,611.8 2,163.2 834.2 751.4 847.1 3,972.9 3,462.2 2,712.1 4,768.5 Waste Dump 1 604.2 2,646.1 4,293.3 1,166.5 10,112.2 766.5 2,470.0 3,698.0 1,895.9 19.4 873.2 8,127.0 2,965.1 28.8 Waste Dump 2 2,107.7 2,532.4 2,546.0 2,714.3 2,635.7 2,637.9 2,137.8 2,283.0 2,557.6 2,471.2 1,913.3 2,117.0 2,163.8 405.0 Waste Dump 3 8,307.5 8,053.4 6,504.8 10,212.8 1,114.2 10,247.8 8,606.4 8,332.8 9,933.0 10,597.9 7,337.3 895.6 6,781.3 1,736.3 Total Ore 9,925.6 11,620.5 11,710.9 11,849.2 11,862.1 11,807.1 11,893.3 11,716.2 11,682.4 11,617.4 11,716.8 11,926.0 11,925.4 5,752.9 Total Waste 12,406.7 14,567.7 14,686.0 15,151.0 14,942.9 15,263.9 15,377.4 15,148.0 15,138.0 13,935.6 14,096.7 14,601.8 14,622.2 6,938.6 Total Material Movement 22,332.2 26,188.3 26,396.8 27,000.2 26,805.0 27,071.0 27,270.7 26,864.1 26,820.4 25,552.9 25,813.5 26,527.8 26,547.6 12,691.5 UNIT OP.COST (US$/t) Per Total Ore 2.11 2.03 2.03 2.03 2.07 2.01 2.06 2.09 2.06 1.95 1.95 2.10 2.09 2.53 Per Total Material Movement 0.94 0.90 0.90 0.89 0.91 0.88 0.90 0.91 0.90 0.88 0.88 0.94 0.94 1.15 Average Op. Cost Per Total Ore (US$/t) 2.07 Average Op. Cost Per Total Material (US$/t) 0.92
- 128. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 4.10.2.2 Process and Other Operating Costs Ausenco estimated the process and other operating costs for their Base Case study. The estimate is based on processing 11Mtpa of ore to produce 5Mtpa of DR pellets with transport to the port facilities for export. The estimate is presented in US dollars (US$) and uses prices obtained in the fourth quarter of 2008 (4Q 2008). It is considered to have an accuracy of ±25%. Table 4.3 summarises the average costs for processing the major ore types. The second column is the cost per tonne of product (concentrate or pellets) produced. Table 4.3: Ausenco Base Case Operating Cost Estimate Area Cost (M$/y) Cost (US$/t product) Benefication Plant 97.09 19.42 Filter Plant 15.99 3.20 Concentrate Transport Pipeline 2.50 0.50 Pellet Plant 51.11 10.22 Stockyard Facilities 4.77 0.95 Maritime Facilities 8.51 1.70 TOTAL 179.97 36.00 The operating cost estimate includes the following: • Labour costs for supervision, management and reporting of on-site organisational, commercial, technical, environmental, training and occupational activities; • Labour costs for operating and maintaining the mobile equipment and light vehicles, process plant and supporting infrastructure as well as for monitoring of the environment; and • All power, fuels, reagents, consumables and maintenance materials utilised in operating the mobile equipment and light vehicles, process plant and supporting infrastructure as well as for monitoring of the environment. 4.10.3 Capital Costs Ausenco estimated the capital costs for the Base Case. The estimate is based on processing 11Mtpa of ore to produce 5Mtpa of DR pellets with transport to the port facilities for export. The estimate is presented in US dollars (US$) and uses prices obtained in the fourth quarter of 2008 (4Q 2008). It is considered to have an accuracy of ±25%. A typical contingency for this level of estimate is in the range of 15 to 30%. Table 4.4 summarises the Ausenco capital costs. Table 4.4: Ausenco Base Case Capital Costs Capital Cost Element Estimated Total Cost ($) Site Preparation and Infrastructure 25,095,840 Process Plant 433,848,591 Tailings Disposal Facilities 12,908,277 Utilities 17,077,799 Process Plant Infrastructure 21,485,286 Concentrate Transport 75,658,496 Pelletising Plant 200,000,000 Port 109,617,847 Water Pipeline 166,134,736 Access Road 12,312,312 Filtration Plant 77,037,915 Indirect Costs 585,944,504 MINING CAPITAL COSTS 111,384,000 TOTAL CAPITAL COST 1,848,505,602 128
- 129. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The estimate covers the design and construction of the Wadi Sawawin project process plant, together with certain on-site and off-site infrastructure, including water distribution and support services. The estimate does not allow for owner’s costs, which include but are not limited to the following: • Project management; • Environmental and social management; • Resettlement and relocation; • Legal costs; • Insurance costs; • Permit and licensing costs; • Owner’s cost administration, foreign exchange rate management and variation costs associated with any change from the quoted exchange rates used; • Escalation of costs beyond the 4Q 2008; • Sustaining capital; • Financing costs; • Rehabilitation and closure costs; and • Project growth outside the scope. 4.10.4 Optimisation of Project Costs LM believe there is scope to optimise the Ausenco Base Case. Worley Parsons has been commissioned to produce a Bankable Feasibility Study (BFS) due for delivery in late 2009. Improvements are based on a design change to the Base Case, which allows for relocation of the beneficiation plant from the mine site to the site of the British Steel Pilot Plant. The advantages are as follows: • The coastal position will eliminate the need to pump 60,000m3/day of water to the mine site, resulting in a 15MW power saving; • Lower construction cost, due to ease of access; • Utilisation of a conveyor system; • Only one access road will be required to the mine site; • Direct loading of ships from the processing site, eliminating the need for transhipment; and • Reduction in manpower at the mine site and associated facilities and lower transportation costs for plant consumables and reagents. 4.11 Conclusions and Recommendations LM has formed a joint venture with the Saudi based National Mining Company to develop Wadi Sawawin, each owning a 50% share. This project has in parts been extensively explored and investigated by British Steel; works have included the building of a substantial pilot plant. The total unclassified mineral resource estimate for the Wadi Sawawin iron ore project within the Western Group is 230.2Mt at 41% Fe. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. The deposit is considered to be amenable to open pit operation using conventional, medium-size mine equipment. A conceptual mine plan is contemplated whereby approximately 26.2Mt of material per year is moved, with 11.6Mtpa being ore and 14.6Mtpa waste. These parameters are considered adequate to sustain the proposed production rate of 5.0Mt of pellets. 129
- 130. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc There is significant potential to increase the resource, through further infill drilling and extension to the projected within the neighbouring licence areas. The schedule presented by LM to produce a Bankable Feasibility Study and implement the project is considered by WAI to be optimistic, considering; • The extent of drilling necessary to increase the resource base, and • The geotechnical drilling and confirmation work required to provide Quality Assurance / Quality Control to the historic drilling and assay program to obtain the necessary resource/reserve statement to international recognized standards that can be use to develop the proposed feasibility study. However, LM does have a good track record of delivering projects in a short time frame as demonstrated by their Brazilian operations. The total capital costs for the Wadi Sawawin project are currently estimated to be in the region of US$1.8billion. Mine operating costs can be considered low compared to similar projects, mainly due to the expected low cost of diesel and labour. The operating costs for the mine area have been estimated at US$0.92/t of material mined (ore and waste) or US$2.07/t of ore. In general, the available data, information and work carried out to date are considered to be sufficient to justify proceeding with project implementation; however the following recommendations and concerns are still considered valid: • Beneficiation tests not representative of all ore: the previous beneficiation tests were based on samples collected from only the main deposit (3) since this was considered sufficient to support the anticipated production rate at the time. However, for the production rate of 5.0Mtpa of pellets, it has been necessary to include the resources of deposits 1 and 2 into the mine planning. Although the mineralised material can be considered the same from a lithological perspective, grades are lower, other physical characteristics are relatively different, and therefore, there is no guarantee that the material from deposits 1 and 2 will respond in the same way in the processing plant. The main aspects which could impact the project economics, such as grades and recoveries, have already been addressed at this phase of the project development, and for this reason, Snowden considers this risk as minimal from an economic point of view; • Geotechnical works need to be carried out in order to increase confidence in the design parameters and to provide the operational parameters needed to develop an efficient open pit operations; • An additional drilling campaign may be beneficial, in order to investigate areas with no drilling information currently available but with good potential to add significant additional resources; and • It is also recommended to perform additional geotechnical works and a more detailed investigation on flood risks. 5.0 GREENLAND 5.1 Introduction The Isua banded iron formation (BIF) is located in the southwest of Greenland. The county has a population of approximately 56,600 and comprises an area of 2.17Mkm2 of which 0.41Mkm2 is not covered by ice. The majority of inhabitants live in towns and villages on the sea ice free south and south west coast; Nuuk (formerly called Godthåb), the capital city of Greenland and the largest settlement, has a population of approximately 15,000. Danish and Greenlandic are the main spoken languages and approximately 87% of the population is born in Greenland; the remainder largely comprises immigrants from Denmark. Greenland is a democratic and politically stable autonomous constituent country of Denmark, which until June 2009 had “home rule” with a common currency, jurisdiction, foreign policy and defence force with Denmark. 130
- 131. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Greenland became “self governing” in June 2009, although it still remains linked to Denmark. Significantly, all mineral rights will have passed to the Greenlandic government. 5.2 Location The Isua deposit is located approximately 155km south of the Arctic Circle, at 65°12’33” north and 49°45’20” west; approximately 150km northeast of Nuuk and approximately 200km south of Kangerlussuaq international airport (see Figure 5.1). The deposit is situated on the southwestern edge of the inland ice cap with varying elevations of between 800masl and 1,150masl. Figure 5.1: Map of Greenland Showing Project Location 5.3 Licence LM holds the exploration licence No.2009/16 at Isukasia covering the Isua property, an area of 26km2. All exploration licences are detailed under Section II of the List of Mineral and Petroleum Licences in Greenland (July 2009), titled ‘Mineral exploration licences (exclusive) in force’ published by the Bureau of Minerals and Petroleum (BMP). The list states that ‘All exploration licences are exclusive and cover mineral resources except hydrocarbons and radioactive elements’. The licence is effective to 31 December 2013 (see Table 5.2). 131
- 132. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The co-ordinates of the licence are given in Table 5.1. Table 5.1: Co-ordinates of the Licence Block Corner Co-ordinates Northing Easting 1 65’14’N 49’49’W 2 65’14’N 49’43’W 3 65’11’N 49’43’W 4 65’11’N 49’49’W Table 5.2: Summary of Greenland Assets Licence Asset Holder Interest Status Expiry Date Licence Area Isua (Isukasia) London Mining 100% Exploration 31.12.2013 26km2 Iron Ore Greenland AS Licence Prospect (exclusive) With regard to the permitting and licencing system of Greenland, the BMP states that ‘Licences for minerals (excluding hydrocarbons) are granted in accordance with the Greenland Mineral Resources Act. Under the Mineral Resources Act, an exploration licence (exclusive) covers any size of area and is valid for 2 periods of 5 years each. The exploration commitments are expressed in DKK per km2 per year based on the size of the licence area on December 31 (except in the first year). The licencee is entitled to be granted an exploitation licence for deposits declared commercial which he intends to exploit’. Further details are provided in the Standard Terms for Exploration Licences for Minerals (Excluding Hydrocarbons) in Greenland (November 1998). The annual exploration fee is DKK35.275 with a minimum annual expenditure of DKK930.860. 5.4 Accessibility, Physiography, Climate, Local Resources and Infrastructure Greenland itself is serviced by Greenland Air with daily flights to/from Copenhagen and scheduled flights to Iceland; internal destinations are serviced by a fleet of turbo prop planes and helicopters. There are roads only within and around the towns and villages; Sisimuit, the second largest settlement, and all towns to the south are accessible by shipping services year round. The Isua property can be accessed by helicopter with approximate flight times being 1.5 hours from Kangerlusuaq or 1 hour from Nuuk. The exploration camp is located on the coast approximately 60km southeast of the Isua deposit and can be accessed by boat in the summer months (May-September) and also by helicopter (weather permitting); approximate flight times are 40 minutes from Nuuk and 20 minutes from Isua. The climate in Greenland is Arctic and arid, particularly in the north, but owing to the large size of the country, there are considerable variations in temperature, weather and wind speed/direction. Average temperatures in Nuuk are -12°C in January and 12°C in July and average annual precipitation (rainfall) is 526mm. The average temperatures in southern Greenland over the summer months (the field season) are shown in Table 5.3. Table 5.3: Average Temperatures in Southern Greenland during the Summer Months June July August September 8.3°C 10.3°C 9.3°C 5.5°C The physiography of Greenland comprises narrow bays and fjords with surrounding topography varying from low lying and shallow at the water’s edge to steep, near vertical slopes rising up to high peaks; the highest peak in the vicinity of Nuuk is Mount Sermitsiaq (1,208masl). 132
- 133. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The geography at Isua comprises the crescent shaped exposure of the Isukasia BIF, which at its peak is 1,209masl. The eastern flank dips to approximately 1,175masl at the edge of the ice cap and the western flank drops steeply to the glacier, with a leading vertical face approximately 50m in height; the glacier empties into the northeast end of a nearby lake. There is a readily available supply of fresh water from nearby lakes, fjords and glacial meltwater. Power at both the exploration camp and Isua is provided by diesel powered generator. A hydroelectric power station project is being investigated by Alcoa at a site nearby, which could potentially supply power to the project and associated facilities in the future, though there would be a considerable lead time. There is a good labour force available in Nuuk for which a programme of training could be provided in future. 5.5 History Kryolitselskabet Øresund A/S (KØ), a Danish company, first discovered the Isukasia structure in 1962 following the identification of an aeromagnetic anomaly. During 1966 and 1967 KØ undertook an extensive exploration field programme including geological mapping and sampling along with magnetic and gravity surveys to further delineate the deposit and a seismic survey to map the ice thickness and base. The sampling programme comprised 1,424 magnetite-bearing surface samples along profile lines across the BIF. International Mining Consultants (IMC 2006) reports state that the Fe(Sol) grades were schematically recorded on plans, with bar widths representing a range of Fe(Sol) values and average Fe(Sol) grades reported for individual profiles. The mineralisation was classified into ore types, which included ‘marginal ore’ with an average grade of 22.4% Fe(Sol) and ‘ore proper’ with an average grade of 38.8% Fe(Sol). The weighted average grades are detailed in Table 5.4 below. Table 5.4: Weighted Average Grade of all Samples (IMC) Fe(Sol) 32.5% SiO2 46.2% Al2O3 0.25% CaO 0.88% MnO 1.98% P2O5 0.04% TiO2 0.06% S 0.022% During 1971 Marcona Corporation (MC) undertook a drill programme totalling 2,719m, 937m of which was in ice, comprising 13 diamond drill holes (1.25 inch core size) at a spacing of 250m along the strike of outcrop and at 300-400m along the strike of the ice covered area. Recovery was reported to be near 100% (IMC) and the inclination of the drill holes ranged from 40° to 60°. Downhole surveys for inclination were undertaken at approximately 20-30m intervals and the holes reportedly shallowed with depth by an average of 3° per 100m; deviation of azimuth was not surveyed. Holes 2C, 2D, 3, 5, 7 and 9 were drilled to the footwall of the BIF (see Table 5.5), whilst holes 1, 2A and 8 had to be abandoned before reaching the intended depth within the BIF and holes 2B, 4A, 4B and 6 had to be abandoned due to moving ice or freezing conditions before intersecting significant thicknesses of BIF. 133
- 134. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Table 5.5: Drill Hole BIF Intersections and Assay Results (Marcona Corporation 1971) BIF Thickness (m) excluding greenstone Fe(Sol) Fe(total) Collar ID over 2.5m thick (%) (%) 1 209.10 35.72 37.68 2A/2C 153.30 30.75 33.67 2B 40.75 9.35 10.64 2D 181.50 29.85 31.60 3 194.50 34.63 38.28 4A 19.85 35.22 Not analysed 5 75.05 36.70 Not analysed 6 38.20 34.76 Not analysed 7 205.55 32.34 Not analysed 8 159.40 36.61 Not analysed 9 178.35 34.89 Not analysed During the mid 1990s, Rio Tinto Zinc (RTZ) investigated a licence area (Exclusive Exploration Licence 14/94 covering 71km2) adjacent to the Nunaoil A/S 1/93 Exclusive Exploration Licence that covers the majority of the outcropping BIF. RTZ investigated a strong geophysical anomaly to the east of the previous investigation and under the ice sheet. The drill programmes suffered with technical difficulties as they were drilling through the ice sheet. RTZ considered that a massive hematite target (>500Mt) exists beneath the ice sheet, though the exploration campaign was not conclusive. WAI was informed that the historical drill core is stored in a warehouse in Kangerlusuaq, though this was not viewed during the site visit. IMC report that some of the core is stored at the Geological Museum in Copenhagen and that 20% of the core is missing, largely from the deeper sections of the holes. Table 5.6 contains a summary of all studies and exploration undertaken on the Isua Project to date (modified from Snowden, 2009). Table 5.6: Summary of Studies and Exploration Year Comments 1962 Isukasia banded iron formation (BIF) Belt explored by Danish company, Kryolitselskabet Øresund (KØ). 1965 KØ Isua BIF outcrop identified through aeromagnetic survey. 1966 KØ mapped the geology and took surface samples; a preliminary resource estimate of 600Mt1 was delineated with an average grade of 38-39%. 1970 Marcona, a US company, undertook a conceptual mining scoping study based on a 27Mtpa open pit operation (20Mtpa ore and 7Mtpa waste) with a process flow sheet of crushing, grinding and magnetic separation producing 7.5Mtpa magnetite concentrate and an 85km slurry pipeline. Marcona estimated capex costs of 200M US$ for a 7.5Mtpa operation or 250M US$ for a 10Mtpa operation. 1971 Marcona undertook a drill programme, comprising 13 diamond drill holes, totalling 2,719m along with 132t of bulk samples taken for metallurgical testwork. 1972/1977 Infrastructure scoping studies were undertaken addressing routes from deposit site to potential port sites, ice sheet movement, glacier terminus, climate and sea-borne ice studies. 1976 An underground feasibility study was undertaken based on the production of 23Mtpa mined via a 5km underground conveyor belt transporting crushed ore to a grinding and concentration plant sited on the shore of Lake Arkitsoq where the crushed ore will be concentrated and slurried then transported 100km via pipeline to a 10Mtpa pelletising plant sited at Qugssuk Bay. 134
- 135. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Year Comments 1995/1997 Rio Tinto (RTZ) undertook a drill programme predominantly focussing on the section of the deposit under the ice sheet, described as ‘massive hematite’ reportedly identified through gravity survey and glacial moraine. RTZ drilled through up to 400m of the ice sheet in order to reach the target and completed a preliminary scoping study for an underground mine operation. 1 These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 5.6 Geology and Mineralisation 5.6.1 Regional Geology The Isua deposit is located within the Isua Greenstone Belt (IGB) dated to be approximately 3.8Ga. The IGB is approximately 40km in length and up to 4km in width, forming an arcuate outcrop; the greenstones are several kilometres long and several hundred metres wide and comprise large ultramafic bodies with subordinate mafic volcanic rocks and BIF deposits. The BIF of the IGB is made up of predominantly oxide facies comprising layered quartz magnetite rocks but also of silicate facies bands of alternating grunerite and magnetite. Carbonate facies, comprising alternating bands of siderite and magnetite, have also been identified locally. Within the oxide facies, actinolite and pyrite occur in small amounts; the pyrite is both finely disseminated and lining fracture planes. The silicate facies rocks reportedly contain pyrrhotite, chalcopyrite and locally small amounts of gold (Williams et al, 2000). Isua is located at the eastern edge of the IGB and comprises a large body of oxide facies BIF, two thirds of which extends under the ice sheet. A typical outcrop is shown in Figure 5.2. Figure 5.2: View of Isua Outcrop 135
- 136. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 5.6.2 Deposit Geology The mineralised zone comprises a magnetite quartz schist BIF that extends approximately 1,000m along strike with a width of 200m-300m dipping at approximately 60°-70° to the east. It is considered likely that the Isua deposit has formed as a result of intense folding thereby thickening the BIF body. There are two main ore zones, one running parallel and adjacent to the footwall and the other a strongly folded zone near to the hanging wall. The deposit is bounded on the footwall by greenschist, magnetite quartz schist BIF (ore) and on the hanging wall by quartzite. Overall, the ore is represented by a steeply dipping, tabular body that has been folded into a syncline with some potential tilting; the southern limb appears to be more steeply dipping than the northern. Microfaulting and brecciation were observed locally in drill core and outcrop; these may be related to the intrusion of dykes. Internally, the BIF is variable with some areas comprising fine-grained magnetite evenly interbanded with granular or flaky quartz or chert beds. The bands vary in thickness from a few mm’s to 10’s cm’s; although the variations and dimensions are noted on the core logs as bedding thickness, no statistics have been developed on the band thicknesses visible at surface or in drill core and therefore it is not possible to estimate proportionate variability across the deposit. Some areas comprise of ill-defined quartz and magnetite phases with a schistose texture displaying intense and convolute small-scale folding, locally indicative of soft sediment deformation. A thin, low grade BIF horizon has been intersected by some drill holes in the hanging wall of quartzite; this has been marked as a BIF vein on cross-sections. The low grade sections are pale and the high magnetite section is dark; waste largely is green, as a result of the high chlorite content, or white (quartzite). Sporadic meta-dolerite (greenstone) dykes and sills run through the ore zone; these have been noted to preferentially intrude the more ductile higher grade quartz-magnetite schist or at the boundary with the lower grade ore. The greenstone intrusions have an average width of 3.4m and generally follow the trend of the ore body. They have been mapped on geological sections and Snowden determined an estimated potential dilution of 10-15%. There is a significant amount of clean, boulder sized, float on the exposed ground around the Isua outcrop and boulders of the Isua BIF are also contained within glacial debris and moraine (to the north and south) as well as being visible in the upper surface of the ice sheet where clear of snow cover. The principal ore mineral is magnetite and the gangue mineral is predominantly quartz; locally small (less than 2mm wide) hematite filled fractures were observed in core, though WAI was informed that these are not common. Both coarse, predominantly fracture filling and in the centre of quartz veins, and disseminated pyrite were observed in the core and float, along with some pyrrhotite; associated chalcopyrite was also reported (Wulff, 2009) though not observed at the time of the site visit. Additional exploration targets were identified by a recent aeromagnetic survey undertaken over the Isua licence and could represent additional satellite orebodies. 5.7 Exploration LM contracted Greenland Mining Services to undertake a diamond drill programme during the 2008 and 2009 field seasons totalling 1,154m (7 holes) and 3,900m (estimated for 22 holes), respectively. The drilling campaign was completed in September 2009 and an update JORC statement incorporating the new drill data is expected in December 2009. The drilling campaign for 2009 is based on the recommendations of Snowden and is aimed at improving the confidence level in the Inferred resources identified to date. 136
- 137. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Figure 5.3: Borehole Collar Locations Figure 5.3 shows all drill hole collars to date including pre-LM drilling. Those with the prefix “N” are holes planned for 2009 (some of which will now be complete); holes with the prefix “LM-09” are completed 2009 holes; holes with the prefix “LM” are those drilled by LM during 2008; the remaining holes, delineated by number only, are from the drilling programme undertaken during the 1970’s. Drill collars are being surveyed but downhole surveys have are not being undertaken and drill core is not oriented. During the 2008 and 2009 drilling campaigns, the core has been placed in sealed boxes, containing 6m of core each, and transferred to the exploration camp via helicopter where it is photographed in pairs of boxes and logged prior to splitting for sampling. Recovery is understood to be consistently close to 100%. Sample preparation is currently undertaken in Greenland. A 1,500g pulverised sample is split into two with the half that is to be assayed being sent to Actlab in Canada. The remaining half of the sample is stored in Greenland. Assay results are generally received within 2 weeks. During 2008, 766 samples were sent for assay returning an average Fe content of 38.8% for the ‘proper ore’, which comprised 600m (54%) of the 1,106m drilled above the footwall contact. The remaining 46% was low-grade ore (178m at 17.4% Fe) or quartzite, dolerite and quartz veins (Wulff, 2009). Currently, no QA/QC procedures are in place, such as check samples, though WAI understands that standard samples (certified reference material) have been ordered from Canada and are expected to be included in samples batches once received. It is intended to use barren granitic gneiss taken from site as blank samples, which will be checked for magnetic properties prior to use. WAI recommends that 5-7% of all samples sent for assay are check samples consisting of standard reference material or standards (SRM), blanks (rock sample known to be barren of the sought mineral) and duplicates (quarter core samples of the same interval). 137
- 138. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Snowden tested for any bias between the old and new assay data sets by QQ plots, these identified a 12% positive bias for the head feed Fe grade for the new LM data set in comparison with the old assay results. Snowden explain that this could be the result of different analytical methods, different standards or the clustering of two drilling programmes in different grade domains. LM have been advised to resample the old core and have it assayed at the same laboratory as the new core in order to validate the data. Drill core from the 2008 and 2009 field season is stored at the container camp on pallets covered by tarpaulin and is guarded by a security person. WAI has been informed that historical drill core will be re-assayed for verification during winter 2009. 5.8 Mineral Resources 5.8.1 Historical Resource Estimate In the early 1970’s, Marcona estimated open pit ore resources (‘mineable open pit ore reserves’), based on cross-sectional outlines, to be 408Mt and 546Mt for pit bottoms of 870masl and 770masl, respectively, at a grade of 32.9% Fe(sol). These figures assumed stripping 85Mt and 97Mt respectively of ice cover with an estimated 300m thickness; assuming that the ice would remain stable at slopes of 45°. Waste rock would equate to a further 90Mt for both scenarios. Testwork indicated that 34% Fe ore could be concentrated to 67% Fe. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. During 2005, IMC produced a JORC compliant resource estimation to 600m depth, which was then amended in 2006 as detailed in Table 5.7 below. The resource estimation was based on a review of all data held by LM, the Geological Survey of Denmark and Greenland (GEUS), and the Copenhagen Geological Museum, along with a site visit and examination of historical core where available. IMC (2005) originally estimated the total Inferred underground resources to be 974Mt at 34% Fe(Sol); upon review these were adjusted to 880Mt at 34% Fe(Sol). Table 5.7: Global Resource to 600m depth (IMC 2006) (in accordance with the guidelines of the JORC Code (2004)) Tonnes Contained Metal Category (Mt) Grade (Fe%(Sol)) (Mt) Indicated 58 33 19 Inferred 822 34 279 Total 880 34 298 5.8.2 Current Mineral Resource Estimate In June 2009, Snowden produced an updated resource estimate of 507Mt at 35% Fe(Sol) that has been classified as an Inferred Mineral Resource in accordance with the guidelines of The JORC Code (2004) and based upon geological data, mineralisation interpretations and data supplied by LM. The Snowden resource has not been estimated beyond more than approximately 350m below surface, whereas the IMC estimate included material to a depth of 600m to include resources potentially mineable by underground methods. Snowden believes that the current depth of drilling does not support extrapolation beyond a depth of approximately 350m. Snowden states that resource classification remains Inferred due to the lack of QA/QC checks or statistics; a 12% bias in Fe grade between old and new assays as identified by Snowden; use of assumed global density instead of actual density determinations; 45% of the blocks lying outside the variogram range and are therefore extrapolated as opposed to interpolated; and assigned average values and linear regressions being used to assign concentrate Fe% and concentrate yield values to the model blocks. 138
- 139. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc WAI consider that these are valid points and highlight the importance of reliable assay data and the implementation of QA/QC procedures in order for the resource classification to be improved. Snowden also note that low-grade BIF has been logged in certain holes, but due to the low sample data density and ill-defined contact relationships, it is not possible to estimate the resource without further drilling. LM completed a 3,600m drilling programme in September 2009 and plans to release an updated resource statement to JORC standards in December 2009 ahead of the completion of a pre-feasibility study in February 2010. 5.8.3 Grade Tonnage Relationship Table 5.8 and Figure 5.4 show the grade-tonnage relationship for the global resource for a range of Fe cut-off grades at Isua. Table 5.8: Global Resource by Fe Cut-Off Grade (Snowden 2009) (in accordance with the Guidelines of the JORC Code (2004)) Fe Cut-off Grade (5) Tonnes (Mt) Fe (%) 20 507 34.9 22 505 35.0 24 492 35.3 26 486 35.4 28 482 35.5 30 477 35.5 32 433 36.0 34 375 36.4 36 177 37.8 38 71 39.5 40 21 40.7 41 40 39 38 Fe% 37 36 35 34 0 100 200 300 400 500 600 Mt Figure 5.4: Grade-Tonnage Curve 139
- 140. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 5.9 Mining 5.9.1 Mining Overview Snowden undertook a mining scoping study in April 2009 from which a conceptual mine design has been developed. It is proposed to use conventional open pit mining techniques, utilising drilling and blasting of ore and waste rock; alternative excavation methods will be employed where the pit is overlain by ice. Plant and machinery have been suggested by Snowden, though this is subject to change by further ongoing studies. Disposal of waste will be on conventional waste dumps. LM has recently commissioned SNC-Lavalin to complete a Pre-feasibility study of the Isua project by February 2010. 5.9.2 Open Pit Mine Design The project area is partly overlain by ice. Snowden has suggested the ice be stripped using a bucket- wheel excavator, conveyor belt and spreader. However, LM has informed WAI that alternative engineering design options are being considered. Snowden used NPV Scheduler® software to produce a preliminary open pit design based on their resource model, also created as part of the scoping study. The conceptual pit was designed with sufficient ore to support mine production at a rate of 5.0Mtpa of Fe concentrate over a period of 15 years. This equates to a production rate of 11.2Mtpa of run-of-mine ore, or a total life-of-mine ore tonnage of approximately 168Mt. A longer mine life and thus a larger pit was not designed in order to avoid, as much as possible, very high slopes in the overlying ice. Mining recoveries and dilution were assumed to be 95% and 5%, respectively. Table 5.9: LOM Tonnage and Grade of the Snowden Conceptual Pit Mt Fe % SiO2 (%) Al2O3 (%) P (%) MnO (%) CaO (%) S (%) Ore 168.1 35.37 41.87 0.43 0.029 0.068 1.83 0.18 Waste Tonnages: Rock 41.8Mt, Ice 49.36Mt. Stripping Ratio (waste t / ore t) = 0.54 WAI Comment: Snowden considers that the stability of the overlying ice slope will be critical for success of the Isua project and that all issues be fully addressed as part of the Pre-feasibility study. WAI concur with this conclusion and recommend further geotechnical, glaciological and hydrogeological investigations are undertaken to better understand the ice dynamics and their effect on the open pit. This is fundamental as the ice slope stripping and control issues will be a significant factor in the technical and economic feasibility of the project. 5.10 Mineral Processing and Metallurgical Testwork Marcona first undertook metallurgical testwork in 1971 to determine the upgrading potential of the deposit. The samples underwent Davis Tube testing and assessment of head grade chemical analysis (% Fe). The weighted average results were reported as follows: • Head grade – 33.8% Fe; • Concentrate – 67.3% Fe; • Weight recovery – 47.5%; • Soluble Fe recovery – 94.6%; • Sulphur – 0.005-0.550% (85% of samples analysed <0.350% S); and • Phosphorus – 0.01 – 0.03%. Seven samples collected from surface were sent for mineralogical testwork to researchers at the University of Minnesota who reported the following ore types: • Thin-bedded material, magnetite-rich layers less than 0.5m thick, representing 62% by weight of the 7 samples; 140
- 141. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc • Thick-bedded material, magnetite-rich layers greater than 0.5m thick, representing 20% by weight of the 7 samples; and • Massive magnetite-rich material, representing 18% by weight of the 7 samples. LM commissioned Studien-Gesellschaft fur Eisenerz-Aufbereitung (SGA) to undertake mineralogical and metallurgical testwork at laboratory scale in 2005. SGA were provided with two 30kg bulk samples; Isua Pit 1 and Isua Pit 2. Isua Pit 1 was high in Fe (50.2%) and the predominate mine magnetite (67.9%) with a Fe:FeO ratio of 2.49; Isua Pit 2 had lower iron and magnetite concentrations of 35.9% Fe and 45.4% magnetite with an Fe:FeO ratio of 2.62. Based on the Fe:FeO ratios, SGA concluded that low intensity magnetic separation (LIMS) would be a suitable processing method. However, mineralogical studies indicated that some magnetite phases are intergrown with gangue minerals or occur as inclusions in quartz; these particles will be recovered by LIMS resulting in a high SiO2 content in the concentrate and therefore it will not be suitable as a direct reduction feedstock and will only be suitable for blast furnace feed. IMC report that further concentration of iron and reduction of SiO2 is achievable using a reverse flotation process. Following LIMS, secondary ammine flotation would reportedly results in a concentrate of >71% Fe and <1.5% SiO2. In 2006, SGA performed further laboratory and pilot plant testwork on a 47t sample of crude ore collected from magnetite bearing profiles across the orebody. SGA undertook autogenous grinding (AG) circuit tests, closed circuit grinding tests using high pressure grinding rolls (HPGR) followed by magnetic separation and wet screening in order to produce a pre-concentrate with 65.9% by weight recovery at 55.6% Fe and 93.8% Fe overall recovery. The pre-concentrate was then subjected to regrinding tests. SGA reported that grinding the pre-concentrate with a specific energy of 7.1kWh/t, followed by cycloning, magnetic separation and flotation resulted in a combined concentrate of 70.6% Fe and 1.58% SiO2; iron recovery was 82% and magnetite recovery was 83.4%. Regrinding at a specific energy of 14.1kWh/t produced a combined flotation concentrate of 71.2% Fe and 1.05% SiO2; recoveries were 79.3% Fe and 84.7% magnetite. The combination of concentrates produces a product of 71.1% Fe and 1.25% SiO2; this meets the specification for direct reduction furnace feed stock at a higher Fe recovery of 84.0%. In their 2006 review of the Isua project, IMC reported that the average grade of Fe sample used in the 2006 SGA testwork was notably higher than that reported for the samples tested in 1971 and, therefore, there is some doubt as to whether the most recent sample/testwork is representative of the overall grade of the deposit. In 2007, LM commissioned SGA to undertake a study on pelletizing of the Isua concentrate. The aim of the testwork was to develop a suitable firing pattern and to determine the chemical, physical and metallurgical properties of Isua DR-pellets in order to ascertain their suitability as a high quality DR-feedstock. The SGA study concluded that “the testwork has demonstrated that high quality DR-grade pellets can be produced from the Isua concentrate with chemical, physical and metallurgical properties that match the requirements for a high quality DR-feedstock in all respects.” WAI Comment: WAI believes that the testwork performed to date demonstrates that the Isua ore is amenable to producing a high quality DR grade concentrate product. Further confirmatory testwork and pilot scale testing using representative samples from across the whole orebody, however, should be performed as part of any future feasibility studies. 141
- 142. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 5.11 Transport and Infrastructure 5.11.1 Transport Transport and infrastructure options have been studied in considerable detail throughout exploration and investigation of the Isua project. Several different locations for the port have been considered based on access from land and sea. Shipping studies including the investigation of the iceberg density throughout the year and other sea and weather conditions likely to be encountered by bulk carriers have been undertaken. The proposed location for the port is Taserarssuk, which was largely chosen based on easier access due to fewer icebergs and favourable bathymetry. Figure 5.5: Aerial View of Proposed Location of the Port Three options have been considered to transport the mine product to the port; pipeline, conveyor and rail. Currently, the option of a 105km pipeline to transport run-of-mine ore in the form of a slurry is favoured. There are several options for the route of the pipeline. A road to service and maintain the pipeline, as well as provide general access between the port and mine, is proposed and a process of public consultation has commenced. An engineering study and ground survey is currently being undertaken by MT Hojgaard along the preferred route. 5.12 Environmental, Health, Safety and Community Issues WAI were informed that a baseline environmental study including archaeological investigations has been undertaken. This was based on the original proposed route for the pipeline and road. Once the final plan has been determine, the baseline study will be supplemented and adjusted accordingly. Before work on the environmental baseline study commenced, a proposal with a scope of works was submitted to the BMP (Bureau for Minerals and Petroleum), which was approved. BMP has issued guidelines for preparing and environmental impact assessment report for mineral exploitation in Greenland, which are largely based on EU legislation and is therefore considered by WAI to be more than adequate. 142
- 143. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Several glacial studies have been undertaken in the Isua project area since the early 1970’s. The Cold Regions Research and Engineering Laboratory (CRREL) investigated the behaviour of the glacier near to Isua from 1973 to 1974 based on data drilled from boreholes (1972-1973); studies included glacier flow and ice fabric. CRREL determined that the Isua deposit forms a 50° ridge that slows the advance of the ice sheet in its vicinity. CRREL concluded that if a large open pit encroached on the margins of the ice sheet in conjunction with the stripping of the ice sheet, the rate of ice flow could be affected and water that lies at the ice-bedrock interface could potentially flow into the pit. CRREL proposed that slow stripping of the ice sheet could prevent this as the basal water would have time to refreeze. In 1974, Luossavaara-Kiirunavaara (LKAB), a Swedish company, undertook a preliminary feasibility study on the Isua project. LKAB felt CRREL’s glaciological estimates were markedly pessimistic; LKAB considered that no melt water would exist under less than 300m of ice cover and therefore, the likelihood of melt water inflow into an open pit was low, though they recommended further investigations. A local land use study was undertaken in May 2009 addressing the use of natural resources in the Isua area. This identified an area of ground, which the pipeline and road would cross, that is a significant hunting ground for Caribou during the Caribou hunting season. WAI were informed that a process of stakeholder and community engagement has been initiated; a report titled “Community Engagement on Port Site Selection” was submitted to the BMP in March 2009 who intend for an independent consultant to comment on the content before the document will be made public for comments/response after which a public hearing will be held. In addition, in June 2009 a proposal was submitted to the BMP identifying stakeholders and proposing an engagement strategy. In April 2009 BMP released draft guidelines for preparing a social impact assessment (SIA) largely based on World Bank guidelines. Within the SIA guidelines, the requirement for a benefit and impact agreement (a joint socio-economic agreement) ensuring that there is continued commitment through the project implementation phase from all parties involved is stipulated. A monitoring plan is also a requirement of the SIA. WAI understand that LM will undertake and develop these in due course. 5.13 Conclusions and Recommendations WAI concludes that Isua hosts an attractive deposit that warrants further work. Project development will require the determination of a number of significant logistical elements, including power, port facilities and the slurry pipeline. Many of these issues will be addressed more thoroughly in the forthcoming pre-feasibility study. WAI agree with Snowden that the resource estimated of 507Mt at a 20% cut-off, should be classified as an Inferred Mineral Resource under the guidelines of the JORC Code (2004). In order that the resource classification can be upgraded WAI consider that appropriate QA/QC procedures be put into practice immediately so as to verify the geology and assay results. In addition, re-sampling of the historical drill core and assay in the same laboratory as the 2008/2009 core is recommended to improve confidence in the historical assay values and to cross correlate. Structured surface sampling of the exposure of the ore body might also prove useful in delineating the zones of the BIF deposit; this could be as systematic channel sampling or via a series of trenches. The current conceptual open pit design has restricted the height of the overlying ice slope to 100m. Based on this constraint and a 20% Fe cut-off grade, the mineable inventory was estimated as being 168Mt at an average grade of 35.4% Fe with a stripping ratio of 0.54t of waste to 1t of ore. If the ice slope height restriction is not considered, the Isua deposit could potentially contain a mineable inventory of about 450Mt. The deposit is amenable for open pit operations using conventional methods and medium-size mine equipment. Ice mining is currently proposed to be conducted using a bucket-wheel excavator, belt conveyor and spreader. 143
- 144. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc WAI recommends that further mining, processing and infrastructure studies are completed as part of the forthcoming pre-feasibility study in order to establish the most economic mining rates, pit designs, processing methods and transport options. WAI recommends that LM should ensure that the drill core is transferred from the exploration camp to a secure storage in Nuuk at the end of the field season in order to preserve the core. WAI has been informed that some historical (including 2008) drill core will be re-assayed for verification this winter (2009). It is considered that the available data, information, and work carried out to date as being sufficient to justify proceeding to the Pre-feasibility stage. 6.0 CHINA 6.1 Introduction LM has a 50% interest in an iron ore project in China, namely, the Xiaonanshan iron mine and the Sudan mineral processing plant. The mine and processing plant are held by a BVI registered company called China Global Mining Resources (BVI) Ltd, which is a 50/50 joint venture between LM and Wits Basin Precious Minerals Incorporated, an OTC Bulletin Board listed company domiciled in the USA. The individual projects (Xiaonanshan and Sudan) are wholly owned subsidiaries of a Hong Kong registered Company, China Global Mining Resources Ltd (CGMR). CGMR is in turn a wholly owned subsidiary of China Global Mining Resources (BVI) Ltd. The project was originally found by Wits Basin Precious Minerals in 2005 and a letter of intent was signed with LM to form a joint venture company to acquire the project in August 2008. The project was subsequently acquired by CGMR in April 2009. As this stage, CGMR also has an option to acquire the Matang iron ore deposit, that is currently inactive. 144
- 145. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 6.2 Property Description and Location The Xiaonanshan mine (together with the Matang deposit) is located close to the city of Ma’anshan in the Anhui Province of China, 270km west of Shanghai. The Sudan processing plant is 5.5km east of the Xiaonanshan mine but is located in Jiangsu Province. Figure 6.1 shows the location of the deposit. Figure 6.1: Location of Xiaonanshan Mine Ma’anshan is a city of approximately 400,000 inhabitants located on the banks of the Yangtze River and is home to Ma Steel, one of the largest steel producers in China. There are several large active Fe ore mines adjacent to the LM properties along with the Ma Steel processing plants. Ma Steel also has a steel works located to the north west of Ma’anshan, within 30km of the LM projects. 6.3 Licence A new mining licence has been issued for the Xiaonanshan mine which consolidates a number of other small mines under one licence (Figure 6.2). Essentially, the licence area covers three mines, the Xiaonanshan mine itself, which occupies the central and south east portion of the licence, the Sanbanqiao mine to the north (including Guqiao), which belongs to a local company called SBQ, and a disused mine to the west which is believed to belong to the local community. Under the terms of the licence it is up to CGMR to come to an agreement with the other owners/operators and consolidate all the operations into a single mine. CGMR are currently negotiating with SBQ and expect to acquire the northern portion of the licence in due course subject to satisfactory commercial terms. A Memorandum of Understanding between CGMR and SBQ has been signed recently. 145
- 146. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Figure 6.2: Approximate Outline of Xiaonanshan Licence Area The current mining licence is 0.6595km2 in area and limited to a depth of -28masl (the current pit floor is at approximately +6masl). In order to increase the depth permitted by the licence, a feasibility study/ mining plan is required to be submitted to the local provincial mining authorities for approval. This is believed to be standard practice in China and often several studies/plans are submitted over the life of a mining operation. There is a risk that the licence may be revoked or reduced in size if GCMR fails to consolidate the licence. The current mining licence is valid for 5 years commencing from 10 February 2009. The licence is subject to various fees and payments summarised as: • Mining Rights Premium – RMB18,464,200; • Mineral Resource Compensation Fee – 2% of sales revenue; • Mining Rights Usage Fee – RMB1,000 per km2; and • Resource Tax – between RMB2 and RMB30/t (to be confirmed). WAI is not aware of any licence issues associated with the Sudan plant. 6.4 Accessibility, Physiography, Climate, Local Resources and Infrastructure Access to the region is excellent. Vehicular access to the area is via paved roads from both Ma’anshan and the city of Nanjing, 40km to the north. A modern regional airport is also located in Nanjing with daily flights to Beijing, Hong Kong and numerous other Chinese cities. The Xiaonanshan mine itself is 10km east of Ma’anshan and is accessed via paved roads all to the mine gate, followed by a few hundred metres of dirt road to access the open pit. The Matang Fe deposit is approximately 12km south of Ma’anshan and is accessed via a paved road. The Sudan processing plant is located a further 5.5km east of the Xiaonanshan mine and is also accessed by paved road all the way. Road maintenance appears generally good on the main roads but local roads are much more variable in terms of condition. The local topography is generally flat as Ma’anshan lies on the flood plain of the Yangtze River; however, the Fe ore deposits tend to be located in an area of small pointed hills rising from the flood plain. 146
- 147. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The local climate is sub-tropical moist monsoon, which is warm and frost free all year round but with annual rainfall of up to 1,800mm per year. The wettest months are generally June and July during which frequent flooding can occur. June and July are generally also the hottest months with average temperatures usually above 27°C. The Ma Steel mining and processing operations are inter-connected via a local rail network which is also connected to the Chinese national rail network. The LM operations are not rail connected but are located close to the private Ma Steel rail heads. Both the Anhui and Jiangsu Provinces are well resourced in terms of skilled labour, transport connections and infrastructure. Power and water are readily available and over 70,000 people are currently employed in the local Fe ore mining and processing industries. 6.5 History Exploration of the Xiaonanshan deposit dates back to the 1960’s and 1970’s with the first known geological report on the mine being compiled by the No.322 Geological Brigade of Anhui Bureau of Geology in 1973, following a drilling programme of 56 diamond drill holes between 1966 and 1973. Small-scale production at the Xiaonanshan mine commenced in 1998. In 2005/6, a tailings dam and a 240ktpa processing plant were constructed at Sudan, 5.5km from the mine. A second processing plant located at the Sudan site was completed in June 2008, which doubled the capacity to approximately 480ktpa of Fe ore concentrate. Exploration of the Matang deposit was first conducted during 1970-1971 by No.322 Geological Brigade as part of a wider exploration programme on the Heshangqiao deposit within which the Matang deposit occurs. The Brigade submitted a geological and reserve report on the Heshangqiao deposit in 1971. Further in-fill exploration was conducted on the Matang portion of the Heshangqiao deposit in 1973-1974, and a geological and reserve report was submitted in 1975. 6.6 Geology and Mineralisation 6.6.1 Regional Geology Both the Xiaonanshan Fe ore mine and the Matang Fe deposit are located within the Ningwu (Nanjing- Wuhu) Late Jurassic to Early Cretaceous continental volcanic basin, which covers an area of 1,000km2 in total. The basin was formed by tectonic activity and is situated in the Lower Yangtze down warping- faulted subsidence belt, bordered by the Yangtze River fault zone and by several second-order faults (Hu et al, 2000). Regionally, the Ningwu basin contains significant resources including Fe, Cu, S and Au. The formation of the ore deposits has been interpreted as magmatic-hydrothermal process related to a porphyry intrusion (NIDP research group, 1978), though there is some debate over the paragenetic sequence. It has been suggested that the region was subjected to several different phases of intrusive and hydrothermal activity resulting in telescoping and overprinting of alteration/mineralisation and replacement/reworking of the ore deposits around intrusive bodies. 6.6.2 Xiaonanshan Mine Mineralisation in the mine is predominantly hosted by a dioritic porphyry body intruded into andesitic volcanics and associated tuffs and tuffaceous breccias. Diorite is an intrusive igneous rock composed largely of plagioclase feldspar, biotite, and hornblende +/- pyroxene. The diorite forms a series of stacked lenses with an andesitic-dioritic phase to the margins; disseminated magnetite mineralisation is high level and largely occurs in the top part of the dioritic porphyry; a small amount of mineralisation occurs in the contact between the intrusive body and the andesitic country rock and locally within the country rocks themselves. 147
- 148. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Alteration of the host rock is a classic propyllitic alteration mineral assemblage associated with a porphyry intrusion, comprising chlorite, epidote, sericite and magnetite +/- calcite locally. There is also significant argillic alteration with kaolinisation observable in the pit wall, notably in the vicinity of the reported Cu occurrence. Argillic alteration was also observed along minor fracture and shear zones. A number of small aplite dykes were noted in the excavation walls ranging in width up to approximately 1.5m. Magnetite is the principal ore mineral in association with some hematite, specular hematite, jarosite, ilmenite, pyrite, chalcopyrite and malachite. Manganese oxide was also observed lining some fracture surfaces and galena has been reported SRK Consultancy Limited (SRK) though this was not observed in the field at the time of the site visit. Gangue minerals include plagioclase, actinolite, chlorite, apatite, biotite, quartz and carbonates. It is worthy of note that, a section of the Sanbanqiao pit has been historically, and is still understood to be, worked for Cu. WAI Comment: It is recommended that all future samples undergo full elemental assay in order to determine the exact ore mineralogy and map variable zones of alteration and concentrations of metals. It is considered likely that there will be Au and additional Cu occurrences, though it is not possibly to say at this stage whether these would be economically extractable. In the Xiaonanshan deposit 5 major ore bodies have been identified (numbered 1-5) by No.322 Geological Brigade, a government department that undertook early exploration in the form of mapping and drilling; these 5 ore bodies reportedly account for 98% of the estimated resource (SRK, 2008), along with 16 smaller mineralised bodies. Mineralisation occurs in the oxide zone in ore bodies No. 1, the top of No. 2 and No. 17; all other identified ore mineralisation occurs in the unoxidised zone. The ore bodies have been described as saddle-shaped lenses, flattening in the middle and dipping at either end (see Table 6.1). The ore bodies lie within an estimated area of 850m x 700m to -414masl. Table 6.1: Xiaonanshan Iron Ore Body Characteristics (SRK) 2008 Occurrence Size (m) Elevation (m) Ore Dip Max Body Form Ore Type direction Angle Length Width Thickness From To Depth 1-1 Layer Disseminated SE 55-60° 400 85 49 Surface 24 35 1-2 Layer Disseminated SE 30° 240 26 8 Surface 59 70 2 Layer Disseminated SE/NW 15° 550 340 43 79 -90 173 3 Layer Disseminated SE/NW 15° 600 400 78 -9 -243 303 4 Layer Disseminated SE/NW 15-20° 650 580 110 -36 -325 380 5 Layer Disseminated SE/NW 15-20° 600 580 84 -175 -414 430 Actinolite 3M1 Pocket NW 13° 60 50 18.5 -93 -110 207 magnetite Actinolite 3M2 Pocket NW 13° 55 50 6 -132 -139 237 magnetite Actinolite 4M1 Pocket NW 40° 25 25 2.5 -94 -117 146 magnetite Actinolite 4M2 Pocket NW 38° 62 50 33 -103 -174 202 magnetite Actinolite 4M3 Pocket SE 20° 58 50 24 -80 -107 195 magnetite Actinolite 4M4 Pocket NW 5° 35 25 2.5 -80 -83 133 magnetite Massive 5M1 Pocket NW 15° 45 50 4 -230 -240 272 magnetite Massive 5M2 Pocket NW 15° 45 50 10 -242 -250 283 magnetite Of the 5 major ore bodies No. 1-1 and No. 1-2 have largely been worked out; ore body No. 2 has been partially mined and ore bodies No. 3, 4 and 5 have not been mined. 148
- 149. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 6.6.3 Matang Fe Deposit The Matang Fe deposit occurs within the Heshangqiao deposit and is closely related to a dioritic porphyry body that was intruded into volcanic deposits, largely comprising tuffs. The dioritic body appears to have been intruded along a fault occurring in the central part of a regional structure considered to be an anticline. Similarly to Xiaonanshan, alteration is largely propyllitic comprising chlorite, epidote, sericite, magnetite +/- calcite locally. Large patches of kaolinisation also occur, commonly associated with small scale shear zones. Silicification was observed locally where intense brecciation of the rock had occurred with a dense network of quartz veins and silicification of the clasts. As with the Xiaonanshan deposit, a number of small aplite dykes were noted ranging in width from approximately 10cm to 1m. These are not considered to be of significance to the Fe mineralisation, which mostly occurs in the form of disseminated magnetite in the classic propyllitic alteration dominated by chloritisation and epidote mineralisation. Fe also occurs as hematite and jarosite, particularly near surface. Other reported ore minerals are ilmenite, pyrite, chalcopyrite and galena, though only pyrite was observed in the field. As with the Xiaonanshan deposit, gangue minerals are plagioclase, actinolite, chlorite, apatite, biotite, quartz and carbonates such as calcite. Work was undertaken by No.322 Geological Brigade (government run department) during the early 1970’s covering, first the Heshangqiao deposit as a whole, and then more detailed exploration on the Matang deposit, resulting in a Chinese style ‘geological and reserve report’ produced in 1975. SRK also report that a ‘reserve/resource verification report’, reviewing the exploration work undertaken during the 1970’s was also produced by No.322 Geological Brigade in 2003. None of the original Chinese reports, nor the associated exploration data, was available to review. However, the ore body geology has been described by SRK from the 2003 No.322 Geological Brigade report as comprising at least 6 unoxidised and 2 oxidised ore bodies with numbers I and IV being the primary ore bodies. Ore body I is located between surface and -150masl; it appears flat and generally trends E-W, 850m along strike, 510m wide and with an average thickness of 16.3m. Ore body I reportedly grades at an average of 22.72% Fe(total). Ore body II occurs between -215m and -240masl, and appears flat. Table 6.2 displays the available information on the Matang orebodies. Table 6.2: Matang Ore Body Data Ore Elevation (m) Dip/Form Oxidation Dimensions (m) Average body Thickness grade No. From To Length Width (average) (%Fe(total)) I Surface -150 Flat Oxidised 850 510 16.3 22.72 II -215 -240 Flat lenses Oxidised 190 110 6.9 23.19 0°-20° IV -10 -200 NW/layer- Unoxidised 840 500 16.8 21.02 like XII -150 -260 5°S/lenses Unoxidised 100 95 6.1 28.54 XIII -50 -86 7°S/lenses Unoxidised 450 210 9.9 27.28 XIV -100 -140 7°S/lenses Unoxidised 450 220 15.7 24.88 XV -80 -160 20°N/lenses Unoxidised 400 180 27 30.49 Several partially worked small scale pits were observed during the Matang site visit, one of which had water in the base and a dewatering pump that was not operational. There were also two derelict processing plants nearby in which a ball mill and magnetic separators were visible along with a small stock pile of fine separated magnetite of unknown Fe content. 6.7 Exploration Between 1966 and 1973 a total of 56 diamond drill holes (totalling 24,162.9m) were drilled at the Xiaonanshan Project with the overall recovery of the ore sections reported to be 81.60%. The core was 149
- 150. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc split and sampling of one half, with sample intervals ranging from 2 to 3m, is reported to have been undertaken; the other half was stored in the core box, though the core is no longer in existence. The samples were assayed for Fe(total), Fe(Sol), FeO2, V2O3, S and P; though it is not known where the samples were prepared or assayed and details of assay methodology were not available. With regard to QA/QC checks, SRK state that duplicate samples were submitted and internal and external checks were also done, though no further data or analysis has been provided to confirm or verify this. WAI understands that external check samples were analysed at the Anhui Bureau of Metallurgy and Geological Exploration laboratory. With regard to the Matang iron deposit, the original exploration reports were not available and no details of the exploration/drilling programme were provided to WAI. SRK state that the 2003 review report does not cover the sampling and assay methods, though since the exploration was carried out by the same body, No. 322 Geological Brigade, it could be assumed that the same methods as those used at the Xiaonanshan project (where known) were utilised. WAI Comment: It is considered that the QA/QC procedures for both the Xiaonanshan and Matang projects are inadequate and the absence of historical drill core means it is not possible to verify assay values. Any future sampling from surface or of drill core, whether it be from original sample points or from twinned drill holes, should include the necessary QA/QC check samples in each batch sent for assay, including standards (certified reference material), duplicates and blanks. 6.8 Historical Mineral Resources 6.8.1 No.322 Geological Brigade Mineral resources for the Xiaonanshan deposit have been calculated and cross checked using several systems; China originally used a letter system whereby, though not complaint with JORC (2004) guidelines, Category B resources would be broadly comparable to Measured resources, C or C1 would be comparable to Indicated and D to Inferred. Post 2000, China replaced the B, C or C1 and D (sometimes C2) nomenclature with 121b, 122b and 333 respectively. A mineral resource estimate of the entire mining licence area and the deposit to -150masl was undertaken in 2003 by No. 322 Brigade using data from the 1970’s. Drill core samples on a 100m x 100m grid were used to classify Category C1 or C resources and drill holes on a 50m x 100m grid for Category B resources. The resources (as estimated in accordance with Chinese standard methods) for the Xiaonanshan Mining Licence in 2003 were 10.9Mt at 26.03% Fe(total) to a depth of -150masl and 21.34Mt at 24.66% Fe(total) in the licence area as a whole. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. Furthermore it should be noted that, none of the historical mineral resource estimates correlate with the LM mining licence and should therefore be treated with caution. Further estimates of resources with variable cut-off parameters and categories, such as elevation or ore type, have been produced historically by the General Brigade, Ma’anshan Xiaonanshan Mining Co Ltd and 322 Geological Brigade as detailed by SRK (2008) in their report titled “Technical Assessment of the Xiaonanshan and Matang Iron Projects”. In 2005, General Brigade prepared an annual examination report on the remaining resources within the mining licence boundary to 5masl. A breakdown of resources was prepared for ore bodies 1-1, 2 and 3 and detailed according to the Chinese system; the total resource estimate was stated as 961,038t of ore at a Fe(total) grade of 29.18%. Ma’anshan Xiaonanshan Mining Co Ltd prepared a second annual examination report on the remaining resources within the mining licence boundary (to a depth of 5masl) during 2007; these were also prepared for ore bodies 1-1, 2 and 3, but also divided into hematite and magnetite ore and the total for each was 216,490t of hematite ore grading 31.92% Fe(total) and 658,623t of magnetite ore grading 27.91% Fe(total). These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 150
- 151. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc In 2007, there were three mining licences in application; surface to 0masl, 0masl to -30masl and -30masl to -500masl. The recoverable resource for each of these divisions according to ore type was estimated by No. 322 Geological Brigade in accordance with The Chinese system. The total for each ore type was reported by SRK as 31.24Mt of magnetite ore at an average grade of 23.64% Fe(total); 4,500t of hematite ore at an average grade of 27.51% Fe(total) and 761,800t of pyrite ore with no reported grade. Notably, 27.54Mt of the magnetite ore resource estimate is within the -30masl to -500masl elevation boundary. These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. WAI Comment: The detailed breakdown of each of these resource estimates have not been reproduced here as the original data were not available and WAI felt it pertinent to address resource estimates in accordance with current permitting parameters, including licence area and depth. CGMR currently only have confirmed title over the Xiaonanshan Pit to a depth of -28masl. Historical resources, to a depth of -30masl, have been quoted by (SRK) (as estimated by 322 Geological Brigade as of March 2007) as 3.69Mt of ore grading 27.94% Fe(total). If successful negotiations with SBQ can be concluded, then CGMR will hold title over the combined total to a depth of -28masl, purported to be 6.97Mt of ore at 20.6% Fe(total). These resource estimates have not been prepared in accordance with an internationally recognised standard, are based on historical data and are included for information only. 6.9 Mining 6.9.1 Introduction The Xiaonanshan Fe mine is a small open pit mine which is understood to have been in production since 1998. The original surface elevation is between +70masl and +80masl; and the lowest elevation in the pit is currently at approximately +10masl, giving an overall pit depth of about 70m. The pit is constrained on all sides by infrastructure and/or other operations; to the north and east there is an active pit belonging to SBQ; to the west is a disused pit understood to belong to the local community; and to the south of the pit is the Xiaonanshan crushing and stockpiling facilities along with the dry magnetic separation plant. Current production is in the region of 360ktpa of concentrate which requires approximately 1.4Mtpa of ore to be mined at a nominal 12% Fe(total) cut-off grade. The strip ratio is understood to be low, in the region of 1:1 waste to ore, though this is likely to increase considerably as the pit deepens. Mining costs are currently reported to be in the region of US$7.74/t for concentrate, which equates to approximately US$2.70/t for ore. WAI Comment: The mine was not in production during the WAI site visit as a result of recent bad weather, and no detailed production statistics were available as a consequence of CGMR having only recently taken over the operations. The mining section is therefore based on observations made during the site visit, a report by SRK (July 2008), and the limited production data since CGMR gained control of the operations in April 2009. 6.9.2 Geotechnics and Mine Design The technical design parameters of the Xiaonanshan pit are listed by SRK as being: • Bench slope angle: 55° to 60° for rock mass and 40° for surface soil layer; • Bench height: 10m; • Width of safety and cleaning berm: 10m; • Width of road: 12m; • Gradient of road: 8% - 10%; and • Overall pit slope angle: ≤42°. 151
- 152. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The design strip ratio is also listed as 4.66:1 waste to ore at a 20% Fe(total) cut-off grade; however, due to the lowering of the cut-off grade to 12% Fe(total), the current strip ratio is almost 1:1. In reality, the excavated pit does not resemble the above listed design parameters and it is evident that ‘high grading’ has taken place. The overall slope angles are considerably greater than the design parameter of 42° and the berm widths are substantially reduced from the nominal 10m, if present at all. The southern and eastern faces are particularly steep and at risk of failure should exploitation continue in this manner. Figure 6.3 below illustrates the steep slope angles and lack of benching in the current pit. Figure 6.3: Xiaonanshan Mine-Illustrating Poor Slopes and Benching (August 2009) 6.9.3 Current Mining Operations The Xiaonanshan mine is a conventional open pit mine with drilling and blasting of both ore and waste followed by excavation using diesel-hydraulic excavators and hauling with diesel road trucks. The mine employs rudimentary grade control techniques to separate ore from waste and to classify the ore into high and low grade. The high grade ore is trucked directly from the pit to the Sudan processing plant, which is located 5.5km to the east. The majority of this haul (4.5km) is along a public highway. Low grade ore is transported to a crushing plant situated at the top of the mine haul road from where it is subsequently conveyed to the on-site dry magnetic separation plant. Waste rock is also hauled directly out of the pit and taken to the waste rock dumping site, an old tailings dam located 3km to the north. Again, a substantial proportion of this haul is on public roads. 152
- 153. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc Once processed, the dry magnetic concentrate is also trucked to the main Sudan processing plant for further concentration and upgrading using wet magnetic separation. The waste rock from the dry magnetic separation process is available free of charge to anyone from the plant. The waste rock tends to be used as an aggregate but there is some evidence to suggest that other local enterprises are re-processing the material for its Fe content. 6.9.3.1 Equipment Fleet The mine is well equipped in terms of mining equipment. The main mining and hauling fleet is summarised in Table 6.3 below. Table 6.3: Xiaonanshan Mine Equipment Fleet Equipment Type Number Make & Model Excavator 5 Cat 320C Excavator 1 Cat 336 Hydraulic Breaker 1 Cat 320D Bulldozer 3 T-140 Ore and Waste Haul Truck 35 Unknown - 20t Capacity Concentrate Haul Truck 10 FAW - 15t Capacity Blast Hole Drill Rig 4 KQ-80 DTH Air Track Compressor 1 Unknown Front End Loaders Unknown LG ZL50C The majority of this equipment was standing idle in the Xiaonaushau mine maintenance area at the time of the site visit. 6.9.3.2 Drilling and Blasting The mine is a conventional open pit mine excavated using 10m vertical benches. Breaking of the ore and waste is conducted through drilling and blasting operations utilising 4 air track mounted drills equipped with compressed air powered DTH (down-the-hole) hammers. Blast holes are drilled at 110mm diameter to a depth of 11.5m and inclined at 75° towards the face. Holes are drilled in single rows with typically 4.5m x 3.2m burden and spacing. It is reported that modern non-electric initiation techniques are employed and the main explosive in use is ANFO (ammonium nitrate fuel oil). Typical powder factors are reported to be in the region of 0.30kg/m3 to 0.35kg/m3. A muck pile that was examined appeared to be well fragmented. 6.9.3.3 Excavation and Haulage No excavation or haulage operations were viewed at the Xiaonanshan mine during the WAI site visit, due to recent heavy rain having rendered the haul roads unsafe for mining operations. Mining operations were, however, being conducted at the adjacent SBQ property, which utilises a very similar equipment fleet and mining method. Excavation of material from the muck piles is conducted using Cat 320C back-hoe excavators loading directly into 20t capacity road trucks. These trucks then haul the material to one of three destinations depending on whether it is classified as high grade ore, low grade ore or waste. The grade control method appears to be entirely visual with no sampling and assaying of the muck pile, face or drill hole cuttings prior to excavation/classification. The haul roads, benches and faces at the mine were in poor condition. No safety berms were present on the haul roads or benches and the faces had been over-steepened in several places. Given the monsoon climate in the region and the weathered nature of the overlying sub-soil, the risk of medium to large scale circular failures occurring within the pit are high. 153
- 154. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc WAI Comment: CGMR and LM are in the early stages of ownership of this project, they are fully aware of the risks involved and are currently taking the necessary recommended steps to deal with them. Figure 6.4: Loading and Hauling at Adjacent SBQ Property 6.9.3.4 Waste Rock Tip The waste rock tip for the Xiaonanshan mine is located on an old tailings dam 3km to the north of the mine, but involves a 5.4km haul via a combination of public and private roads. The waste rock is loaded at the face directly into road trucks and hauled to the waste tip. The waste rock is deposited on the tip in 5-7m thick layers and compacted with a bulldozer. The tip appeared to be well constructed and well managed with concrete drainage channels installed on each bench to control run-off. The tip is reported to have enough capacity for the next few years but no figures were available detailing the current size or remaining capacity. It is clear, however, that a new waste rock tipping site will be needed in future. The road access to the tip was in very poor condition and significant repairs are required if CGMR wishes to improve the efficiency of their waste hauling operations. Examination of the waste rock deposited on the tip gives a clear indication of the lack of grade control within the Xiaonanshan pit; a high proportion of Fe bearing material is present (although without accurate assays it is not possible to determine if this material is above economic cut-off). A group of peasant labourers were present on the tip hand-sorting the waste rock and selecting higher grade material which is then loaded into trucks and sold to private steel producers in the area. This activity raises two concerns, the lack of grade control, as previously mentioned, and the lack of on-site security, both of which lead to loss of potential revenue. 154
- 155. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 6.9.3.5 Groundwater, Drainage and Pumping The Xiaonanshan mine has little or no groundwater inflow within the pit. This may be as a result of a depressed water table in the region, most likely caused by the large amount of open pit mining activity in the area. Two large open pit mines surround the property and pumping activities at these locations are likely to have the effect of drawing down the water table around the Xiaonanshan mine. The majority of water entering the mine is from rainfall and this mostly occurs during June and July. The rainfall can be very heavy at times typical of a monsoon climate and operations tend to cease during these periods as the mine roads become slippery and dangerous. The mine is not currently equipped with any pumps and water does not appear to accumulate on the lowest bench. However, as the mine is deepened there are plans to install a sump and submersible pumps. 6.9.3.6 Infrastructure The Xiaonanshan mine consumes very little electricity as the majority of equipment is diesel powered. Some lighting is present on the main haul road and around the crushing plant. The processing plants are the main consumers of electricity within the operations and the regional power supply and infrastructure are reported to be sufficient to accommodate these facilities. In terms of water consumption, the mine uses a mobile tanker to provide water for dust suppression on the haul roads and the drill rigs. Again, the largest water consumer is the wet magnetic processing plant at Sudan. 6.9.3.7 Human Resources and Technical Services The Xiaonanshan mine is reported to work on a 24 hour operation, employing 3 shifts. In total there are 45 personnel employed within the mine and 118 personnel involved with haulage operations. There is a supervisor on each shift that organises the mining and hauling activities and a grade controller who visually categories the rock into high grade, low grade and waste. Other than this there are no technical services personnel employed within the mine. WAI Comment: WAI believes that this is a key area that needs to be improved. Efficient grade control sampling, assaying and surveying operations need to be established so that the mining department can accurately mine the resource to a set economic cut-off. In addition to grade control personnel, a geologist and a geotechnical engineer are urgently required. 6.9.4 Future Operations CGMR only gained control of the Xiaonanshan mine in 2009 and have not had time to fully formulate their future operating plans and strategy. In the short term, the main focus will be to consolidate the mining licence and negotiate with the operators of the neighbouring properties. Should the mining licence be consolidated, and absorb the SBQ operations, LM proposes to increase production capacity from the current 360Ktpa to approximately 660ktpa of concentrate. It will then be possible to redesign the Xiaonanshan pit and optimise the mining and hauling fleets. In future, it may prove more cost effective to increase the production capacity of the mining operations and build a single large processing plant rather than operate with 5 small processing plants as will be the case once the negotiations with SBQ have been concluded. 6.9.5 Conclusions and Recommendations The Xiaonanshan open pit is in poor condition and has suffered from high grading leading to over- steepened slope angles which may result in slope failure if not addressed soon. Health and safety 155
- 156. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc practices and general awareness is poor compared to international best practice; however, there is no reason to suspect that operator skill or knowledge is any lower. Therefore, it is recommended that an effective H&S training and awareness programme be introduced without delay in order to raise operating standards. Grade control within the pit is non-existent and a system of accurate sampling, assaying and surveying must be introduced so that the pit can be mined to the desired cut-off grade. Without this, ore will continue to be transported to the waste dumps and valuable space within the processing plants will be taken up processing waste rock. Both of these activities are not cost effective. The pit is constrained by the neighbouring operations and in order to guarantee the long term future of the mine, negotiations with SBQ must be prioritised. If the operations are not combined to form one pit it is unlikely that the available resources within the Xiaonanshan licence area will be fully extracted to the -28masl, as the slope angle required to achieve this will be too steep for the pit walls to remain stable. 6.10 Mineral Processing and Metallurgical Testing 6.10.1 Introduction The main economic Fe mineral present in the Xiaonanshan ore is magnetite and magnetic separation techniques are used as the main method of concentration. Two processing sites operate: • A Dry Plant, located near the Xiaonanshan pit which is used to pre-concentrate the lower grade ore after crushing to approximately 50mm. The plant uses low intensity dry drum magnetic separators to produce a product for further treatment and a final “rejects” product. The plant was being expanded during the WAI site visit in August 2009; and • Two wet concentration plants, referred to as the No 1 and No 2 Sudan plants, located some 5km east of the pit. These plants use grinding and wet magnetic separation techniques to produce final iron concentrates. The No 1 Plant started treating ore in late 2006, the No 2 Plant started operation in mid 2008 and the capacity of each the plant is 600Ktpa of feed. The capacity of the Dry Plant has yet to be established. All equipment in the plants is of Chinese manufacture. 6.10.2 Feasibility Study WAI has briefly reviewed the Feasibility Study undertaken by the Ma’anshan Institute for the Steel Group of China for the Xiaonanshan operation. The capital cost of a 600ktpa plant was estimated at 71.9MRMB. Based on a sales price of 450RMB/t of concentrate the annual revenues were predicted to be 95.9MRMB per month. Profits were estimated to be 14.7MRMB per month before tax and 9.9MRMB after tax. Total operating costs were estimated at 79.9MRMB per annum for 213ktpa of concentrates. The plant’s water requirement was estimated at 8,172m3 per day and fresh water at 2,200m3 per day. Total power was 1,127kW. Power costs were estimated at 0.88RMB/kWhr (US$0.13/kWh). 6.10.3 Dry Plant 6.10.3.1 Introduction The Dry Plant treats low grade ore from the Xiaonanshan open pit and is essentially a pre-concentration plant in which a final waste product is produced together with a pre-concentrate which is further upgraded. The waste product is removed by other parties. The Dry Plant is under the management of the Mine department. 156
- 157. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 6.10.3.2 Process Description The Dry Plant was being expanded during the WAI site visit in August 2009. Two process lines were in operation and a third line was under construction. Low grade ore is dumped onto a stockpile area and fed to hoppers directly above a primary jaw crusher. The crushers are set at 70mm and are fitted with a 55kW motors. The crushed ore is then split into a number of streams and gravitates over static inclined grizzly screens with the oversize passing to a second stage of jaw crushing. The secondary jaw crushers are set at 40mm and are fitted with either 30kW or 37kW motors. The secondary crushed product rejoins the screen undersize and passes to a belt separator. The magnetic concentrate falls onto a common product conveyor and is conveyed to a product stockpile. The non-magnetic waste product gravitates to load out areas and is removed by other parties for either further processing or aggregate based use. A photograph of the Dry Plant is given as Figure 6.5 below. Figure 6.5: Xiaonanshan Dry Plant It is planned to further upgrade the magnetic pre-concentrate and this section of the plant was under construction during the WAI site visit. The concentrate will be screened on a 25mm vibrating screen and the screen undersize will report as final product. The screen oversize is conveyed to a cone crusher and the crushed product will be conveyed to a further stage of magnetic belt separation. The magnetic product will be the final product and the non magnetic product is conveyed to the waste. WAI has not reviewed any design data for this plant but considers that this additional upgrade stage may result in unacceptably high metal losses to the waste stream. A total of 88 personnel are employed in the Dry Plant. 157
- 158. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The Dry Plant was designed by the previous owners but its capacity is unknown. A flowsheet is given as Figure 6.6. 158 Figure 6.6: Xiaonanshan Dry Plant Flowsheet
- 159. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 6.10.3.3 Dry Plant Sampling The feed to the Dry Plant is not sampled, nor are any of the products, and therefore its operational efficiency and metallurgical balance cannot be established. The pre-concentrate is weighed but the tonnage being fed to the plant and the waste streams are not weighed. 6.10.4 The Sudan Plants 6.10.4.1 Introduction There are two wet processing plants located some 5km east of the Xiaonanshan open pit. The No 1 Plant treats Xiaonanshan ROM grade ore and the No 2 Plant, which treats the Dry Plant Pre-concentrate product. The two plants both use essentially the same flowsheet although the No 1 Plant is equipped with jaw crushers. 6.10.4.2 Sudan No 1 Plant ROM ore is dumped onto a 26,000t stockpile and fed by front end loader into one of four hoppers which each feed directly into four jaw crushers. The ore does not flow well and requires manual intervention by operators (two per hopper). The crushed material is conveyed to a steel lined 1.8m x 3.5m primary ball mill fitted with a 130kW motor and loaded with 110mm balls. The primary mills are fitted with a grate discharge (100mm x 25mm slots). The mill discharge passes to a spiral classifier which achieves a separation at approximately 500µm and the ‘sands’ are returned to the mill. The spiral classifier overflow gravitates to one of two magnetic 1.0m diameter x 1.8m long drum separators operated at 1,700-1,800 Gauss. The non magnetic product gravitates to the tailings dam as final tailings. The magnetic product passes to a second spiral classifier which cuts at approximately 100µm. The classifier ‘sands’ pass to a 1.3m x 3m steel lined overflow ball mill fitted with a 110kW motor. The ball size is 30-70mm. The classifier overflow passes to two further stages of wet drum magnetic separation operating at 1,300- 1,400 Gauss. The non-magnetic product passes to final tailings and the magnetic product gravitates to a settling impoundment area where water is drained. The concentrate impoundment area is periodically dug out and the concentrates sold to local steel makers. There is an additional stage of Medium Intensity Magnetic Separation (2,400 Gauss) which was reportedly recovering pyrite from the tailings stream. The material being produced during the WAI site visit appeared low grade and consisted predominantly of magnetite. There is an additional stage of gravity processing consisting of a spiral circuit, and a small amount of low grade pyrite concentrates can be produced using this method. 159
- 160. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 6.10.4.3 Sudan No 2 Plant The Sudan No.2 Plant does not have a crushing section and treats the product from the Dry Plant which, during the WAI site visit, appeared to be grading -50mm. The feed material should become finer when the cone crusher is installed in the Dry Plant. The flowsheet in the Sudan No 2 Plant is broadly similar to that in No. 1 Plant, with four lines of primary ball mills and screw classifier stages, two primary drum magnets, two secondary milling stages and a secondary and tertiary magnetic separation stages. The secondary milling stage and magnetic drum separators are shown in Figure 6.7. Figure 6.7: Sudan Plant Secondary Milling and Magnetic Drum Separators A total of 140 staff are employed in the Sudan Plants that operate using four shift crews and an eight hour shift system. 160
- 161. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc A flowsheet for the Sudan Plants is given as Figure 6.8. 161 Figure 6.8: Sudan Plant Flowsheets
- 162. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 6.10.5 Health and Safety The general level of housekeeping was reasonable for a small plant operation. However, with regard to Health and Safety, the plant design was poor with many motor drives either being only partially guarded or having no guards at all. The ROM feed operators were working directly above jaw crusher feed hoppers that were without guard rails. The secondary jaw crushers in the Dry Plant were being fed directly from the screen oversize and the openings to the crushers were simply unguarded openings in the plant floor. There were many areas of the plant without hand rails, even when there were significant height differences. 6.10.6 Sudan Plants Metallurgical Accounting The only process streams that are analysed are the final plant concentrates. The feed rate to the plant is known as each mine truck is weighed. It is therefore only possible to report the number of tonnes of concentrate produced from a given weight of feed. There is a very basic laboratory on site capable of undertaking limited chemical and particle size analysis. The grade of the concentrate produced typically varies from 61-64% Fe. No information was provided on the levels of penalty elements such as P2O5, Al2O3 and Sio2 but it is thought that these elements are not present at significant levels. 6.10.7 Concentrate Sales Concentrate is sold on a monthly contract basis to a total of six customers who typically purchase 5,000t to 10,000t per month. The concentrate sales price, which is dependent on Fe content, is determined by Ma Steel. It is reported that the customers do not analyse for penalty elements and that all contracts are paid in advance. 162
- 163. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 6.10.8 Production Data Historic operating data for the Xiaonanshan operations is limited to the months of April to July 2009. The data are summarised in Table 6.4 and Figure 6.9 below. Table 6.4: Mine and Plant Production Data (tonnes) Product April May June July Run Of Mine 53,547 27,163 52,344 57,545 Dry Plant Product 70,312 92,938 49,808 56,915 Waste 123,806 125,500 148,380 100,080 Concentrate produced 33,190 33,660 33,755 31,230 Total 247,665 245,602 250,532 214,541 Monthly Production 400,000 Run of Mine (No 1 Plant) 350,000 Dry Plant Product (No. 2 Plant) Waste 300,000 Total Quantity tonnes 250,000 200,000 150,000 100,000 50,000 0 Apr. May Jun. Jul. Month 2009 Figure 6.9: Production Data April – July 2009 The mine waste tonnage is determined by counting each 20t truck and using assumed weights. The ROM and Dry Plant weights are determined from weighbridge measurements. The concentrate sales have also been consistent over the period, ranging from 31,230t in July to 33,755t in June. No other production data was available. 6.10.9 Operating Costs There was very limited historic operating cost data but CGMR are in the process of preparing accurate process cost accounting procedures. The current process operating cost, based on the last 4 months figures, is reported to be in the region of US$4.62/t for ore treated or US$13.28/t for concentrate produced. 6.10.10 Analysis of Geological Samples WAI was informed that only Fe(total) has been analysed for the majority of the geological samples, although FeO analyses of samples occurring in the oxide zone of the orebody have been undertaken. WAI recommends that a programme of Davis Tube testing be undertaken to determine the recoverable magnetite content of each area of the mine. 163
- 164. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc 6.11 Transport and Infrastructure All Fe ore concentrate is currently sold into the local Chinese market on an Ex Works basis. The concentrate is collected from the Sudan processing plant site by customers using their own trucks and transported by road to local blast furnaces and steel mills. The local demand for Fe ore appears to be high and as a result there are currently no plans to export iron ore outside China or even further afield within China. 6.12 Environment, Health, Safety and Community Issues 6.12.1 Introduction WAI has assessed the environmental, health, safety and community (EHSC) issues and reported on any potential liabilities associated with the existing Xiaonanshan mine, Sudan processing plant and tailings storage facility (TSF). In addition, comment was required in relation to the possible significant impacts which may arise from the expansion of activities in any planned operations. 6.12.2 Current Project Status The Xiaonanshan open pit and Sudan processing plant are operational and the plant is currently undergoing expansion to meet an increasing demand for output of concentrate. The Xiaonanshan mine site is located in the Ma’anshan Fe ore district and is in an area which is already environmentally degraded. The surrounding land is used primarily for mining and agriculture. The site conforms to general state requirements for mine planning and meets with national industrial policy for site location and design. Mine waste is currently being transported to an old TSF and used as a capping material as part of site rehabilitation works. Tailings from the Sudan plant are disposed of by gravity feed to a recently constructed and commissioned TSF, adjacent to the plant, that has a design capacity of 8.3Mm3. 6.12.3 Legislative Requirements The project is required to comply with Chinese National regulatory requirements. LM have also stated their commitment to comply with international standards where these exceed any national requirements. In this respect, it is anticipated that the project will be designed to meet performance levels set by: • World Bank/International Finance Corporation (IFC) performance standards and guidelines; and • Equator Principles or any other internationally recognised EHSC management practices. The boundary of the Xiaonanshan mine licence was extended in February 2009 and enclosed the area covered by an adjacent operator. The current licence permits operation to -28masl elevation. WAI Comment: The operations have not needed to demonstrate compliance with international standards in the past since monies for project development have been sourced internally. In order to achieve these standards there is a need to develop an Action Plan, formulate management procedures and practices and ensure effective implementation within a reasonable timeframe. WAI believes that this could be achieved within 12 months based on the level of commitment and capacity of the existing management. WAI is not aware of any previous contraventions of State regulations relating to the mine and process operations. However, in the light of the extended mine licence there is a need to resolve current ownership issues with the adjacent operator. 164
- 165. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc The current licence is limited in depth and will need to be revised to allow increased output and an increase in depth. Whilst this is reported to be a procedure which should result in the grant of permission as a matter of course, this process is not guaranteed. 6.12.4 Current EHSC Studies Environmental Impact Assessments (EIA) were produced for the Xiaonanshan mine and Sudan process plant in 2006. These were subsequently granted conditional approval by the Environmental Protection Bureau in November and December 2006 respectively. Public participation was undertaken as part of an EIA process and broad public support was expressed for the project Environmental monitoring is understood to have been carried out by State authorities to assess dust, noise and groundwater quality at the Sudan Process plant. It is further understood that the report conducted in 2007 demonstrated compliance with Chinese national standards. The EIA’s for the mine and the plant should comprise regular monitoring of dust, noise, surface water monitoring and ground water. State authorities consider that impacts on the surrounding environment are likely to be small if the environmental protection measures advanced in the EIA are adopted. The type, quantity and quality of pollutants predicted to be discharged from the mine and plant operations were assessed and approved as meeting Chinese quality standards. It is considered that these will need to be reassessed in the light of increased production rates and enlarged site footprint. A soil and water conservation scheme, a plan for clean production and measures for environmental management and monitoring were all advanced in the EIA, with the intention that operations would meet state environmental quality standards. Visual monitoring and surveys are undertaken to detect slope stability of the TSF dam. It is understood by WAI that plans to improve monitoring and integrity of the TSF are to be developed. The risk of acid rock drainage is considered to be low, but further geochemical characterisation would be required to confirm this. Risk assessment procedures, improved health and safety programmes and employee training continue to be a focus of management attention, resulting in positive improvements. WAI Comment: WAI considers that the mine and processing plant are broadly compliant with EIA approval conditions granted in 2006. However, WAI would suggest that an ESIA addendum be produced in order to address shortcomings identified and with regard to international best practice. The extended mining licence area should be included in any addendum to ensure that impacts are assessed across the full site footprint. It is noted that environmental monitoring reports were undertaken by the State authorities in 2007, but WAI has not had sight of these or any operational environmental monitoring results. The EHSC issues raised during the approval process relate to dust control, slope stability (TSF and open pit), road traffic management, water conservation and restoration. These are all considered to be risks that can be managed by appropriate protection, monitoring and control measures. WAI considers that to ensure compliance with national quality standards and international best practice the following should be supplied: • Environmental and Social Action Plan (ESAP) – The ESAP is one of the critical components for an ESIA. It is used to ensure that the company continues to improve in all aspects of the project and that IFC Performance Standards and Equator Principles are met; • Environmental Management and Monitoring Plan – Monitoring should be extended to cover operational compliance monitoring and management to meet all required standards; • Waste Management Plan – for all liquid and solid wastes, both hazardous and non-hazardous; 165
- 166. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc • Water Management Plan – to include water supply, conservation, protection measures, treatment, monitoring and water balance, which are considered by WAI to be critical to the success of the project ; • Mine Closure and Rehabilitation Plan – is currently considered to be at a conceptual level, and would need to be expanded, including financial provisions; • Community Health, Safety and Security Plan – several elements of this plan have addressed measures to protect employees at the project, notably through improved occupational health and safety measures introduced at the operations; however international best practice requires plans to ensure that the wider community is considered and an integrated plan should be prepared; • Spill Response and Emergency Response Plans – are described in part but will need to be extended to cover all stages of project development; • Endangered and Protected Species Protection Plan – this is a required to be considered to ensure that such species are adequately protected; • Emergency Preparedness and Response Plan – required to be prepared to cover procedures in the event of potential incidents; and • Community Development, Public Consultation and Disclosure Plans – whilst arrangements are in place for wide levels of public participation and assistance, these plans should be formalised. The issue of potential resettlement will need to be carefully considered in respect of the Matang project and a formal Resettlement Action Plan may need to be prepared. It will be important for LM to assess any potential liability issues arising out of the acquisition of assets from SBQ. WAI would recommend that an audit is undertaken to establish the extent of any liabilities, prepare remediation measures and make financial provision for these in any company accounting. 6.12.5 Corporate Environmental and Social Management LM has not yet developed mechanisms for environmental and community management, and WAI would recommend implementation of an appropriate system in line with current and proposed operations. 6.12.6 Community Development A public consultation programme was carried out as part of the EIA process. Community support for the project has been expressed throughout the EIA process and into project operation. CGMR maintain an open dialogue with the community and statutory bodies, with whom relations are considered to be good. Community development is undertaken on an ad-hoc basis, in seeking to meet the basic needs of the local villagers. Community contact and liaison are conducted through a designated site manager. A Community Development Plan (CDP), with a formal budget is planned to be introduced. The company intends to employ local people wherever possible. WAI Comment: Care will need to be taken to ensure that expectations are carefully managed, and WAI would suggest that a formalised CDP be developed in due course to ensure that the company can continue to convey community benefits, in a structured manner, without requests becoming too burdensome. WAI would recommend that the potential issue of resettlement at Matang be investigated more fully, and if community resettlement is considered likely a Resettlement Action Plan (RAP) will need to be developed. 6.13 Conclusions and Recommendations CGMR only assumed control of the Xiaonanshan operations in April 2009. Under the terms of the new mining licence, CGMR must consolidate and negotiate with the other operators and this process is under way with CGMR having signed an MOU with SBQ to acquire their operations in the northern portion of the licence block. 166
- 167. LONDON MINING PLC Competent Person’s Report on the Mineral Assets of London Mining Plc In regard to the geology, resources and reserves the Xiaonanshan licence area has been explored by the Chinese in two separate campaigns resulting in the publication of a reserve classified under the Chinese system. CGMR has commissioned Wardrop Engineering Inc. to collate, update and classify the resources to a recognised international standard such as the JORC Code (2004). More QA/QC verification of the primary Chinese data is required before this resource can be classified under the guidelines of the JORC Code (2004); this will probably take the form of drilling twin holes and repeating assays over the mineralised intersections. An option exists to acquire the Matang deposit. This deposit is at a much earlier stage of development than the Xiaonanshan operations and a complete programme of work will be required to estimate the resources before feasibility studies can commence. The Xiaonanshan open pit is reported to be operational although no mining activity was witnessed during the visit; it is clear, however, that the standards of operation fall well below what would be accepted in a modern operation. Time and effort is required to improve the operations with the introduction of grade control and geotechnical monitoring a priority. Substantial face re-profiling is required to ensure that the pit is stable, whether this is achieved through a dedicated pushback or can be accomplished through standard operations is unclear at this time. Waste dump capacity is limited and the pit is constrained by neighbouring operations. Both of these issues can be resolved if the SBQ operation is consolidated into the Xiaonanshan pit. The processing plants are operating and producing an acceptable concentrate product for sale into the local market but there is no monitoring or control of the feed and this has an impact on recoveries and plant efficiency. A full programme of sampling to produce a reliable mass balance is required. Once this has been achieved it will be possible to improve the efficiency of the plant, iron out bottlenecks and improve the overall recovery. An important part of this process is also undertaking grade control in the pit to produce a reliable feed at a desired cut-off grade. Health and safety standards and working practices with the various plants also require improvement. Transport, loading and shipping considerations are not required at present or in the future as there appears to be sufficient local demand to continue supplying material on an Ex Works basis. The operations are considered to currently be in compliance with Chinese EHSC requirements. LM has stated their aim to achieve compliance with International Standards and a work programme will need to be established to meet this objective. The formulation and implementation of management plans and programmes will require further definition in the form of an EHSC Action Plan if the 6-12 month timescale for solidification is to be met. The company is developing a formal mechanism for in-house environmental, health and safety management, and it would be recommended to employ EHS Managers at site and corporate level to achieve this. Community consultation and development is proactively managed and several initiatives have been funded by agreement with local authorities and villages, rather than in response to a formal Community Development Plan. The potential for resettlement should be assessed at the Matang site, and if necessary, a Resettlement Action Plan should be developed. Amendments to the mining pit boundary, both laterally and vertically, will be required to accommodate changes in mine design and production levels. This will require approval from the national authorities and may require an addendum to the current environmental impact assessment to be prepared. There is currently no Mine Closure and Rehabilitation Plan in place, and no financial provision made for closure costs. WAI recommends that a plan be developed, with a supporting accounting mechanism for accrual of funds. WAI considers that LM is in an excellent position to implement mechanisms for Environmental and Social management at this early stage, to ensure that future operations are responsibly and proactively managed, and would suggest that tasks to achieve this be incorporated in the formation of a time-bound Environmental and Social Action Plan. 167
- 168. DEFINITIONS AND GLOSSARY OF TERMS Definitions “AIM” AIM, a Market; operated by the London Stock Exchange “African Minerals” African Minerals Limited “CEMMATS” CEMMATS Group Limited “CGMR” China Global Mining Resources Limited “CGMR BVI” China Global Mining Resources (BVI) Limited “China” the People’s Republic of China “CPR” Competent Persons Report “CRU” CRU Strategies “DKK” Danish Krone, the lawful currency of Denmark “IMC” International Mining Consultants Limited “Isua” the Isua iron ore deposit in Greenland “Liberum” Liberum Capital Limited “LKAB” Luossavaara-Kiirunavaara AB International “London Mining” or “LM” London Mining plc “London Stock Exchange” London Stock Exchange plc “Matang” Maanshan Zhaoyuan Mining Co. Ltd “Marampa” the Marampa Iron Ore Mine in Sierra Leone “NMC” National Mining Company Limited “SBQ” the Sanbanquiao mine “SLI” Saudi London Iron Ltd “Snowden” Snowden Mining Industry Consultants “SRK” SRK Consulting “UK” or “United Kingdom” the United Kingdom of Great Britain and Northern Ireland “US$” United States Dollar, the lawful currency of the United States of America “WAI” Wardell Armstrong International Limited “Wits Basin” Wits Basin Precious Minerals, Inc. “Worley Parsons” Worley Parsons Limited “XNS” Maanshan Xiaonanshan Mining Co. Limited 168
- 169. Units “°C” degrees Celsius “bgl” below ground level “Ga” billion years “kg” kilogramme “km(s)” kilometres “km2” square kilometres “kV” kilo-volt “m” metres “Ma” million years “masl” metres above sea level “Mt” million tonnes “mm” millimetres “Mtpa” million tonnes per annum “t” a metric tonne (1,000kg) “tpa” tonnes per annum Technical Terms “acid” an igneous or volcanic rock containing more than about 60% silica (SiO2) by weight “acid rock drainage” drainage that occurs as a result of natural oxidation of sulphide minerals contained in rock that is exposed to air and water “actinolite” a monoclinic mineral, 2[Ca2(Mg,Fe)5Si8O22(OH)2]; a metamorphic ferromagnesian mineral; an asbestos “adit” a horizontal or sub-horizontal underground development providing access to underground workings from surface “aero-magnetic” a geophysical prospecting (by air) method that maps variations in the magnetic field of the Earth that are attributable to changes of structure or magnetic susceptibility in certain near-surface rocks “Al2O3” aluminium oxide “alteration” changes in the chemical or mineralogical composition of a rock, generally produced by weathering or hydrothermal solutions “ammine” one of a group of complex compounds formed by coordination of ammonia molecules with metal ions “aplite” light-coloured igneous rock characterised by a fine-grained texture 169
- 170. “andesite” or “andesitic” fine-grained igneous rock with no quartz or orthoclase, composted of about 75% plagioclase feldspars, balance ferromagnesian silicates “apatite” any hexagonal or monoclinic pseudohexagonal mineral, Ca5(F,C1)(PO4)3; found in igneous rocks and metamorphosed limestone’s; main source of phosphates “argillite” compact rock, derived either from mudstone or shale (argillic) “arsenopyrite” arsenic mineral; FeAsS; usually found in hydrothermal veins “assay” to test an ore or mineral for composition, purity, weight, or other properties of commercial interest “Au” chemical symbol for gold “auger” tool designed for boring holes into soil or soft/weak rock “autogenous” a. in the dense-media separation process, fluid media partly composed of a mineral species selected from material being treated; b. selectively sized lumps of material used as grinding media “Banka drill” portable, manually operated system used in prospecting alluvial deposits to depths of 50ft (15m) or more. Also known as an Empire drill “basalt” fine-grained igneous rock dominated by dark-coloured minerals, consisting of plagioclase feldspars (over 50%) and ferromagnesian silicates “Banded Iron Formation” or “BIF” iron formation that shows marked banding, generally of iron rich- rich minerals and chert or fine grained quartz “Bankable Feasibility Study” or a comprehensive design and costing study of the selected option for “BFS” the development of a mineral project in which appropriate assessments have been made of realistically assumed, geological, mining, metallurgical, economic, marketing, legal, environmental, social governmental, engineering, operational and all other modifying factors which are considered in sufficient detail to demonstrate at the time of reporting (i) that extraction is reasonably justified (economically mineable) and (ii) the factors finance the development of the project. “basement” oldest rocks exposed in an area “beneficiate” or “beneficiation” to improve the grade by removing associated impurities; preparation of ores for smelting by drying, flotation or magnetic separation “berm” horizontal shelf or ledge built into the embankment or sloping wall of an open pit to break the continuity of an otherwise long slope and to strengthen its stability or to catch and arrest slide material “biotite” ranging in colour from dark brown to green. Rock-forming ferromagnesian silicate mineral with tetrahedra in sheets; monoclinic mineral (mica), K2Mg6(Si6Al2O20)(OH,F)2; mica group “borehole” hole with a drill, auger, or other tool for exploring strata 170
- 171. “breccia” clastic rock made up of poorly sorted angular fragments of such size that an appreciable percentage of rock volume consists of particles of granule size or larger “calcite” a trigonal mineral, or the mineral group; composed of calcium carbonate, CaCO3 “Caledonian” major mountain building episode which took place during the lower Palaeozoic Era “Cambrian” a period of geologic time from about 590 to 505Ma “carbonate” refers to a carbonate mineral such as calcite “Carboniferous” a period of geologic time from about 345 to 280Ma “chalcedony” fibrous cryptocrystalline silica with waxy lustre; deposited from aqueous solutions and frequently found lining or filling cavities in rocks “chalcopyrite” the mineral sulphide of iron and copper, CuFeS “channel sample” continuous rock samples, where an even channel is cut into the rock to obtain the sample. If competently sampled, the quality of such sampling is comparable to drill-hole assays “chert” cryptocrystalline silica which may be of organic or inorganic origin “chlorite” tetrahedral sheet silicates of iron, magnesium, and aluminium, characteristic of low-grade metamorphism; green colour “chloritisation” alteration of rocks to chlorite as a result of low-grade metamorphism “clastic” consisting of fragments of minerals, rocks or organic structures that have been moved individually from their place of origin “concentrate” the clean product recovered from a treatment plant “concession” a grant of mining rights especially by a government in return for services or for a particular use “conglomerate” generally coarse grained rock with rounded or sub-rounded clasts that are greater than 2mm in size “Cretaceous” a period of geologic time from about 144 to 65Ma “Cu” chemical symbol of copper “cut-off grade” lowest grade of mineralised material considered economic, used in the calculation of ore resources “Davis Tube” laboratory scale test to determine the proportion of iron recoverable through magnetic separation “deposit” mineral deposit or ore deposit is used to designate a natural occurrence of a useful mineral, or an ore, in sufficient extent and degree of concentration “diabase” metamorphosed medium-grained igneous rock 171
- 172. “Digital Terrain Model” or “DTM” a 3-Dimensional model of a surface, such as topography or the top of a seam “dip” the true dip of a plane is the angle it makes with the horizontal plane “diorite” coarse-grained igneous rock with composition of andesite (no quartz or orthoclase), composed of 75% plagioclase feldspars and balance ferromagnesian silicates “diamond drilling” drilling method which obtains a cylindrical core of rock by drilling with an annular bit impregnated with diamonds “Direct Reduction” or “DR” an alternative route of iron making developed to overcome some of the difficulties of conventional blast furnaces “drill hole” hole in rock or other material made by a rotational and downward force, to recover a sample of the material “drive” a horizontal underground tunnel “dyke” a sheet like body of igneous rock which is discordant “EA” Environmental Assessment “EHSC” Environmental, Health and Safety Community “EHSIA” Environmental Health and Social Impact Assessment “EIA” Environmental Impact Assessment “EMP” Environmental Management Plan “EPCM” Engineering, Procurement and Construction Management “epidote” silicate of aluminium, calcium, and iron characteristic of low-grade metamorphism “epithermal” hydrothermal mineral deposit formed within about 1km of the Earth’s surface and in the temperature range of 50 to 200oC, occurring mainly as veins; also said of that depositional environment “exploration” method by which ore deposits are evaluated “extrusive” igneous rock that has been erupted onto the surface of the Earth; extrusive rocks include lava flows and pyroclastic material such as volcanic ash “fault” surface of rock fracture along which has been differential movement “Fe” chemical symbol for iron (total Fe content) “Fe(sol)” amount of Fe that can be dissolved in a given amount of solvent “Fe(total)” total amount of iron content “feasibility study” an extensive technical and financial study to assess the commercial viability of a project 172
- 173. “feldspar” most important group of rock forming silicate minerals, with end- members, alkali feldspar KalSi2O8, sodium feldspar NaAlSi2O8 and calcium feldspar CaAlSi2O8 “FeO2” iron oxide “ferromagnesium” silicate minerals containing iron and/or magnesium “ferruginous” pertaining to or containing iron “FGS” Fellow of the Geological Society “FIMMM” Fellow of the Institute of Material, Mining and Metallurgy “filtration” removal of suspended and/or colloidal material from a liquid by passing the suspension through a relatively fine porous medium “fines” finely crushed or powdered material; term for particles less than 0.074mm “flexure” general term for a fold, warp, or bend in rock strata “float” general term for loose fragments of ore or rock, esp. on a hillside below an outcropping ledge or vein “flocculation” process by which a number of individual, minute suspended particles are tightly held together in clot-like masses “flotation” a mineral process used to separate mineral particles in a slurry, by causing them to selectively adhere to a froth and float to the surface “flowsheet” diagram showing progress of material or ore through a preparation or treatment plant “fold” bend, flexure, or wrinkle in rock produced when rock was in a plastic state “footwall” rock mass below a fault, vein, bed or mineralisation “gabbro” coarse-grained igneous rock with composition of basalt “galena” lead sulphide, chemical symbol PbS; principal ore of lead “gangue” rocks and minerals of no economic value that occur with valuable minerals in an ore “Gauss” unit of magnetic induction in the electromagnetic and Gaussian systems of units “geologic block” the defined boundaries of an ore resource “geochemical” prospecting techniques which measure the content of specified metals in soils and rocks; sampling defines anomalies for further testing “geophysical” prospecting techniques which measure the physical properties (magnetism, conductivity, density, etc.) of rocks and define anomalies for further testing “geostatistics” complex method of resource estimation using regionalised variables i.e., grade and thickness 173
- 174. “geotechnical” referring to the use of scientific methods and engineering principles to acquire, interpret, and apply knowledge of earth materials for solving engineering problems “gneiss” banded metamorphic rock with gneissic cleavage (parting); commonly formed by metamorphism of granite “GPS” Global Positioning System; satellite-based navigational system permitting the determination of any point on the Earth with high accuracy “graben” a downthrown block between two parallel faults “grade” relative quantity or the percentage of ore mineral or metal content in an ore body “granite” coarse-grained igneous rock dominated by light-coloured minerals, consisting of about 50% orthoclase, 25% quartz, and balance of plagioclase feldspars and ferromagnesian silicates “granodiorite” coarse-grained igneous rock intermediate in composition between granite and diorite “greenschist” schistose metamorphic rock whose green colour is due to the presence of chlorite, epidote or actinolite “greenschist facies” assemblage of minerals formed between 150 and 250°C during regional metamorphism “greenstone belt” field term applied to a band or zone of any compact dark-green altered or metamorphosed basic igneous rock “greywacke” variety of sandstone generally characterized by hardness, dark colour, and angular grains of quartz, feldspar, and small rock fragments set in matrix of clay-sized particles “grizzly” device comprised of fixed or moving bars, disks, or shaped tumblers or rollers for the coarse screening or scalping of bulk materials “grunerite” monoclinic mineral, chemical formula (Fe,Mg)7Si8O22(OH)2; characteristic of some iron deposits “halo” circular or crescent distribution pattern about the source or origin of a mineral “hanging wall” rock mass above a fault, vein, bed or mineralisation, or an ore deposit “hematite” an iron mineral with the formula Fe2O3; found as an accessory in igneous rocks, in hydrothermal veins and replacements, and in sediments “hornblende” mineral of the amphibole group; NaCa2(Mg,Fe)4(Al,Fe)(Si,Al)O22(OH,F)2; widespread in metamorphic rocks “hydraulic mining” use of strong water jet to move deposits of sand and gravel from original site to separating equipment, where sought-for mineral is extracted 174
- 175. “hydrogeology” the study of the water cycle that deals with the distribution and movement of groundwater in the soil and rocks “hydrothermal” refers in the broad sense to the process associated with alteration and mineralization by a hot mineralised fluid (water) “hypogene” formed or crystallised at depths below the earth’s surface; said of granite, gneiss, and other rocks “igneous” rock or mineral that solidified from molten or partly molten material, i.e., from a magma “ilmenite” iron titanium oxide; a trigonal mineral, chemical formula FeTiO3 “Indicated Resource” as defined in the JORC Code, is that part of a Mineral Resource which has been sampled by drill holes, underground openings or other sampling procedures at locations that are too widely spaced to ensure continuity but close enough to give a reasonable indication of continuity and where geoscientific data are known with a reasonable degree of reliability. An Indicated Mineral resource will be based on more data and therefore will be more reliable than an Inferred resource estimate “indurator” a kiln used in the pellet making process which bakes and hardens the raw or “green” pellets which enables them to be transported “Inferred Resource” as defined in the JORC Code, is that part of a Mineral Resource for which the tonnage and grade and mineral content can be estimated with a low level of confidence. It is inferred from the geological evidence and has assumed but not verified geological and/or grade continuity. It is based on information gathered through the appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability “intermediate” the composition of igneous or volcanic rocks whose composition lies between those of basic and acid rocks “intrusive” of or pertaining to intrusion – both the processes and the rock so formed “IOM3” or “IMMM” Institute of Materials, Minerals and Mining “island arc” group of islands having a curving, arc like pattern “jamesonite” ore mineral of lead antimony sulphide “jarosite” trigonal mineral, chemical formula KFe3(SO4 )2(OH)6 “jasper” red chert-like variety of chalcedony (silica group) “jaspilite” interbedded jasper and iron oxides “Joint Venture” or “JV” contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share in the profits and losses of the enterprise “JORC Code” Joint Ore Reserve Committee of the Australian Institute of Mining and Metallurgy; for reporting of mineral resources and ore reserves which sets out the minimum standards, recommendations and guidelines for the public reporting of exploration results, mineral resources and ore reserves 175
- 176. “kriging” geostatistical technique for interpolation that takes account of the spatial auto-correlation of a variable (e.g. metal grade) to produce the best linear unbiased estimate “leachate” solution obtained by leaching “limb” area of a fold between adjacent fold hinges “LIMS” low intensity magnetic separation “lineament” a large scale linear structural feature “mafic” Pertaining to or composed dominantly of the ferromagnesian rock- forming silicates; said of some igneous rocks and their constituent minerals “malachite” monoclinic mineral, Cu2CO3(OH)2; bright green; occurs with azurite in oxidized zones of copper deposits “mafic” a dark-coloured igneous rock which has a high proportion of pyroxene and olivine minerals “mangenite” monoclinic mineral, MnO(OH); a hydrothermal vein mineral; an ore of manganese “magnetite” isometric mineral, 8[FeOFe2O3]; major mineral in banded iron formations “manganese” grey-white, hard, brittle metallic element; chemical symbol Mn “massive” a. said of a mineral deposit characterised by a great concentration of ore in one place, as opposed to a disseminated or vein deposit. b. said of any rock that has a homogeneous texture or fabric over a wide area, with an absence of layering, foliation, cleavage, or any similar directional structure “Measured Resource” defined in the JORC Code, as that part of a Mineral Resource for which the resource has been intersected and tested by drill holes, underground openings or other sampling procedures at locations which are spaced closely enough to confirm continuity and where geoscientific data are reliably known. A measured resource estimate will be based on a substantial amount of reliable data, interpretation and evaluation which allows a clear determination to be made of the shapes, sizes, densities and grades “meta” prefix that indicates that the rock has been metamorphosed “metallogenic” study of the genesis of mineral deposits, with emphasis on its relationship in space and time to regional petrographic and tectonic features of the Earth’s crust “metallogenic province” a belt of rocks, often structurally controlled, that are host to a specific selection of minerals “metallurgical” describing the science concerned with the production, purification and properties of metals and their applications “metamorphism” process by which rocks which have been altered by the agencies of heat, pressure and chemically active fluids 176
- 177. “metasomatism” metamorphic change which involves the introduction of material from an external source “mica” or “micaceous” group of phyllosilicate minerals, plate or sheet grain shape; containing mica “mill” equipment used to grind crushed rocks to the desired size for mineral extraction “mineral resource” concentration or occurrence of material of intrinsic economic interest in or on the Earth’s crust in such a form that there are reasonable prospects for the eventual economic extraction. The location, quantity, grade geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral resources are sub- divided into Inferred, Indicated and Measured categories “mineralisation” process of formation and concentration of elements and their chemical compounds within a mass or body of rock “moraine” mound, ridge, or other distinct accumulation of unsorted, unstratified glacial drift, predominantly till, deposited chiefly by direct action of glacier ice “NPV” Net Present Value “open-pit” a large scale hard rock surface mine; mine working or excavation open to the surface “ophiolitic” said of mafic and ultramafic igneous rocks, including rocks rich in serpentine, chlorite, epidote, and albite derived from them by later metamorphism “optimisation” co-ordination of various mining and processing factors, controls and specifications to provide optimum conditions for technical/economic operation “ore” material from which a mineral or minerals of economic value can be extracted profitably or to satisfy social or political objectives “ore-field” a zone of concentration of mineral occurrences “ore body” mining term to define a solid mass of mineralised rock which can be mined profitably under current or immediately foreseeable economic conditions “ore reserve” economically mineable part of a Measured or Indicated mineral resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could be reasonably justified. Ore reserves are sub-divided in order of increasing confidence into Probable and Proven “orogenic” mountain building “outcrop” part of a rock formation that appears at the surface of the ground 177
- 178. “P” chemical symbol for phosphorous “P2O5” chemical symbol for phosphorus pentoxide “Paleozoic Era” the first of the three eras of the Phanerozoic, spanning 570 to 248Ma “paragenesis” the relationship of minerals expressed in terms of a time sequence “parasitic” fold of small wavelength and amplitude which usually occurs in a systematic form superimposed on folds of larger wavelength “pellet” a small spherical marble-sized ball of iron ore used in steelmaking “Phanerozoic” rocks younger than 590Ma “Pilot Plant” Small scale processing plant in which representative tonnages of ore can be tested under conditions which foreshadow full-scale operation proposed “plagioclase” any of a group of feldspars containing a mixture of sodium and calcium feldspars “plutonic” pertaining to igneous rocks formed at great depths “phyllite” a fine grained low-grade metamorphic rock “planimeter” an instrument for measuring the area of any plane figure by passing a tracer around its boundary line “plunge” a fold is said to plunge if the axis is not horizontal “polymetallic” refers to a mineral deposit or occurrence with several metal sulphides, common metals include Cu, Pb, Fe, Au and Ag “porphyry” igneous rock containing conspicuous phenocrysts (crystals) in fine- grained or glassy groundmass “porphyritic” a medium-coarse grained intrusive or volcanic rock which is conspicuous by containing more than 25% large well-formed crystals by volume “Precambrian” the geological era from the consolidation of the Earths crust to the base of the Cambrian; older than 570Ma “precious metal” gold, silver and platinum group minerals “preliminary feasibility study” a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established, and where an effective method of mineral processing has been determined. This study must include a financial analysis based on reasonable assumptions of technical, engineering, operating and economic factors and evaluation of other relevant factors which are sufficient for a qualified person acting reasonably, to determine if all or part of the mineral resource may be classified as a mineral reserve “primary” characteristic of or existing in a rock at the time of its formation; pertains to minerals, textures etc.; original 178
- 179. “processing” methods employed to clean, process and prepare materials or ore into the final marketable product “propylitic” plagioclase in an igneous rock is altered to epidote, sericite and secondary albite, and ferro-magnesian minerals are altered to chlorite-calcite-epidote-iron oxide assemblages “Proterozoic” the most recent of three sub-divisions of the Precambrian, spanning 2,500 to 570Ma “primary ore” ore that has remained practically unchanged from the time of original formation and being in-situ “psilomelane” general term for massive oxides of manganese not otherwise identified “pyrite” an iron sulphide mineral with the chemical formula FeS2 “pyroclastic” produced by explosive or aerial ejection of ash, fragments, and glassy material from a volcanic vent “pyrolusite” tetragonal mineral, MnO2; source of manganese “pyrrhotite” monoclinic and hexagonal mineral, chemical formula FeS; iron sulphide; commonly associated with nickel minerals “pyroxene” group of rock forming silicates “QA/QC” Quality Assurance/Quality Control; Systematic setting, check, and operation designed to maintain steady working conditions in continuous process such as mineral concentration; to forestall trouble; to check condition of ore, pulp, or products at important transfer points “QQ plot” plot for comparing two probability distributions, usually the sample distribution function and a theoretical distribution function “quartz” a trigonal mineral, chemical symbol SiO2; silica group of minerals “recovery” proportion of valuable material obtained in the processing of an ore, stated as a percentage of the material recovered compared with the total material present “recumbent” overturned fold, the axial surface of which is horizontal or nearly so “rhyolite” a fine-grained extrusive igneous rock, often with a sugary texture, consisting of essential quartz, alkali feldspar and one or more ferromagnesian minerals “rock chip” a chip sample taken from one or more points within a restricted area “run-of-mine” or “ROM” recovered ore, as mined with dilution, before any pre-concentration or other form of processing “S” chemical symbol for sulphur; non-metallic native element “sandstone” detrital sedimentary rock in which particles range from 1/16 to 2mm 179
- 180. “schist” metamorphic rock dominated by fibrous or platy minerals “sedimentary” rocks formed from material derived from pre-existing rocks by processes of denudation “sericite” white, fine-grained potassium mica occurring in small scales as an alteration product of various aluminosilicate minerals “SG” or “specific gravity” ratio between weight of given volume of material and weight of equal volume of water “shaft” vertical or inclined excavation into mine workings “siderite” iron carbonate, chemical formula FeCO3; an ore of iron “silica” chemically resistant dioxide of silicon “siliceous” of, relating to, or derived from silica “silicification” the introduction of silica into a rock, either filling pore spaces or replacing pre-existing minerals “siltstone” detrital sedimentary rock in which particles are less than 1/16mm “Silurian” a period of geologic time from about 435 to 395Ma “sinter” process for agglomerating ore concentrate in which partial reduction of minerals may take place and some impurities may be expelled prior to subsequent smelting and refining “SiO2” chemical symbol for silica “skarn” thermally metamorphosed impure limestone (or dolomite) in which metasomatism has also occurred “slurry” particles concentrated in a portion of circulating water to form fluid “stratigraphic” pertaining to the composition sequence, and correlation of stratified rocks (formed, arranged, or laid down in layers) “stratiform” deposit in which the desired rock or ore constitutes one or more sedimentary, metamorphic or igneous layer “strike” the longest horizontal dimension of an ore body or zone of mineralisation “stripping ratio” or “SR” a ratio of the waste relative to ore in a mining operation “sub-volcanic” pertaining to an igneous intrusion, or to the rock of that intrusion, whose depth is intermediate between that of abyssal or plutonic and the surface “sulphide” mineral containing sulphur in its non-oxidised form “syncline” a basin shaped fold “synform” fold whose limbs close downward in strata for which the stratigraphic sequence is unknown “tailings” material that remains after all metals/minerals considered economic have been removed from the ore 180
- 181. “tectonic” an adjective used to relate a particular phenomenon to a structural or orogenic concept, e.g. tectonic control of sedimentation “tectono-magmatic” structural and intrusive history of an area “Tertiary” a period of geologic time from about 2 to 65Ma “TMF” Tailings Management Facility “tonalite” alternative name for diorite “treatment plant” a plant where ore undergoes physical or chemical treatment to extract the valuable metals/minerals “trench sampling” sampling of a trench cut through the rock, generally in the form of a series of continuous channels (channel samples) “tuff” rock consolidated from volcanic ash “tuffaceous” said of sediments containing up to 50% tuff “ultramafic” an igneous rock composed chiefly of mafic minerals “V2O3” vanadium trioxide “variography” a geostatistical method of determining the spatial variations in the grade and nature of mineralisation within a particular ore body “vein” a tabular deposit of minerals occupying a fracture, in which particles may grow away from the walls towards the middle “weathering” the breakdown of rocks and minerals in the near-surface environment by the action of physical and chemical processes, in the presence of air and water “WHIMS” wet high intensity magnetic separation 181
- 182. PART 4 FINANCIAL INFORMATION ON THE GROUP Basis of information The financial information contained in this Part 4 has been extracted without material adjustment from the unaudited interim results for the six months ended 30 June 2009 and the annual reports of London Mining for the years ended 31 December 2008, 31 December 2007 and 31 December 2006. In certain cases the financial information contained in this Part 4 includes page numbering that refers to the page numbering in the relevant original report. Deloitte LLP of 2 New Street Square, London EC4A 3BZ, acted as London Mining’s auditors for the year ended 31 December 2008. BDO Stoy Haywood LLP of 55 Baker Street, London W1U 7EU acted as London Mining’s auditors for the years ended 31 December 2007 and 31 December 2006. The Auditor’s Reports for each of the financial statements have been extracted without material adjustment from the relevant report. Both Deloitte LLP and BDO Stoy Haywood LLP are chartered accountants and registered auditors and members of the Institute of Chartered Accountants of England and Wales. The financial information contained in this Part 4 and elsewhere in this document does not constitute statutory accounts within the meaning of section 435 of the 2006 Act. Audited statutory accounts for London Mining have been delivered to the Registrar of Companies for each of the years ended 31 December 2008, 31 December 2007 and 31 December 2006. Unqualified audited reports in accordance with the 1985 Act for each of the three years ended 31 December 2008, 31 December 2007 and 31 December 2006 have been given, none of which contained a statement under section 498(2) or (3) of the 2006 Act (or under section 237(2) or (3) of the 1985 Act). The financial information in this Part 4 has been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union. 182
- 183. SECTION A CONSOLIDATED UNAUDITED FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE 2009 AND 30 JUNE 2008 London Mining plc Condensed consolidated income statement Unaudited Unaudited & Unaudited Unaudited & restated restated (see note 2) (see note 2) Three months Three months Six months Six months ended ended ended ended 30 June 30 June 30 June 30 June 2009 2008 2009 2008 Note $’000 $’000 $’000 $’000 Continuing operations Revenue 2,984 - 2,984 - Cost of sales (1,982) - (1,982) - Gross profit 1,002 - 1,002 - Other operating income 791 - 791 - Administrative expenses 4 (8,251) (4,497) (12,472) (10,589) Impairment of investment in associate 5 (6,000) - (6,000) - Loss from operations (12,458) (4,497) (16,679) (10,589) Share of results of associates (net of tax) (32) - (154) - Finance income 6 757 981 1,443 6,619 Finance costs 6 (873) (2,240) (1,190) (9,073) Loss before taxation (12,606) (5,756) (16,580) (13,043) Taxation (19) - (19) - Loss for the period – continuing operations (12,625) (5,756) (16,599) (13,043) Discontinued operations Profit for the period – discontinued operations 8 - 1,247 - 1,503 Loss for the period (12,625) (4,509) (16,599) (11,540) Attributable to: – Equity holders of parent (12,625) (4,509) (16,572) (11,540) – Minority interest - - (27) - (12,625) (4,509) (16,599) (11,540) Basic & diluted earnings per share (USD per share) From continuing operations 7 (0.12) (0.05) (0.16) (0.13) From discontinued operations 7 - 0.01 - 0.01 (0.12) (0.04) (0.16) (0.12) Condensed consolidated statement of comprehensive income Loss for the period (12,625) (4,509) (16,599) (11,540) Exchange difference on consolidation of non USD operations1 417 9,549 511 11,397 Total comprehensive income for the period (12,208) 5,040 (16,088) (143) 1 The exchange difference on consolidation of non USD operations is entirely attributable to the equity holders of the parent. As described in note 1, the financial information as at and for the six months ended 30 June 2009 has been reviewed by the Group’s auditors, whilst that for the three months ended 30 June 2009 has been neither audited nor reviewed. 183
- 184. London Mining plc Condensed consolidated balance sheet Unaudited Audited as at as at 30 June 31 December 2009 2008 Note $’000 $’000 Non-current assets Intangible assets 26,552 20,161 Property, plant and equipment 44,100 1,137 Loan to joint venture 9 17,576 - Loan to joint venture partner 9 5,750 - Investment in associates 5 14,816 20,610 Inventories 600 449 Receivables 2,560 - Convertible loan receivable 15 18,500 18,500 130,454 60,857 Current assets Inventories 44 8 Receivables 6,603 1,735 Receivable from joint venture partner 1,063 1,000 Cash and cash equivalents 245,154 316,286 252,864 319,029 Total assets 383,318 379,886 Current liabilities Current tax liabilities 1,385 - Deferred consideration payable 9 8,525 - Trade and other payables 14,838 11,821 24,748 11,821 Net current assets 228,116 307,208 Non-current liabilities Payable to joint venture partner 2,134 - Other long term payables 2,783 - Deferred tax liabilities 9,016 32 13,933 32 Total liabilities 38,681 11,853 Total net assets 344,637 368,033 Equity Share capital 398 398 Shares held in employee benefit trust (13,713) (5,159) Share premium account 19,954 19,954 Other reserves 21,300 19,543 Retained earnings 316,286 332,858 Equity attributable to equity holders of the parent 344,225 367,594 Minority interest 412 439 Total equity 344,637 368,033 184
- 185. London Mining plc Condensed consolidated statement of changes in equity Equity Shares held in Share 1Warrant 2Foreign attributable to Share employee premium Retained and option exchange equity holders Minority Total capital benefit trust account Earnings reserve reserve of the parent interest equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Balance at 31 December 2007 (audited) 362 - 101,093 (21,243) 11,493 18,377 110,082 - 110,082 Changes in equity for the six months ended 30 June 2008 Exchange difference on consolidation of non USD operations - - - - - 11,397 11,397 - 11,397 Recognition of share-based payments - - - - 6,424 - 6,424 - 6,424 Issue of share capital (net of expenses) 6 - 2,251 - (969) - 1,288 - 1,288 Acquisition of subsidiary - - - - - - - 476 476 Loss for the period - - - (11,540) - - (11,540) - (11,540) Balance at 30 June 2008 (unaudited) 368 - 103,344 (32,783) 16,948 29,774 117,651 476 118,127 Changes in equity for six months ended 31 December 2008 Exchange difference arising on change in functional currency - - - - - (5,382) (5,382) - (5,382) 185 Exchange difference on consolidation of non USD operations - - - - - (5,229) (5,229) - (5,229) Recognition of share-based payments - 877 - - 4,594 - 5,471 - 5,471 Issue of share capital (net of expenses) 30 - 22,726 2,586 (6,481) - 18,861 - 18,861 Share premium extinguished in redemption of C shares - - (106,116) - - - (106,116) - (106,116) Income received by Employee Benefit Trust on C share redemption - - - 3,217 - - 3,217 - 3,217 Dividends paid on ‘B’ shares - - - (237,820) - - (237,820) - (237,820) Acquisition of shares for Employee Benefit Trust - (6,036) - - - - (6,036) - (6,036) Foreign exchange disposed on sale of subsidiary - - - - - (14,681) (14,681) - (14,681) Profit for the period - - - 597,658 - 597,658 (37) 597,621 Balance at 31 December 2008 (audited) 398 (5,159) 19,954 332,858 15,061 4,482 367,594 439 368,033 Changes in equity for six months ended 30 June 2009 Exchange difference on consolidation of non USD operations - - - - - 511 511 - 511 Recognition of share-based payments - - - - 1,246 - 1,246 - 1,246 Acquisition of shares by Employee Benefit Trust - (8,554) - - - - (8,554) - (8,554) Loss for the period - - - (16,572) - - (16,572) (27) (16,599) Balance at 30 June 2009 (unaudited) 398 (13,713) 19,954 316,286 16,307 4,993 344,225 412 344,637 1 The warrant and option reserve includes warrants and options granted as equity settled employee benefits and warrants issued for cash. 2 This includes exchange differences arising on the change in functional currency of the company which occurred in the year ended 31 December 2008.
- 186. London Mining plc Condensed consolidated cash flow statement Unaudited Unaudited & restated (see note 2) Six months Six months ended ended 30 June 30 June 2009 2008 Note $’000 $’000 Cash flows from operating activities Cash used by operations 10 (10,402) (6,811) Interest received 612 1,831 Interest expense (15) (4,027) Net cash outflow from operating activities – continuing operations (9,805) (9,007) Net cash inflow from operating activities – discontinued operations - 3,136 Net cash outflow from operating activities – total Group (9,805) (5,871) Cash flows from investing activities Transaction costs paid on sale of discontinued operations (541) - Cash in on acquisition of joint venture 140 - Loans to and investments in associates - (200) Loan to joint venture 9 (38,727) - Loan to joint venture partner 9 (5,750) - Payments to acquire intangible assets (6,788) (3,302) Purchase of property, plant and equipment (1,531) (832) Net cash outflow from investing activities – continuing operations (53,197) (4,334) Net cash outflow from investing activities – discontinued operations - (18,326) Net cash outflow from investing activities – total Group (53,197) (22,660) Cash flows from financing activities Acquisition of shares by Employee Benefit Trust (8,554) - Proceeds from issue of ordinary shares - 906 Net cash (outflow) / inflow from financing activities – continuing operations (8,554) 906 Net cash outflow from financing activities – discontinued operations - (1,587) Net cash outflow from financing activities – total Group (8,554) (681) Net decrease in cash and cash equivalents (71,556) (29,212) Cash and cash equivalents at beginning of period 316,286 90,718 Exchange differences 424 5,037 Cash and cash equivalents at end of period 245,154 66,543 186
- 187. London Mining plc Notes to the condensed consolidated financial statements 1. General information The financial information for the year ended 31 December 2008 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2008 have been delivered to the Registrar of Companies and are available on the Group’s website www.londonmining.co.uk. The auditors reported on those accounts, their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The financial information for the three months ended 30 June 2009 has been neither audited nor reviewed. The financial information for the six months ended 30 June 2009 has been reviewed by the company’s auditors and their report has been included on page 23(1). 2. Accounting policies The annual financial statements of London Mining plc are prepared in accordance with International Financial Reporting Standards as adopted for use by the European Union (IFRSs). The condensed consolidated financial statements included in this half year report have been prepared in accordance with International Accounting Standard 34 ‘Interim Financial Reporting’, as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as applied in the Group’s financial statements for the year ended 31 December 2008, except for as described below. Change in accounting policy In the current year, the Group has adopted IFRS 8 ‘Operating Segments’, IAS 1 ‘Presentation of Financial Statements Revised’ and IAS 1 ‘Presentation of Financial Statements Improvements’ with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the Board of Directors to allocate resources to the segments and to assess their performance. In contrast, the predecessor standard (IAS 14 ‘Segment Reporting’) required the Group to identify two sets of segments (business and geographical), using a risks and rewards approach, with the Group’s system of internal financial reporting to the Board of Directors serving only as a starting point for the identification of such segments. The segments identified in accordance with IFRS 8 have not materially changed from those previously disclosed under IAS 14. As a result, the segmental information required by IAS 34 which is included in note 3 is presented in accordance with IFRS 8. The adoption of IAS 1 has resulted in the consolidated statement of comprehensive income being presented as a primary statement. The Group has elected to continue to present a separate income statement and statement of comprehensive income. Functional and presentation currencies On 1 September 2008, the functional currency of the Company changed from GBP to USD. Concurrent with this change, the Group adopted the USD as its presentation currency. Details of these changes can be found in the Group’s annual report and financial statements for the year ended 31 December 2008. For the purposes of changing the Group’s presentation currency, the comparatives for the three and six months ended 30 June 2008 in the consolidated income statement and for the six months ended 30 June 2008 in consolidated cash flow statement have been translated at an average USD / GBP exchange rate of USD1.974: GBP1. Financial information for the three and six months ended 30 June 2008 has been presented as ‘Unaudited and restated’. (1) Page 197 of this document 187
- 188. London Mining plc Notes to the condensed consolidated financial statements Joint venture entities During the period, the Group acquired its first interest in a joint venture entity. A joint venture entity is an entity in which the Group holds a long term interest and shares joint control over the strategic, financial and operating decisions with one or more other venturers under a contractual arrangement. The Group’s share of the assets, liabilities, income, expenditure and cash flows of such jointly controlled entities are accounted for using proportionate consolidation. Proportionate consolidation combines the Group’s share of results of the joint venture entity on a line by line basis with similar items in the Group’s financial statements. Going concern After making enquiries, the directors have a reasonable expectation that the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed financial statements. Further details are in included in the “Liquidity and going concern” section of the Financial Review. 3. Operating segments During the period, the Group was organised into two business segments. These are the mining, extraction and production of iron ore (Iron ore), and the mining, extraction and production of coal (Coal). These segments are the basis on which the board of directors reviews the performance of the Group. The Board of Directors evaluates the performance of the Group principally with reference to profit or loss from operations. The Group’s discontinued operations in the prior year relate to the mining, extraction and production of iron ore. Details of discontinued operations for the three and six months ended 30 June 2008 are listed in note 8. For the three and six months ended 30 June 2008, the Group had only one business segment, being the mining, extraction and production of iron ore as the coal operations were purchased in the second half of 2008. Consequently, no comparatives have been presented for these periods. Three months ended 30 June 2009 Group Iron ore Coal Corporate Total $’000 $’000 $’000 $’000 Revenue 2,984 - - 2,984 Cost of sales (1,982) - - (1,982) Other operating income 791 - - 791 Administrative expenses (3,654) (654) (3,943) (8,251) Impairment of investments in associates - (6,000) - (6,000) Loss from operations – continuing operations (1,861) (6,654) (3,943) (12,458) Share of results of associates - (32) - (32) Net finance income 13 - (129) (116) Taxation (19) - - (19) Loss for the period – continuing operations (1,867) (6,686) (4,072) (12,625) Total assets 105,934 34,093 243,291 383,318 188
- 189. London Mining plc Notes to the condensed consolidated financial statements Six months ended 30 June 2009 Group Iron ore Coal Corporate Total $’000 $’000 $’000 $’000 Revenue 2,984 - - 2,984 Cost of sales (1,982) - - (1,982) Other operating income 791 - - 791 Administrative expenses (6,708) (1,096) (4,668) (12,472) Impairment of investments in associates - (6,000) - (6,000) Segment loss – continuing operations (4,915) (7,096) (4,668) (16,679) Share of results of associates - (154) - (154) Net finance income 12 - 241 253 Taxation (19) - - (19) Loss for the period – continuing operations (4,922) (7,250) (4,427) (16,599) Total assets 105,934 34,093 243,291 383,318 The financial information for the three months ended 30 June 2009 and 2008 is neither reviewed nor audited. 4. Administrative expenses The key components of administrative expenses are as follows: Three months Three months Six months Six months ended ended ended ended 30 June 30 June 30 June 30 June 2009 2008 2009 2008 $’000 $’000 $’000 $’000 Return Bonus Plan1 1,067 - 2,090 - Share-based payments to consultants - 441 - 1,094 Staff costs Share-based payments to staff, directors and key management 1,430 2,813 1,246 4,704 Directors and key management remuneration excluding share-based payments 1,569 488 1,898 1,576 Other staff costs 944 186 1,827 413 Professional and legal fees 1,925 664 2,922 1,807 Depreciation2 117 100 234 184 Operating lease costs – property 183 72 324 125 The financial information for the three months ended 30 June 2009 and 2008 is neither reviewed nor audited. 1 2009 compensation payments made under the Return Bonus Plan relate to the 2008 “Return of Cash” to shareholders. Full details of the compensation scheme are disclosed in the 2008 annual report. In summary, participants in the Company’s share- based remuneration schemes receive an equivalent compensation payment for the loss of value in awards held at the time of the Return of Cash. The compensation payment vests in accordance with underlying terms of the original award to which it relates. 2 Depreciation of USD193,000 has also been included within cost of sales in the income statement relating to CGMR BVI. Total depreciation of USD427,000 is included in the loss for the six months to 30 June 2009. 5. Impairment of investment in associate Due to information that has recently come to light in the Pixley Ka Seme application review by the South African Department of Minerals and Energy, Delta Mining Consolidated (Pty) Ltd management has brought to London Mining’s attention that it may no longer proceed with this prospect. As a result of this information, London Mining has written down its investment in DMC Coal Mining (Pty) Ltd by USD6.0 million, reflecting the carrying value the Group attributed to this particular project. 189
- 190. London Mining plc Notes to the condensed consolidated financial statements 6. Finance income and costs Three months Three months Six months Six months ended ended ended ended 30 June 30 June 30 June 30 June 2009 2008 2009 2008 $’000 $’000 $’000 $’000 Finance income Interest income from cash and cash equivalents 320 880 614 1,834 Interest income from loans receivable 63 - 63 - Unwinding of discount on net loan receivable from joint venture 91 - 91 - Exchange gains 283 101 675 4,785 757 981 1,443 6,619 Finance costs Interest expense 5 - 15 - Interest on Callable and Puttable Bonds 2007/20121 - 2,204 - 4,363 Unwinding of discount on long term liabilities 67 - 67 - Exchange losses 801 36 1,108 4,710 873 2,240 1,190 9,073 1 The callable and puttable bonds were repaid in 2008 using proceeds from the disposal of the Group’s Brazilian operations. The financial information for the three months ended 30 June 2009 and 2008 is neither reviewed nor audited. 7. Earnings per share (a) Basic Basic earnings per share is calculated by dividing the earnings / (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding shares held by the Employee Benefit Trust. Three months Three months Six months Six months ended ended ended ended 30 June 30 June 30 June 30 June 2009 2008 2009 2008 $’000 $’000 $’000 $’000 Loss from continuing operations attributable to equity holders of the Company (12,625) (5,756) (16,572) (13,043) Profit from discontinued operations attributable to equity holders of the Company - 1,247 - 1,503 (12,625) (4,509) (16,572) (11,540) Weighted average number of ordinary shares in issue 103,135,533 100,811,634 104,622,728 100,321,378 The financial information for the three months ended 30 June 2009 and 2008 is neither reviewed nor audited. 190
- 191. London Mining plc Notes to the condensed consolidated financial statements The weighted average number of shares increased in Q2 2008 due to the exercise of warrants. The decrease in the weighted average number of shares during H1 2009 is a result of the Employee Benefit Trust acquiring more shares throughout the period. (b) Diluted The outstanding options, warrants and LTIP’s at 30 June 2009 and 2008 represent anti-dilutive potential ordinary shares. Therefore, basic and diluted earnings per share are the same for the current and prior period. 8. Discontinued operations On 19 August 2008, the Group completed the sale of its Brazilian operations to ArcelorMittal. Details of this transaction can be found in the Group’s annual report for the year ending 31 December 2008. The results of the discontinued operations included in the consolidated income statement are set out below. Three months Three months Six months Six months ended ended ended ended 30 June 30 June 30 June 30 June 2009 2008 2009 2008 $’000 $’000 $’000 $’000 Revenue - 3,671 - 7,523 Cost of sales - (1,114) - (3,181) Gross profit - 2,557 - 4,342 Sales and distribution expenses - (19) - (45) Administrative expenses - (1,654) - (2,652) Profit from operations - 884 - 1,645 Finance income - 1,704 - 2,169 Finance costs - (255) - (885) Profit before taxation - 2,333 - 2,929 Taxation - (1,086) - (1,426) Profit from discontinued operations - 1,247 - 1,503 Attributable to: Equity holders of parent - 1,247 - 1,503 The financial information for the three months ended 30 June 2009 and 2008 is neither reviewed nor audited. 9. Investment by London Mining plc in the CGMR BVI joint venture On 23 April 2009, the Company completed a joint venture agreement with Wits Basin Precious Minerals, Inc. (Wits Basin) in relation to a 50:50 joint venture company, China Global Mining Resources (BVI) Limited (CGMR BVI). Under the terms of the agreement, the Company subscribed USD38.7 million for 100 A Shares in CGMR BVI and made a direct loan to Wits Basin for USD5.75 million, making a total initial investment of USD44.5 million. As part of the joint venture agreement, the cash received from London Mining of USD38.7 million was passed by CGMR BVI to its wholly owned subsidiary China Global Mining Resources Limited (CGMR HK), a Hong Kong entity. CGMR HK then completed the acquisition of two Chinese companies: Xiaonanshan Mining Co Limited (XNS) and Nanjing Sudan Mining Co Limited (Sudan). This note is set out in two parts. The first summarises the acquisition of XNS and Sudan from the perspective of CGMR BVI, whilst the second part summarises how London Mining plc has accounted for this transaction at a consolidated level. 191
- 192. London Mining plc Notes to the condensed consolidated financial statements Acquisition of XNS and Sudan by CGMR BVI Under the terms of the acquisition, the sellers, Mr Lu Benzhao and Ms Lu Tinglan, receive consideration of approximately USD42.25 million in cash (subject to post closing adjustments) in return for the sale of 100% of the equity of XNS and Sudan. Of this consideration, USD24.77 million has been paid and USD17.48 million is deferred. Mr Lu Benzhao has been paid an additional USD10.21 million by CGMR BVI which is included in the cost of acquisition. He will also receive up to USD38.64 million under a consulting agreement with CGMR BVI, payable subject to both continuing employment and available cash of CGMR BVI, which will largely flow from the operations of the acquired entities. Hence this amount has been excluded from the cost of acquisition. Under the joint venture arrangements, London Mining will receive priority dividends from CGMR BVI until its USD44.5 million initial investment is repaid. CGMR HK has also been granted the right to acquire a further iron ore mining company, Maanshan Zhaoyuan Mining Co Ltd (Matang), which is owned by the sellers of XNS and Sudan. Under the terms of the XNS and Sudan acquisitions, XNS and Sudan were acquired liability free, and in accordance with this, a cash amount of USD3.9 million has been held in escrow to be recovered from the sellers for any pre-acquisition liabilities identified post completion. From the perspective of CGMR BVI, the total cost of the acquisition was USD58.6 million after taking into consideration directly related transaction costs, management’s best estimate of completion adjustments and certain liabilities assumed from the other joint venture partner. Accounting for CGMR BVI by London Mining The Company has proportionally consolidated 50% of CGMR BVI from 23 April 2009. For accounting purposes the USD38.7 million investment in CGMR BVI is treated as debt due from the joint venture of USD34.9 million (after discounting for the timings of the anticipated cash inflows) and an equity contribution to the joint venture of USD3.8 million (in exchange for the Group’s 50% interest). The Group’s consolidated balance sheet at 30 June 2009 shows: • USD5.75 million non-current ‘loan to joint venture partner’ representing the interest-bearing loan to Wits Basin; • USD17.58 million non current ‘loan to joint venture’ representing the joint venture partner’s 50% share of the USD34.9 million liability in CGMR BVI; and • USD3.8 million of net assets representing the Group’s 50% share of the provisional fair value of the individual gross assets and liabilities of the joint venture. Further details are provided below. 192
- 193. London Mining plc Notes to the condensed consolidated financial statements The provisional fair value of the net assets of CGMR BVI at the date of acquisition and the related net cash outflow are shown below. The fair values presented are provisional and will be finalised by 23 April 2010 as permitted by International Financial Reporting Standards: Book value Provisional of assets fair value Provisional Provisional acquired adjustment CGMR CGMR London London by CGMR and BVI fair BVI fair Mining Mining BVI acquisition value value Fair value Total 50% 100% entries 100% 50% adjustment share $’000 $’000 $’000 $’000 $’000 Net assets acquired Mineral resources - 64,722 64,722 32,361 5,008 37,369 Mining rights 2,935 - 2,935 1,468 - 1,468 Tangible assets 7,605 - 7,605 3,802 - 3,802 Other non-current assets 917 - 917 458 - 458 Current assets 568 - 568 285 - 285 Completion balance sheet adjustments - 6,021 6,021 3,011 - 3,011 Loan due to London Mining plc(1) - (34,971) (34,971) (17,486) - (17,486) Deferred transaction costs payable by joint venture - (3,088) (3,088) (1,544) - (1,544) Wits Basin liabilities assumed by CGMR BVI - (4,244) (4,244) (2,122) - (2,122) Transaction costs recoverable from joint venture - (1,600) (1,600) (800) - (800) Deferred consideration to vendor(2) - (16,953) (16,953) (8,477) - (8,477) Current liabilities (5,540) - (5,540) (2,770) - (2,770) Deferred tax payable (192) (16,180) (16,372) (8,186) (1,252) (9,438) Net assets acquired 6,293 (6,293) - - 3,756 3,756 Satisfied by: Equity contribution by London Mining plc 3,756 (1) As there is a contractual obligation for London Mining to receive an amount equal to its initial investment in the CGMR BVI as priority dividends, the cash paid by London Mining on the acquisition of its China investment is accounted for as a debtor due from the joint venture and not a cost of investment. This loan is interest free and as is expected to be repaid from available profits within three years. It is therefore classified as non-current and has been discounted by applying the ten year USA bond rate of 3.125%. (2) The deferred consideration shown above is, at present, due for immediate payment and therefore has been included within current liabilities in the Group’s balance sheet. However an extension to the term of the liability is expected to be agreed in the near future and its provisional fair value therefore reflects the net present value of the anticipated cash outflows under the terms of the extension. Its carrying value at 30 June 2009, after incorporating an unwinding of the discount factor for the period since acquisition is USD8.5 million. The provisional fair value adjustments reflect (i) the valuation of mineral resources purchased, grossed up for the 25% deferred tax liability, and (ii) the discount to fair value of any non-interest bearing long term liabilities or assets. The discount is unwound until the expected repayment date through net finance income. 193
- 194. London Mining plc Notes to the condensed consolidated financial statements The results for the six months to 30 June 2009 include: Total profit attributable Share of joint London to Chinese venture(1) Mining plc operations Income statement $’000 $’000 $’000 Revenue 2,984 - 2,984 Cost of sales (1,934) (48) (1,982) Administrative expenses (155) - (155) Profit from operations, before London Mining management fee 895 (48) 847 London Mining management fee (791) 1,582 791 Profit from operations 104 1,534 1,638 Net finance income (176) 201 25 Profit before taxation (72) 1,735 1,663 Taxation (31) 12 (19) Profit since acquisition (103) 1,747 1,644 (1) Group’s 50% share since acquisition. 10. Notes to the cash flow statement Six months Six months ended ended 30 June 30 June 2009 2008 Note $’000 $’000 Reconciliation of loss for the period to cash outflows from operating activities Loss for the period (16,599) (11,540) Adjusted for: Profit for the period – discontinued operations - (1,503) Share of results from associates 154 - Impairment of investments in associates 5 6,000 - Depreciation 427 184 Amortisation 360 - Finance income (1,443) (6,619) Finance costs 1,190 9,073 Share-based payments expense 1,246 5,798 Tax expense 19 - (8,646) (4,607) (increase) in current receivables (3,511) (1,002) (increase) in inventories (128) - Increase / (decrease) in trade and other payables 1,883 (1,202) Cash used by operations (10,402) (6,811) 194
- 195. London Mining plc Notes to the condensed consolidated financial statements 11. Related party transactions The Group has a related party relationship with its subsidiaries, associates and joint venture entities. Transactions between the parent company and its subsidiaries are eliminated on consolidation and are not included in this note. During the six months to 30 June 2009, a management fee of USD1.6 million (2008: nil) of which the Group’s share is USD0.8 million was accrued from CGMR BVI to London Mining. At 30 June 2009, London Mining had advanced an amount of USD38.7 million to CGMR BVI, which will be recovered via priority dividends from available cash of the operations. The Group’s share of this balance, which, for reasons outlined in note 9, is recorded on consolidation as a loan at its estimated fair value, of USD17.6 million. London Mining has also recognised an amount due of USD1.4 million which relates to consultancy costs and legal fees recoverable from the joint venture. The Group continues to hold a 20% investment in ICC. G Hossie, the Managing Director of London Mining plc had a beneficial interest of 15% in International Coal Company Limited (“ICC”). This was diluted to 12% on the investment by London Mining plc in August 2008. As a consequence of this interest, Mr Hossie does not represent London Mining on the ICC board and does not participate in any decisions of the London Mining board in relation to ICC. At 30 June 2009 the directors of the Group, their related parties and entities in which they have a beneficial interest, controlled 3.9% (31 December 2008: 15.9%) of the ordinary shares of the Company. 12. Contingent liabilities (i) XNS and Sudan As at 30 June 2009, the seller of XNS and Sudan has an entitlement to receive a further USD38.6 million under consulting agreements payable subject to continuing employment and available cash from the operations of the acquired entities. (ii) Substantial shareholding exemption (SSE) Under the terms of the SSE, which granted the disposal of the Group’s Brazilian operations tax free status, London Mining is required to reinvest a significant proportion of the proceeds into qualifying trading activities. The Group remains committed to delivering its approved strategy and believes the SSE clearance is still effective. (iii) Brazil warranty disclosures As part of the disposal of the Brazilian operations, the Company granted certain warranties and indemnities to the purchaser, ArcelorMittal. Having taken appropriate legal advice, the Group believes the likelihood of a material liability arising is remote. 13. Capital commitments The Group has a capital commitment for the construction of a road in Sierra Leone. At 30 June 2009, USD1.3 million had been committed, representing progress payments due before 30 April 2010. 195
- 196. London Mining plc Notes to the condensed consolidated financial statements 14. Composition of the Group Ownership interest 30 June 31 December Country of 2009 2008 incorporation Principal activity % % Subsidiaries: London Mining Company Sierra Leone Mining 100 100 Limited London Mining Logistics Sierra Leone Dormant 100 100 Company Limited Anglo Mexican Mining Ltd British Virgin Islands Investment holding 55 55 company Campania Minera Suizo- Mexico Mining 54 54 Mexicana, SA de CV Ltd MIL Participacoes Brazil Administrative company 100 100 Societarias Ltda Rannerdale Limited Isle of Man Investment holding 100 100 company Torbanite One Limited Isle of Man Investment holding 100 100 company London Mining Greenland Greenland Mining 100 100 A/S Hammersmyth Management Canada Dormant 100 100 Ltd Associates: DMC Coal Mining (Pty) Ltd South Africa Mining 39.3 39.3 International Coal Company Cayman Islands Mining 20.0 20.0 Ltd Joint Ventures: China Global Mining British Virgin Islands Investment holding 50 - Resources (BVI) Limited company China Global Mining Hong Kong Investment holding 50 - Resources Limited company Xiaonanshan Mining Co People’s Republic of Mining 50 - Limited China Nanjing Sudan Mining Co People’s Republic of Mining 50 - Limited China Saudi London Iron Limited Saudi Arabia Mining 50 - 15. Events after the balance sheet date Non-current assets include a USD18.5 million convertible loan to DMC Energy, which was due to convert to equity on 31 July 2009 subject to DMC receiving various regulatory approvals by that date. The approvals have not been received as of the date of this report and London Mining is currently in discussions with DMC to reach an agreement on how this loan should convert into DMC equity. As it is still the intention to convert the loan into equity, the convertible loan continues to be disclosed as “non- current” at the period end. London Mining has no obligation to commit further funds to the DMC Group. 196
- 197. London Mining plc Auditors’ independent review report to London Mining plc We have been engaged by the Company to review the condensed set of financial statements in the half year financial report for the six months ended 30 June 2009 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cashflow statement, and related notes 1 to 15. We have read the other information contained in the half year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors’ responsibilities The half year financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with applicable law. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half year financial report has been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting,” as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half year financial report for the six months ended 30 June 2009 based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half year financial report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union. Deloitte LLP Chartered Accountants and Statutory Auditors London 26 August 2009 197
- 198. London Mining plc Directors responsibility statement We confirm that to the best of our knowledge: (a) the condensed set of financial statements has been prepared in accordance with IAS34 ‘Interim Financial Reporting’; (b) the information presented in the financial statements gives a true and fair view of the Company’s and the Group’s assets, liabilities, financial position and results for the period viewed in their entirety; (c) the interim management report includes a fair review of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year; and (d) the interim management report includes a fair review of disclosure of related parties’ transactions and changes therein. By order of the Board Managing Director Finance Director Graeme Hossie Rachel Rhodes 26 August 2009 26 August 2009 198
- 199. SECTION B CONSOLIDATED AUDITED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2008 London Mining plc Independent auditors’ report to the members of London Mining plc For the year ended 31 December 2008 We have audited the Group and parent company financial statements (the “financial statements”) of London Mining plc for the year ended 31 December 2008 which comprise the consolidated income statement, the consolidated and Company balance sheets, the consolidated and Company cash flow statements and the consolidated and Company statements of changes in equity and the related notes 1 to 36. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the directors’ remuneration report that is described as having been audited. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the annual report, the directors’ remuneration report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the statement of directors’ responsibilities. Our responsibility is to audit the financial statements and the part of the directors’ remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the group financial statements, Article 4 of the IAS Regulation. We also report to you whether, in our opinion, the information given in the directors’ report is consistent with the financial statements. In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read other information contained in the annual report and consider whether it is consistent with the audited financial statements. The other information comprises only the directors’ report, the operational review, the corporate governance statement and the unaudited part of the directors’ remuneration report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the directors’ remuneration report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed. 199
- 200. London Mining plc Independent auditors’ report to the members of London Mining plc (continued) For the year ended 31 December 2008 We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the directors’ remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the directors’ remuneration report to be audited. Opinion In our opinion: • the financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s and the parent Company’s affairs as at 31 December 2008 and of the Group’s profit for the year then ended; • the financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation; and • the information given in the directors’ report is consistent with the financial statements. Deloitte LLP Chartered Accountants and Registered Auditors London 23 March 2009 200
- 201. London Mining plc Consolidated income statement For the year ended 31 December 2008 Year Ended 31 December 2008 2007 Restated Note $’000 $’000 Continuing operations Revenue - - Cost of sales - - Gross profit - - Administrative expenses 7 (36,815) (13,044) Loss from operations (36,815) (13,044) Share of results of associates (net of tax) 16, 17 (386) - Finance income 9 28,860 6,650 Finance costs 9 (74,669) (13,174) Loss before taxation (83,010) (19,568) Taxation 10 - (20) Loss for the year – continuing operations (83,010) (19,588) Discontinued operations Profit from discontinued operations 13a 4,897 2,618 Post-tax profit on disposal of discontinued operations 13b 664,194 - Profit for the year – discontinued operations 669,091 2,618 Profit / (loss) for the year 586,081 (16,970) Attributable to: – Equity holders of parent 586,118 (16,970) – Minority interest (37) - 586,081 (16,970) Return of capital to shareholders Dividends paid on ‘B’ shares 11 (237,820) - Redemption of ‘C’ shares 11 (106,116) - (343,936) - Basic & diluted earnings per share (USD per share) From continuing operations 12 (0.81) (0.25) From discontinued operations 12 6.50 0.03 5.69 (0.22) 201
- 202. London Mining plc Consolidated and Company balance sheet As at 31 December 2008 As at 31 December 2008 2007 2008 2007 Group Group Company Company Restated Restated Note $’000 $’000 $’000 $’000 Non-current assets Intangible assets 14 20,161 9,489 13,204 4,932 Property, plant and equipment 15 1,137 81,404 534 365 Investments in subsidiaries 16 - - 2,378 45,831 Investment in associates 16, 17 20,610 402 5,255 402 Inventories 18 449 20,437 - - Receivables 19 - 229 - - Convertible loan receivable 20 18,500 - - - Amounts owing by subsidiaries - - 49,775 3,761 60,857 111,961 71,146 55,291 Current assets Inventories 18 8 517 - - Receivables 19 2,735 2,945 2,430 237 Amounts owing by subsidiaries - - - 30,708 Cash and cash equivalents 316,286 90,718 312,035 85,073 319,029 94,180 314,465 116,018 Total assets 379,886 206,141 385,611 171,309 Current liabilities Borrowings 21 - 3,020 - - Trade and other payables 22 11,821 8,173 11,471 5,203 11,821 11,193 11,471 5,203 Net current assets 307,208 82,987 302,994 110,815 Non-current liabilities Borrowings 21 - 82,101 - 66,474 Provisions 23 - 1,653 - - Deferred tax liabilities 24 32 1,112 - - 32 84,866 - 66,474 Total liabilities 11,853 96,059 11,471 71,677 Total net assets 368,033 110,082 374,140 99,632 Equity Share capital 25 398 362 398 362 Shares held in employee benefit trust (5,159) - - - Share premium account 19,954 101,093 19,954 101,093 Other reserves 19,543 29,870 15,902 21,206 Retained earnings / (losses) 332,858 (21,243) 337,886 (23,029) Equity attributable to equity holders of the parent 367,594 110,082 374,140 99,632 Minority interest 439 - - - Total equity 368,033 110,082 374,140 99,632 The financial statements were approved by the Board of directors on 23 March 2009 and are signed on their behalf by: Graeme Hossie Rachel Rhodes Managing Director Finance Director 202
- 203. London Mining plc Consolidated statement of changes in equity For the year ended 31 December 2008 Equity Share Shares held in 1Warrant 2Foreign attributable to Share premium employee Retained and option exchange equity holders Minority Total capital account benefit trust Earnings reserve reserve of the parent interest equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Balance at 31 December 2006 185 5,747 - (4,326) 564 494 2,664 - 2,664 Changes in equity for year ended 31 December 2007 Exchange difference arising on change in functional currency - - - - - 9,212 9,212 - 9,212 Exchange difference on consolidation of non USD operations - - - - - 8,671 8,671 - 8,671 Recognition of share-based payments - - - - 6,775 - 6,775 - 6,775 Issue of share capital (net of expenses) 177 95,346 - - 4,207 - 99,730 - 99,730 Transfer on redemption of convertible loan notes - - - 53 (53) - - - - 203 Loss for the year - - - (16,970) - - (16,970) - (16,970) Balance at 31 December 2007 362 101,093 - (21,243) 11,493 18,377 110,082 - 110,082 Changes in equity for year ended 31 December 2008 Exchange difference arising on change in functional currency - - - - - (5,382) (5,382) - (5,382) Exchange difference on consolidation of non USD operations - - - - - 6,168 6,168 - 6,168 Recognition of share-based payments - - 877 - 11,018 - 11,895 - 11,895 Issue of share capital (net of expenses) 36 24,977 - 2,586 (7,450) - 20,149 - 20,149 Share premium extinguished in redemption of C shares - (106,116) - - - - (106,116) - (106,116) Income received by Employee Benefit Trust on C share redemption - - - 3,217 - - 3,217 - 3,217 Dividends paid on ‘B’ shares - - - (237,820) - - (237,820) - (237,820) Acquisition of subsidiary - - - - - - - 476 476 Acquisition of shares for employee benefit trust - - (6,036) - - - (6,036) - (6,036) Foreign exchange disposed on sale of subsidiary - - - - - (14,681) (14,681) - (14,681) Profit for the year - - - 586,118 - 586,118 (37) 586,081 Balance at 31 December 2008 398 19,954 (5,159) 332,858 15,061 4,482 367,594 439 368,033 1 The warrant and option reserve includes warrants and options granted as equity settled employee benefits and warrants issued for cash. 2 This includes exchange differences arising on change in functional currency of the company
- 204. London Mining plc Company statement of changes in equity For the year ended 31 December 2008 1Warrant Share and 2Foreign Share premium Retained option exchange Total capital account earnings reserve reserve equity $’000 $’000 $’000 $’000 $’000 $’000 Balance at 31 December 2006 185 5,747 (4,310) 564 501 2,687 Changes in equity for year ended 31 December 2007 Exchange difference arising on change in functional currency - - - - 9,212 9,212 Recognition of share-based payments - - - 6,775 - 6,775 Issue of share capital (net of expenses) 177 95,346 - 4,207 - 99,730 Transfer on redemption of convertible loan notes - - 53 (53) - - Loss for the year - - (18,772) - - (18,772) 204 Balance at 31 December 2007 362 101,093 (23,029) 11,493 9,713 99,632 Changes in equity for year ended 31 December 2008 Exchange difference arising on change in functional currency - - - - (9,216) (9,216) Recognition of share-based payments - - - 11,362 - 11,362 Issue of share capital (net of expenses) 36 24,977 2,586 (7,450) - 20,149 Share premium extinguished in redemption of C shares - (106,116) - - - (106,116) Dividends paid on ‘B’ shares - - (237,820) - - (237,820) Profit for the year - - 596,149 - 596,149 Balance at 31 December 2008 398 19,954 337,886 15,405 497 374,140 1 The warrant and option reserve includes warrants and options granted as equity settled employee benefits and warrants issued for cash. 2 The Company’s functional currency changed from GBP to USD with effect from 1 September 2008 as set out in Note 3 to the financial statements. Presentational exchange differences arising on restatement of GBP balances to USD prior to that date are recorded within the Company’s “foreign exchange reserve”. This reserve is not distributable.
- 205. London Mining plc Consolidated cash flow statement For the year ended 31 December 2008 Year ended 31 December 2008 2007 Restated Note $’000 $’000 Cash flows from operating activities Net cash outflow from operating activities 27 (23,917) (3,572) Interest received 8,747 2,041 Interest expense (7,648) (3,683) Net cash outflow from operating activities – continuing operations (22,818) (5,214) Net cash inflow from operating activities – discontinued operations 4,845 3,229 Net cash outflow from operating activities – total Group (17,973) (1,985) Cash flows from investing activities Proceeds from sale of discontinued operations 13b 809,901 - Cash disposed on sale of discontinued operations 13c (5,898) - Transaction costs paid on sale of discontinued operations (32,815) - Acquisition of subsidiaries, net of cash acquired 26 (227) (67,312) Investment in associates 26 (21,475) (402) Loans to associates (100) - Loans to joint venture and associate partners (19,500) - Payments to acquire intangible assets 27 (10,045) (2,622) Purchase of property, plant and equipment (804) (630) Net cash inflow / (outflow) from investing activities – continuing operations 719,037 (70,966) Net cash outflow from investing activities – discontinued operations (21,899) (4,939) Net cash inflow / (outflow) from investing activities – total Group 697,138 (75,905) Cash flows from financing activities Dividends paid on ‘B’ shares (228,489) - Redemption of ‘C’ shares (101,952) - Shares redeemed to the Employee Benefit Trust 3,217 - Purchases of shares by the Employee Benefit Trust (6,036) - Proceeds from issue of Ordinary shares - 95,084 Proceeds from issue of warrants and share options 19,831 4,646 Callable and Puttable Bonds 2007/2012 (defeased) / issued 21 (67,598) 60,333 Convertible loan notes redeemed - (3,304) Repayment of borrowings 21 - (2,724) Net cash (outflow) / inflow from financing activities – continuing operations (381,027) 154,035 Net cash outflow from financing activities – discontinued operations (1,500) - Net cash (outflow) / inflow from financing activities – total Group (382,527) 154,035 Net increase in cash and cash equivalents 296,638 76,145 Cash and cash equivalents at beginning of year 90,718 558 Exchange differences (71,070) 14,015 Cash and cash equivalents at end of year 316,286 90,718 205
- 206. London Mining plc Company cash flow statement For the year ended 31 December 2008 Year ended 31 December 2008 2007 Restated Note $’000 $’000 Cash flows from operating activities Net cash outflow from operating activities 27 (20,705) (2,972) Interest received 8,747 2,041 Interest expense (7,648) (3,683) Net cash outflow from operating activities (19,606) (4,614) Cash flows from investing activities Proceeds from sale of discontinued operations 13b 809,901 - Transaction costs paid on sale of discontinued operations (32,815) - Acquisition of subsidiaries (320) - Investment in and loans to associates (5,355) (402) Loans to subsidiaries (65,187) (78,524) Loans to joint venture and associate partners (1,000) - Payments to acquire intangible assets 27 (8,685) (1,985) Purchase of property, plant and equipment (365) (288) Net cash inflow / (outflow) from investing activities 696,174 (81,199) Cash flows from financing activities Dividends paid on ‘B’ shares (228,489) - Redemption of ‘C’ shares (101,952) - Proceeds from issue of ordinary shares - 95,084 Proceeds from issue of warrants and share options 19,280 4,646 Callable and Puttable Bonds 2007/2012 (defeased) / issued 21 (67,598) 60,333 Convertible loan notes redeemed - (3,304) Net cash (outflow) / inflow from financing activities (378,759) 156,759 Net increase in cash and cash equivalents 297,809 70,946 Cash and cash equivalents at beginning of year 85,073 546 Exchange differences (70,847) 13,581 Cash and cash equivalents at end of year 312,035 85,073 206
- 207. London Mining plc Notes to the financial statements For the year ended 31 December 2008 1. General information London Mining plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is 39 Sloane Street, London, SW1X 9LP. The nature of the Group’s operations and its principal activities are set out in note 6 and in the operational review located on pages 6 to 12. 2. Adoption of new and revised Standards At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not been adopted by the EU): IFRS 1 (amended) / IAS 27 (amended) Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate IFRS 2 (amended) Share-based Payment – Vesting Conditions and Cancellations IFRS 3 (revised 2008) Business Combinations IFRS 7 and IAS 39 (amendment) Reclassification of Financial Instruments IFRS 8 Operating Segments IAS 1 (revised 2007) Presentation of Financial Statements IAS 23 (revised 2007) Borrowing Costs IAS 27 (revised 2008) Consolidated and Separate Financial Statements IAS 32 (amended) and IAS 1 Puttable Financial Instruments and Obligations Arising on (amended) Liquidation IFRIC 12 Service Concession Arrangements IFRIC 16 Hedges of a Net Investment in a Foreign Operation Improvements to IFRSs (May 2008) The directors anticipate that the adoption of these standards and Interpretations in future periods will have no material impact on the financial statements of the Group except for: • Additional segment disclosures when IFRS 8 comes into effect for periods commencing on or after 1 January 2009. • Treatment of acquisition of subsidiaries when IFRS 3 comes into effect for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after 1 July 2009. 3. Functional and presentation currencies On 1 September 2008, the functional currency of the Company changed from GBP to USD. This change was made following the disposal of the Group’s Brazilian operations in August 2008, the proceeds of which were received in USD. The sale provided the Group with significant USD funds to reinvest in developing its remaining projects through to production and for the pursuit of additional investment opportunities within the global energy and steel industries. The directors consider the USD to represent most faithfully the economic effects of events, conditions, future direction and investment opportunities in the Group. Concurrent with this change in functional currency, the Group adopted the USD as its presentation currency and consequently the financial information for the year ended 31 December 2007 has been presented as ‘Restated’. In accordance with International Accounting Standards, this change in functional currency in the Company has been accounted for by translating items in the consolidated income statement at the average USD / GBP exchange rate for 1 January to 31 August 2008, of USD1.966 : GBP1. Items in the consolidated balance sheet and reserves were translated at the USD / GBP exchange spot rate on 1 September 2008 of USD1.824 : GBP1. 207
- 208. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 For the purposes of changing the Group’s presentation currency, the comparatives for the period ended 31 December 2007 in the consolidated income statement and consolidated cash flow statement have been translated at the average USD / GBP exchange rate for 1 January to 31 December 2007, of USD2.002 : GBP1. Comparatives for the same period in the consolidated balance sheet have been translated using USD / GBP exchange spot rate on 31 December 2007 of USD1.991 : GBP1. 4. Significant accounting policies Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below. As set out in the director’s report on page 15, the directors consider the Group to be a going concern and have accordingly prepared the financial statements on that basis. The Group has taken advantage of the exemption under section 230 of the Companies Act 1985 and consequently the income statement of the parent company is not presented as part of these financial statements. The profit / (loss) of the parent company for the financial year amounted to USD596 million (2007: USD(19 million)). Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition, or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra group transactions, balances, income and expenses are eliminated on consolidation. Foreign currencies Transactions entered into by Group entities in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when fair value was determined. Exchange differences are recognised in the consolidated income statement in the period in which they arise. 208
- 209. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and are recognised in the Group’s foreign exchange reserve. On disposal of the Group’s Brazilian operation, the foreign exchange reserve relating to Brazil was transferred to the consolidated income statement and is included in post-tax profit on disposal of discontinued operations, (see note 13). Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities, and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the consolidated income statement. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Discontinued operations On 19 August 2008, the Group completed the sale of its Brazilian operations to ArcelorMittal. The results of the Brazilian operation have threrefore been treated as ‘discontinued’ and have been disclosed in accordance with IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations. The profit for the year of the Brazilian operations up to the date of disposal has been disclosed as a single amount in the consolidated income statement and the cash flows attributable to the operating, investing and financing activities have been disclosed separately in the consolidated cash flow statement. Comparative figures in the consolidated income statement and consolidated cash flow statement have also been restated to disclose the Brazilian operations separately. Revenue recognition Revenue derived from the sale of goods is measured at the fair value of the consideration received or receivable, after deducting discounts, volume rebates, value added tax and other sales taxes. A sale is recognised when the significant risks and rewards of ownership have passed. This is usually when title and insurance risk have passed to the customer and the goods have been delivered to a contractually agreed location. The only revenue for the year was that in relation to the discontinued Brazilian operations. This is included in profit from discontinued operations, details of which are set out in note 13. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable. 209
- 210. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of any deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Intangible assets (exploration and evaluation expenditure) The costs of exploration properties and leases, which include the cost of acquiring prospective properties and exploration rights, are capitalised as intangible assets. Exploration and evaluation expenditure is capitalised within intangible assets until such time that the activities have reached a stage which permits a reasonable assessment of the existence of commercially exploitable reserves. Once this has occurred, the respective costs previously held as intangible assets are transferred to property, plant and equipment. Capitalised exploration and evaluation expenditure is assessed for impairment in accordance with the indicators set out in IFRS 6 Exploration for and Evaluation of Mineral Reserves. In circumstances where a property is abandoned, the cumulative costs relating to the property are written off. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Each item’s estimated useful life is based on the physical life limitation of the specific asset. Estimates of remaining useful lives are made on a regular basis for all mine buildings, plant and equipment, with annual reassessments for major items. Changes in estimates are accounted for prospectively and depreciation commences when the item is available for use. Buildings and plant and equipment are depreciated down to their residual values at varying rates, on a straight line basis over their estimated useful lives or life of the mine, whichever is shorter. Estimated useful lives normally vary from up to 10 years for items of plant and equipment to a maximum of 25 years for buildings. Tangible assets used exclusively in activities in respect of exploration and evaluation activities are depreciated using the unit of production method. 210
- 211. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised. Impairment of tangible and intangible assets At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately in the consolidated income statement. Investments in associates An associate is an entity over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee. The results, assets and liabilities of associates are incorporated in the financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Any excess of the cost of acquisition over the Group’s share of fair values of the identifiable assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any deficiency of the cost of acquisition below the Group’s share of the fair values of the identifiable net assets of the associate at the date of the acquisition is credited in income statement in the period of acquisition. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Receivables Trade receivables do not carry any interest and are stated at their nominal value net of an appropriate allowance for estimated irrecoverable amounts. Convertible loan receivable In the consolidated balance sheet, the Group’s financial assets investments have all been classified as ‘loans and receivables’. These are intially recognised at fair value and subsequently at amortised cost 211
- 212. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 using the effective interest rate method. The Company’s financial asset investments include amounts owed by subsidiaries, classified as ‘loans and receivables’ and equity holdings in subsidiaries and associates, which are held at cost less any provision for impairment. Provision is raised against these assets when there is a doubt over future realisation as a result of a known event or circumstance. Derivatives embedded in financial instruments (including rights to covert loan receivables to equity investments) or non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of their host contracts and the host contracts themselves are not carried at fair value with unrealised gains or losses reported in the income statement. Changes in the fair value of derivative instruments are recognised immediately in the income statement. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and on demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash. Borrowings Interest bearing bank borrowings are recorded at the proceeds received, net of direct transaction costs. Finance charges are accounted for on an accruals basis and charged to the income statement using the effective interest method. They are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade and other payables Trade and other payables are not interest bearing and are stated at their nominal value. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. Details of provisions are listed in note 23. The Group has an obligation to incur restoration, rehabilitation and environmental costs when environmental disturbance is caused by the development of a mining property. These costs are estimated on the basis of a formal closure plan and are subject to regular review. Provision is not provided for additional obligations expected to arise from future disturbance. At the time of establishing the provision, a corresponding asset is capitalised and depreciated through operating costs. The provision is discounted to present value and the unwinding of the discount is included in finance costs. Equity instruments Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Share-based payments (including warrants) The Group issues equity-settled share-based payments to certain employees and consultants. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured by use of a binomial model. 212
- 213. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 Return Bonus Plan The London Mining Return Bonus Plan (the “RBP”) was adopted by the Group on 4 September 2008. Under the RBP, cash bonus awards can be made to participants in the London Mining plc Share Option Plan, the London Mining plc No. 1 (employees only) Share Option Plan (together, the “Plans”) and the London Mining Long-Term Incentive Plan (the “LTIP”) if either a special dividend or return of share capital is made by the Company (the “Return of Cash”) after the date of grant of the bonus award but prior to the exercise / vesting of the related option / LTIP award granted under the Plans / LTIP and no compensating adjustment is made to such option / LTIP award to take account of the Return of Cash. Participants in the LTIP have the choice to participate in the RBP or to have a compensatory adjustment made to the number of their underlying awards. The bonus awards granted under the RBP entitle participants to receive a cash payment equal to the number of ordinary shares under the related option / LTIP award multiplied by the aggregate amount due per ordinary share under the Return of Cash. The bonus awards vest and lapse in accordance with the terms of the related option / LTIP award held under the Plans / LTIP, and are accounted for in accordance with the Group’s policy for share-based payments, set out above. 5. Critical accounting judgements and key sources of estimation uncertainty In the process of applying the Group’s accounting policies, the directors have made the following accounting judgements that have the most significant effect on the amounts recognised in the financial statements. Impairment of assets The Group reviews the carrying value of its intangible assets and property, plant and equipment to determine whether there is any indication that those assets are impaired. The recoverable amount of those assets is measured at the higher of their fair value less costs to sell and value in use. Directors necessarily apply their judgement in estimating the probability, timing and value of underlying cash flows and in selecting appropriate discount rates to be applied within the value in use calculation. Such estimates and forecasts include commodity prices, foreign exchange rates, capital expenditure, production targets and operating costs. Subsequent changes to estimates and assumptions in the value in use calculation could impact the carrying value of the respective assets. Valuation of share-based payments In order to value options and warrants granted, the Group has made judgements as to the volatility of its own ordinary shares, the probable life of the options and warrants granted and the time of exercise of those options and warrants. The Group has also made a judgement as to which methodology to use in valuing the options and warrants. Tax provisions Judgement is required in determining tax positions for the Group as it is subject to tax in several jurisdictions. Assessments are made on the advice of independent tax advisors and through consultation with relevant tax authorities. While directors believe that these estimates and forecasts are reasonable, actual results could vary significantly from these estimates. 6. Segment reporting Business segments During the year, the Group was organised into two business segments. These are the mining, extraction and production of iron ore, and the mining, extraction and production of coal. These segments are the basis on which the Group reports its primary segment information. 213
- 214. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 The Group’s discontinued operations relate to the mining, extraction and production of iron ore. Details of discontinued operations for the current year and prior year are listed in note 13. 2008 Continuing operations Group unallocated Group Iron ore Coal items Total $’000 $’000 $’000 $’000 Revenue - - - - Depreciation & amortisation (218) - (171) (389) Other costs (3,493) (19) (32,914) (36,426) Segment result from operations1 (3,711) (19) (33,085) (36,815) Share of results associates - (386) - (386) Net finance costs (22) 3 (45,790) (45,809) Taxation - - - - Segment result – continuing operations (3,733) (402) (78,875) (83,010) Capital expenditure 439 - 365 804 Payments for intangible assets 9,790 255 - 10,045 Investment in associates - 20,610 - 20,610 Segment assets 27,914 39,374 312,598 379,886 Segment liabilities 290 1 11,562 11,853 1 Segment result is defined as segment revenue less segment expense being loss from operations Group unallocated items for segment assets and liabilities principally include cash assets of USD312 million and trade and other payables of USD11 million. For the year ended 31 December 2007, the Group had only one business segment, being the mining extraction and production of iron ore. Consequently, no comparatives have been presented for the year ended 31 December 2007. Geographical segment The Group’s operations are based in four main geographical areas, being North America, South America, Africa and the Middle East & Asia. The Group’s corporate activities are carried out in the United Kingdom. 2008 Payments Segment Capital for intangible Group Revenue assets expenditure assets $’000 $’000 $’000 $’000 Continuing operations North America - 8,844 3 6,205 South America - 4,932 - - Africa - 44,194 436 1,225 Middle East & Asia - 8,614 - 2,615 United Kingdom - 313,302 365 - - 379,886 804 10,045 Discontinued operations South America 9,462 - 21,899 - 9,462 379,886 22,703 10,045 214
- 215. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 2007 Payments Segment Capital for intangible Group Revenue assets expenditure assets $’000 $’000 $’000 $’000 Continuing operations North America - 2,031 185 886 Africa - 8,868 403 2,245 United Kingdom - 85,356 42 - - 96,255 630 3,131 Discontinued operations South America 9,405 109,886 73,715 97 9,405 206,141 74,345 3,228 7. Administrative expenses Included in administrative expenses relating to continuing operations are: 2008 2007 $’000 $’000 Return Bonus Plan1 16,100 - Share-based payments to consultants2 1,312 1,790 Staff costs (see note 8) Share-based payments to staff, directors and key management2 9,388 4,324 Directors and key management remuneration excluding share-based payments 2,420 3,941 Other staff costs 1,704 394 Consultancy fees 1,081 532 Depreciation and amortisation 389 105 Fees payable to the Group’s auditors for the audit of the Group’s annual accounts3 143 214 Fees payable to the Group’s auditors for other services to the Group3 Taxation services 5 26 Fees payable to other auditors4 228 14 Operating lease costs – property 253 127 Legal fees 761 191 1 Details of the Return Bonus Plan are set out in Note 4. Following the approval of the Return of Cash to shareholders of 200 pence per ordinary share at the General Meeting held on 10 November 2008, bonus awards were made under the Return Bonus Plan to all optionholders and two LTIP awardholders. Payment is due within five business days of the vesting of the related option / LTIP award or, if the related option / LTIP award is already vested, within five business days of (and including) the Return of Cash. In aggregate, USD13.3 million has been paid in cash for the year ended 31 December 2008 and a further USD7.1 million is due (subject to the Return Bonus Plan rules), payable over the next three years. 2 The amount in respect of share-based payments is non cash and relates solely to equity settled arrangements. 3 Deloitte LLP were appointed as the Group’s auditors in January 2009 and these fees reflect their provision of services during the 2008 audit process. 4 The Group’s previous auditors (BDO Stoy Hayward LLP) provided services up until their resignation for taxation and corporate finance services. These fees are included within this amount. 215
- 216. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 8. Staff costs The average monthly number of employees for continuing operations (including executive directors) was: 2008 2007 Number Number Mine development 204 50 Corporate 14 6 218 56 Group 2008 2007 $’000 $’000 Staff other than directors and key management personnel: Wages and salaries 1,657 365 Social security costs 47 29 Share-based payment expense 73 6 1,777 400 Directors’ and key management personnel remuneration: Wages and salaries 2,139 3,699 Social security costs 281 242 Share-based payment expense 9,315 4,318 11,735 8,259 Total staff costs 13,512 8,659 Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the Group, being the directors of the Group and the chief operating officer of the Group’s iron ore division. 9. Finance income and costs 2008 2007 $’000 $’000 Finance income Interest income from cash and cash equivalents 8,747 2,041 Exchange gains1 20,113 4,609 28,860 6,650 Finance costs Interest payable 71 1,279 Interest on Callable and Puttable Bonds 2007/2012 6,408 5,202 Exchange losses1 68,190 6,693 74,669 13,174 1 The USD809.9 million proceeds from the disposal were received in August 2008 when the USD: GBP exchange rate was 1.8621. In order to mitigate exposure to foreign exchange movements on this GBP denominated distribution, the Group converted USD400 million to GBP224 million at a rate of USD: GBP1.7875 in September 2008. Although the Group had fixed its GBP cash flow exposure for the Return of Cash, an accounting foreign exchange loss was recorded on declaration of the dividend in November 2008 following the significant devaluation of GBP, against the USD to 1.57 USD: GBP. At balance sheet date, the Group no longer has any significant non-USD cash deposits which would give rise to further currency exposure. 216
- 217. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 10. Taxation 2008 2007 $’000 $’000 Income tax recognised in the income statement: Analysis of charge in year: Current tax - - Deferred tax charge relating to origination and reversal of temporary differences - (20) - (20) Analysis of charge in year: Loss before taxation (83,010) (19,568) Expected tax credit based on rate of corporation tax in UK of 28.5% (2007: 19%) 23,658 3,718 Expenses not deductible for taxation (3,511) (1,502) Tax effect of associates (110) - Tax deductible items included in discontinued operations 1,957 - Capital allowances in excess of depreciation 3 198 Different tax rates applied in foreign jurisdictions 68 2 Tax losses not recognised1 (22,065) (2,436) - (20) 1 No deferred tax asset has been recognised in respect of these losses. These losses may be carried forward indefinitely. 11. Dividends On 20 August 2008, in connection with the sale of Group’s Brazilian operations, a proposal was announced to return 200 pence per ordinary share to shareholders. The Return of Cash was approved by the shareholders at a General Meeting on 10 November 2008. Under the terms of the Return of Cash, shareholders elected to receive either one ‘B’ share or one ‘C’ share. Shareholders who elected for the ‘B’ shares were issued with ‘B’ shares, on which they received a dividend of 200 pence per share. Shareholders who elected for the ‘C’ shares were issued with ‘C’ shares, which were redeemed by the Company for a redemption price of 200 pence per share. On 19 November 2008 a dividend of GBP151,478,000 (USD237,820,000) was declared to ‘B’ shareholders and the ‘C’ shares were redeemed for GBP67,590,000 (USD106,116,000). A total of GBP219,068,000 (USD343,936,000) cash was returned to shareholders. 12. Earnings per share (a) Basic Basic earnings per share is calculated by dividing the earnings / (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding shares held in the employee benefit trust. 2008 2007 $’000 $’000 Loss from continuing operations attributable to equity holders of the company (82,973) (19,588) Profit from discontinued operations attributable to equity holders of the company 669,091 2,618 586,118 (16,970) Weighted average number of ordinary shares in issue 102,871,987 77,058,832 217
- 218. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 (b) Diluted The outstanding options, warrants and LTIP’s at 31 December 2008 and 2007 represent anti-dilutive potential ordinary shares. Therefore, basic and diluted earnings per share is the same for the current and prior year. 13. Discontinued operations On 19 August 2008, the Group announced that it had completed the sale of the Brazilian operations to ArcelorMittal for a total cash consideration of USD809.9 million. On reclassification of these operations as held for sale, the Group did not recognise any impairment losses. The results of the discontinued operations included in the consolidated income statement are set out below. The comparative profit has been restated to include those operations classified as discontinued in the current period. As part of the disposal, the Company granted certain warranties and indemnities to the purchaser, ArcelorMittal. Having taken appropriate legal advice, the Group believes the likelihood of a material liability arising is remote. (a) Profit from discontinued operations 2008 2007 $’000 $’000 Revenue 9,462 9,405 Cost of sales (4,298) (4,516) Gross profit 5,164 4,889 Sales and distribution expenses (61) (287) Depreciation and amortisation (1,573) (1,287) Administrative expenses (1,501) (1,235) Profit from operations 2,029 2,080 Finance income 6,797 2,651 Finance costs (1,060) (776) Profit before taxation 7,766 3,955 Taxation (2,869) (1,337) 4,897 2,618 Attributable to: – Equity holders of parent 4,897 2,618 – Minority interest - - 4,897 2,618 218
- 219. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 (b) Post-tax profit on disposal of discontinued operations As at 19 August 2008 $’000 Consideration received on disposal of discontinued operations 809,901 Less: transaction costs (39,222) Less: Premium paid on early settlement of bonds (6,865) Less: net assets disposed (c) (66,849) Less: Intragroup loans repaid on disposal (47,452) Less: Foreign currency translation recycled on disposal 14,681 Pre-tax profit on disposal of discontinued operations 664,194 Taxation¹ - Post-tax profit on disposal of discontinued operations 664,194 ¹ The Company anticipate no UK tax to be payable on the disposal of the Brazilian operations since it is anticipated the sale will qualify for the UK substantial shareholdings exemption. (c) Carrying amounts of assets and liabilities of discontinued operations The major classes of assets and liabilities of the Brazilian operations of the Group at 19 August 2008 were as follows: As at 19 August 2008 $’000 Assets Cash and cash equivalents 5,898 Property, plant and equipment 109,635 Intangible assets 90 Inventories 24,848 Receivables 1,659 Deferred tax assets 33 142,163 Liabilities Trade and other payables 3,281 Borrowings 65,415 Provisions 1,892 Deferred tax liabilities 4,244 Tax liabilities 482 75,314 Net assets disposed 66,849 219
- 220. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 14. Intangible assets Mineral rights and exploration Group and evaluation costs $’000 Cost 1 January 2007 6,231 Additions 3,131 Acquisition of subsidiary 97 Exchange differences 57 31 December 2007 9,516 Additions 10,045 Acquisition of subsidiary 1,102 Disposals from discontinued operation (110) Transfer from tangible assets 91 Exchange differences (483) 31 December 2008 20,161 Amortisation 1 January 2007 - Charge for the year 26 Exchange differences 1 31 December 2007 27 Charge for the year - Disposals from discontinued operation (20) Exchange differences (7) 31 December 2008 - Net carrying value 1 January 2007 6,231 31 December 2007 9,489 31 December 2008 20,161 Mineral rights and exploration Company and evaluation costs $’000 Cost 1 January 2007 2,420 Additions 2,494 Exchange differences 18 31 December 2007 4,932 Additions 8,685 Exchange differences (413) 31 December 2008 13,204 The Group has certain licences which will be subject to renewal during 2009, but management has no reason to believe that these will not be renewed in the ordinary course of business. 220
- 221. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 15. Property, plant and equipment Buildings, Office plant & Freehold land Capital equipment machinery Mineral & leasehold work in and & motor Group Reserves improvements progress furniture vehicles Total $’000 $’000 $’000 $’000 $’000 $’000 Cost 1 January 2007 - - 303 22 - 325 Additions - 114 4,603 214 724 5,655 Acquisition of subsidiary 65,570 939 446 11 1,724 68,690 Disposals - - - (2) (37) (39) Transfers - - (431) - 431 - Exchange differences 7,653 117 156 12 236 8,174 31 December 2007 73,223 1,170 5,077 257 3,078 82,805 Additions - 9 18,187 609 3,898 22,703 Disposals from discontinued operations (80,510) (1,301) (24,159) (300) (6,375) (112,645) Disposals - - (30) - (30) Transfers to intangible assets - (91) - - (91) Exchange differences 7,287 122 1,077 21 347 8,854 31 December 2008 - - 91 557 948 1,596 Depreciation 1 January 2007 - - - 5 - 5 Charge for the year 893 1 - 29 443 1,366 Disposals - - - (1) (37) (38) Exchange differences 44 - - 1 23 68 31 December 2007 937 1 - 34 429 1,401 Charge for the year 711 8 - 132 1,111 1,962 Disposals from discontinued operation (1,723) (10) - (29) (1,248) (3,010) Disposals - - - (30) - (30) Exchange differences 75 1 - (1) 61 136 31 December 2008 - - - 106 353 459 Net carrying value 1 January 2007 - - 303 17 - 320 31 December 2007 72,286 1,169 5,077 223 2,649 81,404 31 December 2008 - - 91 451 595 1,137 221
- 222. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 16. Investments Investments Investment in in Subsidiaries Associates Company Group Company $’000 $’000 $’000 31 December 2007 45,831 402 402 Acquisition of International Coal Company Ltd (see note 26) - 5,081 5,081 Acquisition of DMC Coal Mining (Pty) Ltd (see note 26) - 16,394 - Acquisition of Anglo Mexican Mining Ltd (see note 26) 658 (431) (402) Other - - 174 Disposal on sale of subsidiary (41,140) - - Share of results of associates (net of tax) - (386) - Exchange differences (2,971) (450) - 31 December 2008 2,378 20,610 5,255 17. Investment in associates Investments in associates held at 31 December 2008 relate to investments made during the year in DMC Coal Mining (Pty) Ltd, (“DMC Coal”) and International Coal Company Ltd, (“ICC”), (see note 26). On 8 July 2008 the Group announced the purchase of 39.3% of DMC Coal by acquiring the entire issued share capital of Torbanite One Limited, through a newly acquired subsidiary, Rannerdale Limited. Subject to the terms of a shareholders’ agreement being met and the exercise of the Group’s convertible loan receivable with DMC Energy, this interest will be restructured to a 28% interest in DMC Energy (see note 20). Further details of investments in associates including the country of incorporation and principal activity are given in note 35. Aggregated amounts relating to associates are set out below: 2008 2007 $’000 $’000 Total assets¹ 28,832 402 Total liabilities (8,222) - Group’s share of associates net assets 20,610 402 Group’s share of results of associates (net of tax) (386) - ¹ Included in total assets of associates is mineral reserves and licenses of USD18.3 million (2007: nil). On 25 June 2008, the Group increased its holding in Anglo Mexican Mining Ltd (AMML) from 49% to 53%, at which time AMML ceased to be an associate of the Company. Following the date of the transaction, the Group obtained control of AMML, from which point it was accounted for as a subsidiary. Details of this transaction are given in note 26. 222
- 223. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 18. Inventories 2008 2007 $’000 $’000 Non-current Ore tailings / ore stockpiles 449 20,437 449 20,437 Current Consumables 8 308 Finished goods - 209 8 517 457 20,954 19. Receivables 2008 2007 2008 2007 Group Group Company Company $’000 $’000 $’000 $’000 Non-current Prepayments - 7 - - Other receivables - 222 - - - 229 - - Current Trade receivables - 887 - - Prepayments 266 331 123 87 Other receivables 2,469 1,727 2,307 150 2,735 2,945 2,430 237 2,735 3,174 2,430 237 The directors consider the fair value of receivables at 31 December 2008 not to be materially different to their carrying value and there are no impairment provisions. No debtors are overdue or are considered impaired at the balance sheet date. 20. Convertible loan receivable A convertible loan of USD18.5 million was issued by the Group to DMC Energy as part of the acquisition of DMC Coal. As part of a shareholders’ agreement, upon receipt of South African regulatory approvals and following completion of an internal reorganisation of Delta Mining Consolidated (“DMC”), the loan and the Group’s investment in DMC Coal (see note 17) will be automatically converted into an equity investment of Delta Energy such that the Group holds a 28% interest in DMC Energy. In the event the regulatory approvals or reorganisation are not completed, the Group has the option to recall the loan or to call for the loan and the investment in DMC Coal to be converted into a 28% interest in DMC. 223
- 224. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 21. Borrowings 2008 2007 2008 2007 Group Group Company Company $’000 $’000 $’000 $’000 Current Instalment sale creditors - 160 - - Deferred payment portion in respect of MIL purchase price1 - 2,860 - - - 3,020 - - Non-current Callable and Puttable Bonds 2007/20122 - 66,474 - 66,474 Deferred payment portion in respect of MIL purchase price1 - 15,627 - - - 82,101 - 66,474 - 85,121 - 66,474 1 The deferred payment portion in respect of MIL purchase price was settled as part of the Group’s sale of its Brazilian operations on 19 August 2008. Details of this transaction are disclosed in discontinued operations (note 13). 2 On the disposal of the Brazilian operations, the holders of the Callable and Puttable Bonds 2007/2012 had the right to sell their Bonds to the Company at a redemption price equal to 110% of the face value thereof. Actual repayment of the bonds was made on 1 October 2008. However from the date of sale the debt is treated as “defeased” from a legal perspective as cash was transferred from the Company to a nominee account prior to repayment. The movements in borrowings during the comparative periods were as follows: 2008 2007 2008 2007 Group Group Company Company $’000 $’000 $’000 $’000 Opening balance 85,121 4,673 66,474 2,011 Repayment of borrowings - (2,724) - - Issue of 3,000,000 secured convertible loan notes - 6,007 - 6,007 Recognition of imputed interest on convertible loan notes - 1,247 - 1,247 Redemption of convertible loan notes - (3,304) - (3,304) Conversion of convertible loan notes - (6,007) - (6,007) Net proceeds of issue of Callable and Puttable Bonds 2007/2012 - 60,333 - 60,333 Recognition of issue costs on Callable and Puttable Bonds 2007/2012 273 192 273 192 Callable and Puttable Bonds 2007/2012 legally defeased (67,598) - (67,598) - Raising of deferred payment portion of MIL purchase price - 17,906 - - Unwinding of discount on deferred payment portion of MIL purchase price 972 672 - - Payment of instalment on deferred payment portion of MIL purchase price (1,500) - - - Borrowings disposed on sale of discontinued operation (17,980) - - - Net foreign currency exchange differences 712 6,126 851 5,995 - 85,121 - 66,474 224
- 225. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 22. Trade and other payables 2008 2007 2008 2007 Group Group Company Company $’000 $’000 $’000 $’000 Current liabilities Trade payables 1,618 1,900 1,571 396 Other taxation and social security 101 1,425 42 36 Accruals 10,102 4,848 9,858 4,771 11,821 8,173 11,471 5,203 The directors consider the fair value of trade and other payables at 31 December 2008 not to be materially different to their carrying value. 23. Provisions 2008 2007 $’000 $’000 Opening balance 1,653 - Acquisition of subsidiary - 1,415 Disposal of discontinued operation (1,892) - Unwinding of discount 65 62 Net exchange differences 174 176 - 1,653 24. Deferred tax liabilities Equity Unrealised component of Recognition of Accelerated foreign convertible inventory capital exchange loan Group balance allowances gains notes Total $’000 $’000 $’000 $’000 $’000 At 1 January 2007 - - - 11 11 Charged (credited) to the income statement – continuing operations - 31 - (11) 20 Charged (credited) to the income statement – discontinued operations 110 (16) 800 - 894 Exchange differences 1 132 54 - 187 31 December 2007 111 147 854 - 1,112 Charged (credited) to the income statement – discontinued operations 140 558 2,171 - 2,869 Disposed through discontinued operations (268) (704) (3,239) - (4,211) Exchange differences 17 31 214 262 31 December 2008 - 32 - - 32 At the balance sheet date, the group has unused losses of USD86.5 million (2007 USD2.9 million) available for offset against future taxable profits. No deferred tax asset has been recognised in respect of these losses. The losses may be carried forward indefinitely. At the balance sheet date, there are no temporary differences associated with undistributed earnings of subsidiaries or associates. 225
- 226. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 25. Share capital 2008 2007 No. of shares $’000 No. of shares $’000 Authorised: Ordinary shares of GBP0.002 each 200,000,000 730 200,000,000 730 Deferred shares of GBP0.000001 each 120,000,000 - - - C shares of GBP2.00 each 33,794,785 123,283 - - 124,013 730 Ordinary shares Issued and fully paid: At 1 January 99,151,842 362 50,768,675 185 Issued during the year 10,381,953 36 48,316,500 177 Issued but not yet paid: - - 66,667 - 109,533,795 398 99,151,842 362 The Group’s employee benefit trust had 1,048,600 shares at 31 December 2008 (2007: nil) Share capital has been translated at the USD / GBP exchange spot rate on 1 September 2008 being the date of the Company’s change in functional currency. Following the return of capital approved by the shareholders at a General Meeting on 10 November 2008 it was resolved on 19 November 2008 to increase the authorised share capital from USD729,600 to USD124,013,195 by the creation of 120,000,000 B shares at GBP0.000001 each and 33,794,785 C shares at GBP2.00 each. On 19 November 2008 it was resolved that USD116 of the Company’s profits available for distribution (as defined in Companies Act 1985) be applied in paying up in full 75,739,010 B shares and that such B shares shall be allotted, issued and credited as fully paid. On the same day, a dividend of USD3.14 (GBP2.00) per B share was declared. Following payment of the dividend, the B shares converted into deferred shares. On 19 November 2008, the Company also resolved that USD106,116,000 of the share premium be applied in paying up in full 33,794,785 C shares and that such C shares shall be allotted, issued and credited as fully paid. On the same day the C shares were redeemed for USD3.14 (GBP2.00) per share. Rights attached to the deferred shares (a) Income The Deferred Shares shall confer no right to participate in the profits of the Company. (b) Capital On a return of capital on a winding-up (excluding any intra-group re-organisation on a solvent basis) there shall be paid to the holders of the Deferred Shares the nominal capital paid up or credited as paid up on such Deferred Shares after paying to the holders of the Ordinary Shares the nominal capital paid up or credited as paid up on the Ordinary Shares held by them respectively, together with the sum of GBP1,000,000 on each Ordinary Share. The holders of the Deferred Shares shall not be entitled to any further right of participation in the assets of the Company. 226
- 227. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 (c) Attendance and voting at general meetings The holders of the Deferred Shares shall not be entitled to receive notice of any general meeting of the Company or to attend, speak or vote at any such meeting. (d) Form The Deferred Shares shall not be listed on any stock exchange nor shall any share certificates be issued in respect of such shares. The Deferred Shares shall not be transferable except in accordance with (f) below or with the written consent of the Directors. (e) Class rights The Company may from time to time create, allot and issue further shares, whether ranking pari passu with or in priority to the Deferred Shares, and on such creation, allotment or issue any such further shares (whether or not ranking in any respect in priority to the Deferred Shares) shall be treated as being in accordance with the rights attaching to the Deferred Shares and shall not involve a variation of such rights for any purpose or require the consent of the holders of the Deferred Shares. The reduction by the Company of the capital paid up on the Deferred Shares and the cancellation of such shares shall be in accordance with the rights attaching to the Deferred Shares and shall not involve a variation of such rights for any purpose and the Company shall be authorised at any time to reduce its capital (subject to the confirmation of the Court in accordance with the Companies Acts) without obtaining the consent of the holders of the Deferred Shares. (f) Transfer and purchase The Company may at any time (and from time to time), (subject to the provisions of the Companies Acts) without obtaining the sanction of the holder or holders of the Deferred Shares: (i) appoint any person to execute on behalf of any holder of Deferred Shares a transfer of all of the Deferred Shares or any part thereof (and/or an agreement to transfer the same) to the Company or to such person as the Directors may determine (whether or not an officer of (or agent for) the Company), in any case for not more than one penny for all the Deferred Shares then being purchased from him, which payment can be made, if the Directors so determine, to charity; and (ii) if the Company so elects, cancel all or any of the Deferred Shares so purchased by the Company in accordance with the Companies Acts. At the date of this report the Company’s Long Term Incentive Trust holds 4,378,600 existing Ordinary Shares as part of the trust fund. 26. Acquisitions Anglo Mexican Mining Ltd On 25 June 2008, the Company increased its holding in Anglo Mexican Mining Ltd (AMML) from 49% to 53%, with a transaction completed on 4 September 2008. These transactions were completed for an aggregate net cash consideration of USD0.2 million and contingent deferred consideration of USD0.45 million which is not expected to be paid. The fair value of this acquisition is reflected as capitalised exploration as at 31 December 2008, and has no impact on the result for the year. Development and production of the mine is subject to the granting of a full official SEMARNAT licence, being the final environmental approval. AMML was reported as an investment in associate for the year ended 31 December 2007 but is now reported as a subsidiary for the year ended 31 December 2008 as the Group exercises control of AMML. 227
- 228. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 Saudi Arabia On 12 February 2008, the Group passed a resolution approving the entering into of a joint venture agreement with National Mining Company (“National Mining”) to develop and put into operation an iron ore mine and pelletising plant in Wadi Sawawin near the port of Duba in Saudi Arabia. The joint venture will be conducted through a new company called Saudi London Iron Ltd (“SLI”) held as to 50% by the Group and as to 50% by National Mining. A detailed formal joint venture agreement was entered into between the Group and National Mining on 29 April 2008. The incorporation of SLI is currently in progress and no shares therein have yet been issued to the Group. This acquisition has had no material impact on the Group results as at period end. DMC Coal Mining (Pty) Ltd On 8 July 2008, the Group announced the purchase of 39.3% of DMC Coal Mining (Pty) Ltd (DMC Coal), as part of the Group’s expansion into the coal industry. DMC Coal is a company registered and with coal operations in South Africa. The transaction was structured through the acquisition of the entire issued share capital of Torbanite One Limited (Torbanite One) through a newly acquired subsidiary Rannerdale Limited (“Rannerdale”) for net cash consideration of USD16.4 million. As part of the acquisition of DMC Coal, a convertible loan of USD18.5 million was issued by the Group to DMC Energy. The terms of the shareholders’ agreement stipulate that, upon receipt of South African regulatory approvals and following completion of an internal reorganisation of Delta Mining Consolidated (“DMC”), the loan will automatically be converted into share capital of DMC Energy such that the Group would hold a 28% interest in DMC Energy. In the event the regulatory approvals or reorganisation are not completed, the Group has the option to recall the loan or to call for the loan to be converted into a 28% interest in DMC. International Coal Company Ltd On 15 September 2008, the Group announced the purchase of 20% of ICC for a net cash consideration of USD5.1 million with first rights of refusal to invest further capital. ICC is a Cayman Islands incorporated company with coal operations in Colombia, South America. Summary Subsidiary Associates Anglo Mexican DMC Coal Mining International Mining Ltd (Pty) Ltd Coal Company Ltd Total $’000 $’000 $’000 $’000 Net assets acquired 31 1,605 810 2,415 Add: Mineral reserves1 1,102 20,830 6,375 27,205 Less: Deferred tax on mineral reserves - (6,041) (2,104) (8,145) Less: Investments in associates previously recorded (431) - - - Less: Minority interests (475) - - - Cost of acquisition 227 16,394 5,081 21,475 Satisfied by: Cash consideration including acquisition costs 227 16,394 5,081 21,475 Ownership interest 55% 39.3% 20% 1 Other than the recognition of mineral reserves, no other fair value adjustments arose on acquisition. Mineral reserves are disclosed including deferred tax arising on initial recognition. 228
- 229. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 27. Notes to the cash flow statement 2008 2007 2008 2007 Group Group Company Company $’000 $’000 $’000 $’000 Reconciliation of profit / (loss) for the year to cash outflows from operating activities Profit / (loss) for the year 586,081 (16,970) 596,149 (18,772) Adjusted for: Profit for the year – discontinued operations (669,091) (2,618) (674,593) - Share of results from associates 386 - - - Depreciation and amortisation 389 105 171 38 Finance income (28,860) (6,650) (28,851) (6,650) Finance costs 74,669 13,174 73,791 13,227 Share-based payments expense 10,700 6,114 10,700 5,962 Tax expense - 20 - (11) (25,726) (6,825) (22,633) (6,206) (Increase) / decrease in current receivables (712) 1,351 (704) 1,482 Increase in payables 2,521 1,902 2,632 1,752 Cash outflow from operating activities (23,917) (3,572) (20,705) (2,972) Payments to acquire intangible assets Acquisition of intangible assets (10,045) (3,131) (8,685) (2,494) Less: amounts accrued - 509 - 509 Payments to acquire intangible assets (10,045) (2,622) (8,685) (1,985) 28. Share-based payments Share options and warrants to subscribe for ordinary shares in the Company are granted to certain employees, directors and consultants providing services to the Group. Options are exercisable at a price equal to the closing quoted price of the Company’s shares on the date of grant. The vesting period varies from immediate settlement to three years and there are no other vesting / performance conditions. Options are forfeited if the employee leaves the group before the options vest. 2008 2007 Average Average exercise price exercise price in pence per in pence per Number share Number share Options At 1 January 4,630,000 174 - - Granted 1,900,000 284 4,630,000 174 Forfeited (100,000) 174 - - Exercised (350,000) 174 - - Expired - - - At 31 December 6,080,000 208.4 4,630,000 174 229
- 230. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 2008 2007 Average Average exercise price exercise price in pence per in pence per Number share Number share Warrants At 1 January 5,233,000 47.23 4,000,000 17.2 Granted - - 1,500,000 122.7 Forfeited - - - - Exercised (4,733,000) 33.89 (267,000) 20.0 Expired - - - - At 31 December 500,000 174 5,233,000 47.23 Long Term incentive plan awards At 1 January 3,000,000 - - - Granted 600,000 - 3,000,000 - Granted on Return of cash 6,652,360 - - - Exercised - - - - Expired - - At 31 December 10,252,360 - 3,000,000 - Of the 6,080,000 outstanding options at 31 December 2008, 4,130,000 were exercisable (2007 : no options were exercisable). Of the 500,000 outstanding warrants at 31 December 2008, 500,000 were exercisable (2007 : 3,953,000 warrants were exercisable). The related weighted average share price at the date of exercise for the options and warrants exercised during 2008 was USD5.416 (2007 : USD4.206). The options outstanding at the 31 December 2008 had a weighted average exercise price of USD5.3081 and a weighted average remaining contractual life of 1.75 years. The inputs into the binomial model were as follows: 2008 2007 Weighted average share price (USD) 5.4247 3.512 Weighted average exercise price (USD) 5.3081 3.262 Expected volatility 44.7% 53.2% Expected life 1.75 years 0.99 years Risk free rates 4.67% 5.51% Expected dividend yields 0% 0% Expected volatility of the options issued during the year to 31 December 2008 was determined by calculating the average volatility between the 7 October 2007 date of listing on the Oslo Axess Stock Exchange and the date of grant. The expected volatility of any options or warrants issued during the prior year were determined on a weighted average basis using the share price volatilities reflected by groups engaged in the mining industry with characteristics similar to those of the Group. The weighted average fair value of options and warrants granted during the period determined using a binomial model was USD220.64 per option and warrant (2007 : USD168.110). See note 7 for the total expense recognised in the income statement for share options and warrants granted to directors and employees. 230
- 231. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 On 18 November 2008, following the approval of the Return of Cash by shareholders, the Company announced that the LTIP awards held by Chris Brown, Graeme Hossie and Rachel Rhodes were adjusted pursuant to the rules of the Company’s Long-Term Incentive Plan (“LTIP”) to maintain the value of awards immediately prior to the Return of Cash. The awards held were increased as shown below: LTIP awards held LTIP awards held after bonus before bonus award award Chris Brown 4,718,884 1,500,000 Graeme Hossie 4,718,884 1,500,000 Rachel Rhodes 314,592 100,000 Share options and warrants outstanding at 31 December 2008 are as follows: Exercise price Expiry date Number Vesting date in pence Options 15 May 2010 500,000 14 May 2010 344 12 September 2012 130,000 31 March 2008 174 12 September 2012 50,000 01 January 2009 174 02 May 2013 500,000 03 May 2009 309 11 July 2013 4,000,000 12 July 2008 174 16 October 2018 166,666 04 September 2009 237 16 October 2018 166,667 04 September 2010 237 16 October 2018 166,667 04 September 2011 237 16 October 2018 200,000 31 December 2010 237 16 October 2018 200,000 31 December 2010 237 6,080,000 Warrants 20 August 2010 500,000 30 November 2008 174 500,000 29. Operating leases At 31 December 2008, the Group had the following commitments under non-cancellable operating leases. 2008 2007 $’000 $’000 Expiry date Within one year 334 41 One to five years 737 160 After five years 1,553 777 2,624 978 30. Contingent liabilities At 31 December 2008, other than the Brazilian warranties and indemnities as set out in note 13, for which having taken legal advice the Group believes the likelihood of a material liability arising is remote, the Group had no contingent liabilities. 231
- 232. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 31. Financial assets and liabilities The carrying amounts of the Group’s financial assets and liabilities are as follows: 2008 2007 $’000 $’000 Financial assets: Loans and receivables Cash and cash equivalents 316,286 90,718 Convertible loan receivable 18,500 - Other receivables 1,571 903 336,357 91,621 Financial liabilities: At amortised cost Callable and Puttable Bonds 2007/2012 - 68,142 Deferred payment portion of acquisition cost of subsidiary - 18,487 Trade and other payables 11,774 7,718 11,774 94,347 32. Financial risk management The Group is exposed in varying degrees to financial risk. These risks include market risk (foreign exchange risk, interest rate risk and commodity price risk), credit risk, and liquidity risk. Market risk Foreign exchange risk The Group is exposed to foreign exchange movements through the holding of cash balances in GBP and through payments to suppliers for invoices denominated in foreign currencies other than USD. The Group manages foreign exchange risk by holding cash balances in USD and GBP for respective supplier payments. It is anticipated that future commercial transactions for the Group will be in USD which is the same as the functional currency of the Company and its subsidiaries. At balance sheet date, the Group held GBP7.9 million in its cash at bank balance. A movement of 5% strengthening or weakening of the USD to GBP would respectively decrease or increase the Group’s profit before tax by USD0.5 million based on the Group’s current GBP cash balance. The value of payments to suppliers for invoices denominated in foreign currencies is not material and therefore does not represent a significant foreign exchange risk to the Group. Interest rate risk management The Group is exposed to interest rate risk through the holding of cash and cash equivalents with floating interest rates. The Group also holds amounts on short term deposit with fixed interest rates. Interest rate risk is managed by the Group by maintaining an appropriate mix between fixed and floating interest rates. Commodity price risk The Group’s future earnings will be exposed to movements in the prices of the commodities it produces. 232
- 233. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 Sensitivity analysis Financial instruments affected by market risk include cash and cash equivalents, other receivables, trade payables and accruals. Any changes in market variables (interest rates and commodity prices, excluding exchange rates as that is disclosed above) will have an immaterial effect on these instruments. Credit risk The Group is primarily exposed to credit risk from cash and cash equivalents and deposits held with financial institutions, trade receivables, other receivables and the convertible loan with DMC Energy. It is Group policy to manage credit risk by: • holding and investing cash in multiple, reputable financial institutions • dealing with creditworthy counterparties The Group does not enter into derivatives to manage credit risk. The Group’s maximum exposure to credit risk at 31 December 2008 was USD336 million (2007: USD92 million) Liquidity risk The Group manages liquidity risk by maintaining adequate reserves by continuously monitoring forecast and actual cash flows. At 31 December 2008 the Group did not hold any external borrowings and the Group’s liabilities consist primarily of trade and other payables payable within the next two months and an amount of USD2.8 million accrued in respect of the Return of Bonus plan as discussed in note 4. Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. 33. Related party transactions Remuneration and benefits received by directors are disclosed in the directors’ remuneration report. Remuneration and benefits of key management personnel including directors are given in note 8. At 31 December 2008 the directors of the Group and their related parties, and entities in which they had a beneficial interest, controlled 15.9% (2007: 13.7%) of the ordinary shares of the Company. The Group has a related party relationship with its subsidiaries and its associates. Transactions between Group entities are eliminated on consolidation and are not included in this note. There were no related party transactions with associates or directors during the year. 34. Events after the balance sheet date China On 17 March 2009, the Company entered into a joint venture agreement with Wits Basin Precious Minerals, Inc. (Wits Basin) in relation to the operation of a 50:50 joint venture company, China Global Mining Resources (BVI) Limited (CGMR BVI). Under the terms of the agreement, the Company will subscribe USD38.75 million for 100 A Shares in CGMR BVI and will make a direct loan to Wits Basin for USD5.75 million: a total initial investment of USD44.5 million. Also on this date, a wholly owned company of CGMR BVI, China Global Mining Resources Limited (CGMR), a Hong Kong entity, completed its acquisition of two Chinese companies: Xiaonanshan Mining Co Limited (XNS) and Nanjing Sudan Mining Co Limited (Sudan). The two companies operate iron ore 233
- 234. London Mining plc Notes to the financial statements (continued) For the year ended 31 December 2008 mining and processing operations near Maanshan in the Anhui and Jiangsu Provinces in the People’s Republic of China (PRC). The completion of the joint venture agreement with Wits Basin and the acquisition of XNS and Sudan, was subject to certain closing conditions, including the receipt of business licenses and permits relating to the transfer and operation of the mining properties. Under the terms of the acquisition of XNS and Sudan, the sellers, Mr Lu Benzhao and Ms Lu Tinglan, receive consideration of approximately USD42.25 million in cash (subject to post closing adjustments) in return for the sale of 100% of the share capitals of XNS and Sudan. Of this consideration, USD17.48 million is deferred. One of the sellers will also receive up to a further USD53.95 million in compensation under a consulting agreement with CGMR, of which USD15.31 million has been paid and the balance is payable subject to available cash from the operations of the acquired entities. Under the joint venture arrangements London Mining will receive priority dividends from CGMR until its USD44.5 million initial investment is repaid. London Mining will also receive a management fee of USD5.5 million in the first year and USD4.5 million thereafter during an extended period of development and integration. Mr Lu Benzhao will initially remain as a director of XNS and Sudan. CGMR has also been granted the right to acquire a further iron ore mining company, Maanshan Zhaoyuan Mining Co Ltd (Matang), which is owned by the sellers of XNS and Sudan. Retirement of Chris Brown as Managing Director On 9 February 2009, Chris Brown retired as Managing Director of the Group to pursue personal interests abroad. Mr. Brown founded the Company and has served as Managing Director since its inception. He is retained as a consultant to The Group and remains a significant shareholder in the Company. Chris Brown is replaced by Graeme Hossie, who co-founded the Company together with Chris Brown, and has had a vital position in building the Group’s iron and coal business over the past four years. 35. Composition of the Group Ownership interest Country of 2008 2007 incorporation Principal activity % % Subsidiaries: London Mining Company Limited Sierra Leone Mining 100 100 London Mining Logistics Company Ltd Sierra Leone Dormant 100 100 Anglo Mexican Mining Ltd British Virgin Investment holding 55 49 Islands company Campania Minera Suizo-Mexicana, Mexico Mining 54 49 SA de CV Ltd MIL Participacoes Societarias Ltda Brazil Administrative 100 100 company Rannerdale Limited Isle of Man Investment holding 100 - company Torbanite One Limited Isle of Man Investment holding 100 - company London Mining Greenland Greenland Mining 100 - Hammersmyth Management Ltd Canada Dormant 100 100 Associates: DMC Coal Mining (Pty) Ltd South Africa Mining 39.3 - International Coal Company Ltd Cayman Islands Mining 20.0 - 36. Capital Commitments The Group has no material capital commitments at 31 December 2008. 234
- 235. SECTION C CONSOLIDATED AUDITED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2007 London Mining Plc Independent auditor’s report to the shareholders of London Mining Plc For the year ended 31 December 2007 To the shareholders of London Mining Plc We have audited the consolidated and parent company financial statements (the “financial statements”) of London Mining Plc for the year ended 31 December 2007 which comprise the Consolidated income statement, the Consolidated and Company balance sheets, the Consolidated and Company cash flow statement and the Consolidated and Company statements of changes in equity and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the statement of directors’ responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and whether the information given in the Directors’ Report and Chief Executive’s Report is consistent with those financial statements. We also report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read the Chairman’s Statement, Chief Executive’s Report, Directors’ Report, Directors’ Remuneration Report and Governance Report and consider the implications for our report if we become aware of any apparent misstatements within it. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. 235
- 236. London Mining Plc Independent auditor’s report to the shareholders of London Mining Plc (continued) For the year ended 31 December 2007 Opinion In our opinion: • the Consolidated financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at 31 December 2007 and of its loss for the year then ended; • the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at 31 December 2007; • the financial statements have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors’ Report is consistent with the financial statements. BDO STOY HAYWARD LLP Chartered Accountants and Registered Auditors London 27 March 2008 236
- 237. London Mining Plc Consolidated income statement For the year ended 31 December 2007 Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 Restated Restated Note £ £ £ Revenue 4 4,697,111 - - Cost of sales 8 (2,255,564) - - Gross profit 2,441,547 - - Corporate development expenses 8 (1,478,124) (161,838) (89,628) Sales and distribution expenses 8 (143,442) - - Administrative expenses 8 (6,296,092) (801,637) (1,021,997) Loss from operations 5 (5,476,111) (963,475) (1,111,625) Finance income 9 4,645,131 10,522 3,135 Finance costs 10 (6,967,242) (139,118) (711) Loss before taxation (7,798,222) (1,092,071) (1,109,201) Taxation 11 (677,340) 548 - Loss for the year (8,475,562) (1,091,523) (1,109,201) Attributable to: – Equity holders of parent (8,475,565) (1,091,515) (1,109,201) – Minority interest 3 (8) - (8,475,562) (1,091,523) (1,109,201) Loss per share expressed in pence per share Basic and diluted 12 (11.00) (2.20) (3.64) All the activities of the Group and Company are classified as continuing. 237
- 238. London Mining Plc Consolidated and company balance sheet 31 December 2007 As at 31/12/2007 As at 31/12/2006 Group Company Group Company Note £ £ £ £ Assets Non-current assets Property, plant and equipment 14 40,894,093 183,385 162,998 162,998 Intangible assets 15 4,766,720 2,477,302 3,184,061 1,231,603 Investments in subsidiaries 16 - 23,023,817 - 339,973 Investment in associate 17 201,859 201,859 - - Inventories 18 10,266,569 - - - Receivables 19 115,180 - - - Amount owing by subsidiary 16 - 1,890,000 - - Total non-current assets 56,244,421 27,776,363 3,347,059 1,734,574 Current assets Inventories 18 259,797 - - - Receivables 19 1,479,596 118,842 917,658 859,053 Amounts owing by subsidiaries 16 - 15,426,717 - 313,124 Cash and cash equivalents 45,573,154 42,737,481 285,566 278,921 Total current assets 47,312,547 58,283,040 1,203,224 1,451,098 Total assets 103,556,968 86,059,403 4,550,283 3,185,672 Liabilities Non-current liabilities Borrowings 20 (41,244,363) (33,393,930) - - Provisions 21 (830,491) - - - Deferred tax liabilities 22 (558,420) - (5,814) (5,814) Total non-current liabilities (42,633,274) (33,393,930) (5,814) (5,814) Current liabilities Trade and other payables 23 (3,796,649) (2,613,688) (801,652) (786,077) Borrowings 20 (1,517,266) - (2,387,736) (1,027,036) Tax liabilities (308,719) - - - Total current liabilities (5,622,634) (2,613,688) (3,189,388) (1,813,113) Total liabilities (48,255,908) (36,007,618) (3,195,202) (1,818,927) Total net assets 55,301,060 50,051,785 1,355,081 1,366,745 238
- 239. London Mining Plc Consolidated and company balance sheet (continued) 31 December 2007 As at 31/12/2007 As at 31/12/2006 Group Company Group Company Note £ £ £ £ Capital and reserves Share capital 24 198,304 198,304 101,537 101,537 Share premium reserve 25 55,423,904 55,423,904 3,150,731 3,150,731 Other reserves 26 10,328,007 5,970,515 303,296 307,095 Retained earnings 27 (10,649,155) (11,540,938) (2,200,716) (2,192,618) Attributable to equity holders of the Company 55,301,060 50,051,785 1,354,848 1,366,745 Minority interest - - 233 - Total equity 55,301,060 50,051,785 1,355,081 1,366,745 These financial statements were approved and authorised for issue by the directors and are signed on their behalf by: DG Hossie Director 27 March 2008 239
- 240. London Mining Plc Consolidated statement of changes in equity For the year ended 31 December 2007 Share Share Retained Warrant and Foreign Option Equity Minority Total equity capital premium earnings option exchange premium on attributable to interest reserve reserve reserve convertible equity holders of loan notes the Company £ £ £ £ £ £ £ £ £ Balance at 31/12/2005 96,000 1,804,200 (1,109,201) - - - 790,999 - 790,999 Changes in equity for year to 31/12/2006 Exchange difference on translating foreign operations - - - - (3,799) - (3,799) (11) (3,810) Net income recognised directly in equity - - - - (3,799) - (3,799) (11) (3,810) Loss for the year - - (1,091,515) - - - (1,091,515) (8) (1,091,523) Total recognised income and expense for the year - - (1,091,515) - (3,799) - (1,095,314) (19) (1,095,333) Acquisition of subsidiary - - - - - - - 252 252 Recognition of share-based payments - - - 279,969 - - 279,969 - 279,969 Issue of convertible loan notes - - - - - 33,488 33,488 - 33,488 Deferred tax on issue of convertible loan notes - - - - - (6,362) (6,362) - (6,362) 240 Issue of share capital 5,537 1,431,569 - - - - 1,437,106 - 1,437,106 Expenses incurred in issuing share capital - (85,038) - - - - (85,038) - (85,038) Balance at 31/12/2006 101,537 3,150,731 (2,200,716) 279,969 (3,799) 27,126 1,354,848 233 1,355,081 Changes in equity for year to 31/12/2007 Exchange difference on translating foreign operations - - - - 4,361,294 - 4,361,294 8 4,361,302 Net income recognised directly in equity - - - - 4,361,294 - 4,361,294 8 4,361,302 Loss for the year - - (8,475,565) - - - (8,475,565) 3 (8,475,562) Total recognised income and expense for the year - - (8,475,565) - 4,361,294 - (4,114,271) 11 (4,114,260) Acquisition of minority interest - - - - (3) - (3) (244) (247) Recognition of share-based payments - - - 3,383,866 - - 3,383,866 - 3,383,866 Transfer on redemption of convertible loan notes - - 27,126 - - (27,126) - - - Issue of share capital 96,923 58,331,873 - 2,547,345 - - 60,976,141 - 60,976,141 Transfer on exercise of warrants and rights to shares at par value - 240,665 - (240,665) - - - - - Cancellation of unpaid shares (156) - - - - - (156) - (156) Expenses incurred in issuing share capital - (6,299,365) - - - - (6,299,365) - (6,299,365) Balance at 31/12/2007 198,304 55,423,904 (10,649,155) 5,970,515 4,357,492 - 55,301,060 - 55,301,060 The warrant and option reserve includes warrants and options granted as equity settled employee benefits and warrants issued for cash.
- 241. London Mining Plc Company statement of changes in equity For the year ended 31 December 2007 Share Share Retained Warrant and Option Total equity capital premium earnings option premium on reserve reserve convertible loan notes £ £ £ £ £ £ Balance at 31/12/2005 96,000 1,804,200 (1,109,201) - - 790,999 Changes in equity for year to 31/12/2006 Net income recognised directly in equity - - - - - - Loss for the year - - (1,083,417) - - (1,083,417) Total recognised income and expense for the year - - (1,083,417) - - (1,083,417) Recognition of share-based payments - - - 279,969 - 279,969 Issue of convertible loan notes - - - - 33,488 33,488 Deferred tax on issue of convertible loan notes - - - - (6,362) (6,362) 241 Issue of share capital 5,537 1,431,569 - - - 1,437,106 Expenses incurred in issuing share capital - (85,038) - - - (85,038) Balance at 31/12/2006 101,537 3,150,731 (2,192,618) 279,969 27,126 1,366,745 Changes in equity for year to 31/12/2007 Net income recognised directly in equity - - - - - - Loss for the year - - (9,375,446) - - (9,375,446) Total recognised income and expense for the year - - (9,375,446) - - (9,375,446) Recognition of share-based payments - - - 3,383,866 - 3,383,866 Transfer on redemption of convertible loan notes - - 27,126 - (27,126) - Issue of share capital 96,923 58,331,873 - 2,547,345 - 60,976,141 Transfer on exercise of warrants and rights to shares at par value - 240,665 - (240,665) - - Cancellation of unpaid shares (156) - - - - (156) Expenses incurred in issuing share capital - (6,299,365) - - - (6,299,365) Balance at 31/12/2007 198,304 55,423,904 (11,540,938) 5,970,515 - 50,051,785 The warrant and option reserve includes warrants and options granted as equity settled employee benefits and warrants issued for cash.
- 242. London Mining Plc Consolidated and company cash flow statement For the year ended 31 December 2007 Year to 31/12/2007 Year to 31/12/2006 Group Company Group Company Restated Restated Note £ £ £ £ Cash flows from operating activities Net cash flow from operating activities 30 (157,575) (1,483,340) (1,430,155) (1,546,136) Interest received 1,166,082 1,019,212 10,522 10,229 Interest expense (1,843,468) (1,839,477) (112) (112) Net realised exchange losses (168,648) (142,891) (27,405) (27,405) Income taxes paid (138,535) - - - Net cash absorbed by operating activities (1,142,144) (2,446,496) (1,447,150) (1,563,424) Cash flow from investing activities Acquisition of subsidiary, net of cash acquired 31 (33,618,716) - - - Investment in and loans to subsidiaries - (39,218,505) - (317,453) Investment in associate (201,859) (201,859) - - Payments to acquire intangible assets 30 (1,309,366) (991,363) (993,955) (569,228) Purchase of property, plant and equipment (2,824,797) (144,031) (162,268) (162,268) Proceeds on disposal of property, plant and equipment 43,268 - - - Net cash used in investing activities (37,911,470) (40,555,758) (1,156,223) (1,048,949) Cash flows from financing activities Ordinary Shares issued 30 52,129,297 52,129,297 1,351,912 1,351,912 Proceeds from issue of warrants 2,547,345 2,547,345 - - Callable and Putable Bonds 2007/2012 issued 30,133,470 30,133,470 - - Convertible loan notes (redeemed) issued (1,650,000) (1,650,000) 950,000 950,000 Settlement of liability in respect of acquisition of mining lease (1,360,700) - - - Net cash from financing activities 81,799,412 83,160,112 2,301,912 2,301,912 Net increase (decrease) in cash and cash equivalents 42,745,798 40,157,858 (301,461) (310,461) Cash and cash equivalents at beginning of year 285,566 278,921 589,374 589,374 Exchange difference on translation 2,541,790 2,300,702 (2,347) 8 Cash and cash equivalents at end of year 45,573,154 42,737,481 285,566 278,921 242
- 243. London Mining Plc Notes to the financial statements For the year ended 31 December 2007 1. Accounting policies IAS 8 requires that management shall use its judgement in developing and applying accounting policies that result in information which is relevant to the economic decision-making needs of users; that are reliable, free from bias, prudent, complete and represent faithfully the financial position, financial performance and cash flows of the entity. Basis of preparation The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. These financial statements have been prepared on the basis of a going concern and in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“adopted IFRSs”) and are in accordance with IFRS as issued by the IASB and applicable United Kingdom Law. Changes in accounting policies The following new standards, amendments to published standards and interpretations to existing standards effective in 2007 have been adopted by the Group: • IFRS 7 Financial Instruments : Disclosures and a complementary amendment to IAS 1 Presentation of Financial Statements – Capital Disclosures (effective for accounting periods beginning on or after 1 January 2007). IFRS 7 introduces new requirements aimed at improving the disclosure of information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. Where those risks are deemed to be material to the Group it requires disclosures based on the information used by key management. It replaces the disclosure requirements in IAS 32 Financial Instruments : Disclosure and Presentation and is applicable to all entities that report under IFRS. The amendment to IAS 1 introduces disclosures about the level and management of an entity’s capital. The Group has applied IFRS 7 and the amendment to IAS 1 to the accounts for the period beginning on 1 January 2007; • IFRIC 8 Scope of IFRS 2 (effective for accounting periods beginning on or after 1 May 2006). IFRIC 8 requires consideration of transactions involving the issue or grant of equity instruments to establish whether or not they fall within the scope of IFRS 2. It applies to situations where the identifiable consideration received is or appears to be less than the fair value of the equity instruments issued. There has been no impact on the accounts of the Group from the adoption of IFRIC 8; • IFRIC 9 Reassessment of embedded derivatives (effective for accounting periods beginning on or after 1 June 2006). IFRIC 9 requires an assessment of whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when an entity becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. There has been no impact on the accounts of the Group from the adoption of IFRIC 9; • IFRIC 10 Interim Financial Reporting and Impairment (effective for accounting periods beginning on or after 1 November 2006). IFRIC 10 prohibits impairment losses recognised in an interim period on goodwill and investments in equity instruments and on financial assets carried at cost to be reversed at a subsequent balance sheet date. There has been no impact on the accounts of the Group from the adoption of IFRIC 10; and 243
- 244. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 • IFRIC 11 IFRS 2 – Group and Treasury Share Transactions (effective for accounting periods beginning on or after 1 March 2007). IFRIC 11 requires share-based payment transactions in which an entity receives services as consideration for its own equity instruments to be accounted for as equity-settled. This applies regardless of whether the entity chooses or is required to buy those equity instruments from another party to satisfy its obligations to its employees under the share-based payment arrangement. It also applies regardless of whether (a) the employee’s rights to the entity’s equity instruments were granted by the entity itself or by its shareholder(s) or (b) the share-based payment arrangement was settled by the entity itself or by its shareholder(s). The provisions of IFRIC 11 have been applied to certain options granted to employees and consultants rendering services similar to employees during the year, resulting in respective amounts of £75,531 and £330,406 relating to these options being charged to the income statements and credited to reserves in the separate financial statements of the Sierra Leone and Brazilian subsidiaries of the Group and respective increases in investment in these subsidiaries and credits to reserves of £75,531 and £330,406 being reflected in the financial statements of the Company. The following new standards, amendments to published standards and interpretations to existing standards are mandatory for accounting periods beginning on or after 1 January 2007, but are not relevant to the operations of the Group: • IFRIC 7 Applying the restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economies (effective for accounting periods beginning on or after 1 March 2006). IFRIC 7 provides guidance on the application of IAS 29 requirements in a reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency, when the company was not hyperinflationary in the prior period. IFRIC 7 is not relevant to the Group as none of the Group companies has a currency of a hyperinflationary economy as its functional currency. Certain new standards, amendments to published standards and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 January 2008 or later periods and which the Group has decided not to adopt early. These are: • IFRS 8 Operating Segments (effective for accounting periods beginning on or after 1 January 2009). This standard sets out requirements for the disclosure of information about an entity’s operating segments and also about the entity’s products and services, the geographical areas in which it operates and its major customers. It replaces IAS 14 Segmental Reporting. The Group expects to apply this standard in the accounting period beginning on 1 January 2009. As this is a disclosure standard it will not have any impact on the results or net assets of the Group; • IAS 23 Borrowing Costs (revised) (effective for accounting periods beginning on or after 1 January 2009). The revised IAS 23 is still to be endorsed by the EU. The main change from the previous version is the removal of the option of immediately recognising as an expense borrowing costs that relate to qualifying assets, broadly being assets that take a substantial period of time to get ready for use or sale. The Group is currently assessing its impact on the financial statements and the preliminary assessment is that, as major capital expenditure projects to expand production are planned to be undertaken in the next five years, material amounts of interest expense are expected to be capitalised as part of the cost of items of property, plant and equipment making up such capital expenditure in accounting periods commencing on or after 1 January 2009; • IFRIC 12 Service Concession Arrangements (effective for accounting periods beginning on or after 1 January 2008). IFRIC 12 is still to be endorsed by the EU. IFRIC 12 gives guidance on the accounting by operators for public-to-private service concession arrangements. IFRIC 12 is not relevant to the Group’s operations due to absence of such arrangements; • IFRIC 13 Customer Loyalty Programmes (effective for accounting periods beginning on or after 1 July 2008). IFRIC 13 is still to be endorsed by the EU. IFRIC 13 addresses sales transactions in which the entities grant their customers award credits that, subject to meeting any further qualifying conditions, the customers can redeem in future for free or discounted goods or services. Management is currently assessing the impact of IFRIC 13 on the accounts of the Group and the preliminary assessment, which may change as circumstances change, is that the adoption thereof will have no material impact on the accounts of the Group; 244
- 245. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 • IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for accounting periods beginning on or after 1 January 2008). IFRIC 14 is still to be endorsed by the EU. IFRIC 14 clarifies when refunds or reductions in future contributions should be regarded as available in accordance with paragraph 58 of IAS 19, how a minimum funding requirement might affect the availability of reductions in future contributions and when a minimum funding requirement might give rise to a liability. Management is currently assessing the impact of IFRIC 14 on the accounts of the Group and the preliminary assessment, which may change as circumstances change, is that the adoption thereof will have no material impact on the accounts of the Group; • Revised IFRS 3 Business Combinations and complementary Amendments to IAS 27 (effective for accounting periods beginning on or after 1 July 2009). The revised standard and complementary amendments to IAS 27 are still to be endorsed by the EU. The revised IFRS 3 and amendments to IAS 27 arise from a joint project with the Financial Accounting Standards Board (FASB), the US standards setter, and result in IFRS being largely converged with the related, recently issued, US requirements. There are certain very significant changes to the requirements of IFRS, and options available, if accounting for business combinations. Management is currently assessing the impact of the revised IFRS 3 and amendments to IAS 27 on the accounts of the Group; • Amendment to IFRS 2 Share-based Payment : Vesting Conditions and Cancellations (effective for accounting periods beginning on or after 1 January 2009). This amendment is still to be endorsed by the EU. The Amendment to IFRS 2 is of particular relevance to companies that operate employee share save schemes. This is because it results in an immediate acceleration of the IFRS 2 expense that would otherwise have been recognised in future periods should an employee decide to stop contributing to the savings plan, as well as a potential revision to the fair value of the awards granted to factor in the probability of employees withdrawing from such a plan. Management is currently assessing the impact of the Amendment to IFRS 2 on the accounts of the Group; and • Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Putable Financial Instruments and Obligations Arising on Liquidation (effective for accounting periods beginning on or after 1 January 2009). Many financial instruments that would usually be considered equity allow the holder to ‘put’ the instrument (to require the issuer to redeem it for cash). Currently these financial instruments are considered liabilities, rather than equity. These amendments to IAS 32 address this issue and require entities to classify the following types of financial instruments as equity, provided they have particular features and meet specific conditions: • putable financial instruments (for example, some shares issued by co-operative entities); and • instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rate share of the net assets of the entity only on liquidation. Management is currently assessing to what extent these amendments apply to the Callable and Putable Bonds 2007/2012 in issue by the Company. Period ended 31 December 2005 The period ended 31 December 2005 comprises the period from 14 April 2005 to 31 December 2005. Restatement of comparative figures In the consolidated income statement, the comparative figures for the year ended 31 December 2006 and the period ended 31 December 2005 have been restated. Expenses of £161,838 and £89,628 previously reflected as operational expenses for the year ended 31 December 2006 and the period ended 31 December 2005 respectively are now reflected as corporate development expenses in the consolidated income statement. The charge of £847,048 for the period ended 31 December 2005 in respect of the impairment of the investment in Hammersmyth Management Limited has been included as part of administrative expenses in the consolidated income statement. 245
- 246. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Net exchange losses of £28,482 and £601 for the year ended 31 December 2006 and the period ended 31 December 2005 respectively have been reclassified from administrative expenses to finance costs in the consolidated income statement. The net effect on the loss before taxation for both the year ended 31 December 2006 and the period ended 31 December 2005 is £Nil. The effect of the reclassifications is as follows: Year to Period to 31/12/2006 31/12/2005 £ £ Administrative expenses previously reported 830,119 175,550 Add: reclassification of impairment of investments - 847,048 Less: reclassification of exchange differences to finance costs (28,482) (601) Restated administrative expenses 801,637 1,021,997 Finance costs as previously reported 110,636 110 Add: reclassification of exchange differences from administrative expenses 28,482 601 Restated finance costs 139,118 711 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue from the sale of goods is recognised when all the following conditions are satisfied: • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue from the rendering of services is recognised by reference to the stage of completion of the respective contracts for the rendering of such services. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, and is included within finance income in the income statement. Corporate development expenses Corporate development expenses comprise costs incurred to investigate and negotiate the terms of new business opportunities and arrangements and include costs related to exploration and evaluation activities incurred before legal rights to explore a specific area or evaluate a specific mineral resource have been obtained. Loss from operations Loss from operations is arrived at by including all revenues and deducting cost of sales, corporate development expenses, sales and distribution expenses and administrative expenses, while excluding finance income, finance costs and taxation. Basis of consolidation Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, that entity or business is 246
- 247. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. Business combinations The consolidated financial statements incorporate the results of business combinations using the purchase method. These results are adjusted, where appropriate, to conform to Group accounting policies. In the consolidated balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of entities or businesses acquired or disposed of are included in the Group income statement after or up to the date that control passes respectively. As a consolidated Group income statement is published, an income statement for the parent company is omitted from the Group financial statements by virtue of section 230 of the Companies Act 1985. Minority interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. The interest of minority shareholders is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Investments in subsidiaries In the parent company financial statements, investments in subsidiaries are shown at cost less allowance for any impairment. Impairment of non-financial assets (excluding inventories) Impairment tests on intangible assets and tangible assets with indefinite useful economic lives are undertaken annually on 31 December. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset’s cash-generating unit (i.e. the lowest level group of assets in which the asset belongs for which there are separately identifiable cash flows). Impairment charges are included in the administrative expenses line item in the consolidated income statement, except to the extent that they reverse gains previously recognised in the statement of changes in equity. Associates Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, that entity is classified as an associate. Associates are initially recognised in the consolidated balance sheet at cost. The Group’s share of post-acquisition profits and losses is recognised in the consolidated income statement, except that losses in excess of the Group’s investment in the associate are not recognised unless there is an obligation to make good the losses. 247
- 248. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of the unrelated investors’ interests in the associate. The investor’s share in the associate’s profits and losses resulting from these transactions is eliminated against the carrying value of the associate. Any premium paid for an associate above the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate and is subject to impairment in the same way as goodwill arising on a business combination. Foreign currencies Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the income statement. On consolidation, the results of Group entities reporting in functional currencies other than sterling in their separate financial statements are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of such entities, including goodwill arising on the acquisition of those entities, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets of such entities at opening rate and the results of these entities at actual rate are recognised directly in equity (the “foreign exchange reserve”). The relevant exchange rates per GB Pound sterling at 31 December 2007 are as follows: • US Dollars: 1.9906 (2006: 1.9659) • Brazilian Reals: 3.56102 (2006: 4.18535) • Norwegian Krone: 10.8087 • Danish Krone: 10.1521 • Canadian Dollars : 1.9646 (2006: 2.2824) • Australian Dollars: 2.26075 (2006: 2.4816) Exchange differences recognised in the income statement of Group entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the foreign entity concerned are reclassified to the foreign exchange reserve if the item is denominated in the functional currency of the Group or foreign entity concerned. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on disposal. Segment reporting A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. Financial assets The Group classifies its financial assets on the basis of the purpose for which the asset has been acquired. All of the financial assets of the Group are classified as Loans and receivables, which are non-derivative financial assets with fixed or determinable payments that are not quoted in an active 248
- 249. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 market. They arise principally through the provision of goods and services to customers, but also incorporate other types of contractual monetary asset, including other receivables and cash and cash equivalents. These assets are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost, less provision for impairment. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amount owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Cash and cash equivalents includes cash in hand and deposits held at call with banks. Financial liabilities and equity instruments issued by the Group Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. The Ordinary Shares of the Group are classified as equity instruments. The proceeds received on issue of the Group’s convertible debt are allocated into their liability and equity components in accordance with the substance of the contractual arrangement. The amount initially attributed to the liability component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that did not include an option to convert and using an estimated date of repayment where the contractual arrangement provides for a number of possible repayment dates. Subsequently, the liability component is accounted for as a financial liability measured at amortised cost. The difference between the net proceeds of the convertible debt and the amount allocated to the liability component is credited directly to equity and is not subsequently remeasured. On conversion, the liability and equity elements are credited to share capital and share premium as appropriate. Costs of issuing the convertible debt are apportioned between the liability and equity components based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly to equity. The Group classifies its financial liabilities depending upon the purpose for which the liability was incurred (see note 3 for further details). None of the financial liabilities of the Group are held for trading or are designated as at fair value through profit or loss. The financial liabilities of the Group comprise callable and putable bonds, the liability in respect of the deferred payment portion of the cost of acquisition of subsidiaries, liabilities in respect of the financing of property, plant and equipment on an instalment sale basis, trade payables and other short-term monetary liabilities as well as the liability component of convertible debt and contractual payment obligations arising in respect of the acquisition of intangible assets. 249
- 250. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method. The callable and putable bonds, the liability in respect of the deferred payment portion of the cost of acquisition of subsidiaries, liabilities in respect of the financing of property, plant and equipment on an instalment sale basis, the liability component of convertible debt and contractual payment obligations arising in respect of the acquisition of intangible assets are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument giving rise to the financial liability. These liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. “Interest expense” in this context includes initial transaction costs and premia payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Borrowing costs Borrowing costs are accrued on a time basis, based on the principal outstanding and the effective interest rate. Borrowing costs are recognised in profit or loss in the period that they are incurred. No borrowing costs are capitalised at present. Share options Where equity settled share options or similar instruments are awarded to employees or other parties providing similar services, the fair value of the options or similar instruments at the date of grant thereof is charged to the consolidated income statement over the vesting period of such options or similar instruments. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that ultimately, the cumulative amount recognised over the vesting period is based on the number of options or similar instruments that eventually vest. Market vesting conditions are factored into the fair value of the options or similar instruments granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options or similar instruments are modified before they vest, the increase in the fair value of the options or similar instruments, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period. Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received. Where equity settled share options or similar instruments of the Company are awarded by the Company to employees of a subsidiary or other parties providing similar services engaged by a subsidiary, then the fair value of the options or similar instruments are charged to the income statement of the subsidiary over the vesting period of such options or similar instruments and a corresponding increase in equity is recognised as a contribution from the Company by the subsidiary. The Company, in turn, recognises a corresponding increase in carrying value of the investment in the subsidiary. Operating lease agreements Rentals applicable to operating leases, where substantially all of the benefits and risks of ownership remain with the lessor, are charged against profits on a straight line basis over the period of the lease. Intangible assets Intangible assets consist of mining leases and options to acquire mining leases, mineral production rights and options to acquire mineral production rights, exploration licences and capitalised exploration and evaluation expenditure. 250
- 251. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Capitalised exploration and evaluation expenditure and certain costs incurred to bring mining leases to the condition necessary for such leases to be capable of operating in the manner intended by the management of the Group have been internally generated. Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. The amortisation expense is included within the administrative expenses line in the income statement. Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual or legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques. Expenditure on internally generated intangible assets is capitalised if it can be demonstrated that: • it is technically feasible to complete the intangible asset so that it will be available for use or sale; • there is an intention to complete the intangible asset and use or sell it; • the Group is able to use or sell the intangible asset; • the use or sale of the intangible asset will generate future economic benefits; • adequate resources are available to complete the development of the intangible asset and the use or sale thereof; and • expenditure on the intangible asset can be measured reliably. Expenditure on internally generated intangible assets not meeting these criteria and expenditure on the research phase of internal projects are recognised in the income statement as incurred. Amortisation is calculated so as to write off the cost of an intangible asset over the useful economic life of that asset. The useful life of mineral rights and related capitalised exploration and evaluation costs is not determined until a mining lease or mineral production right is acquired, with the useful life then being the lesser of the remaining term of such mining lease or mineral production right and the commercial production life of the site in respect of which such mining lease or mineral production right is held. Amortisation is effected on a straight line or units of production basis with effect from the date on which commercial production activities commence. Exploration and evaluation In line with IFRS 6 ‘Exploration for and Evaluation of Mineral Resources’, exploration and evaluation expenditure has been capitalised as an intangible asset. This expenditure comprises: • acquisition of rights to explore; • topographical, geological, geochemical and geophysical studies; • exploratory drilling; • trenching; • sampling; and • activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource. Capitalisation of exploration and evaluation expenditure commences on the acquisition of a right to explore a specific area or evaluate a mineral resource, either by means of the acquisition of an exploration licence or an option to a mineral right. Capitalisation ceases either on the acquisition of a mining lease or mineral production right in respect of that specific area or mineral resource or the making of a decision by management of the Group as to the technical feasibility or economic viability of conducting mining operations in that specific area or extracting the mineral resource being evaluated. Where it is decided by management of the Group that it is not technically feasible or economically viable to conduct mining operations in a specific area or to extract the mineral resource being evaluated, 251
- 252. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 then capitalised exploration and evaluation expenditure attributable to the exploration and evaluation of that specific area or mineral resource, as the case may be, capitalised up to the date of making such a decision, is written off and any further exploration and evaluation expenditure incurred in respect thereof is charged to profit or loss as and when incurred. Tangible assets used exclusively in activities in respect of the exploration for and evaluation of mineral resources are classified as property, plant and equipment. Depreciation charges reflecting the consumption of these assets in carrying out such activities are included in exploration and evaluation expenditure. Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as the purchase price thereof, cost of these items includes directly attributable costs and the estimated present value of any future costs of dismantling and removing the items. The corresponding liability is recognised within provisions. Proven and probable mineral reserves acquired by way of a business combination are initially recognised at their fair values where such fair values can be reliably determined. Other potential reserves and resources for which, in the opinion of the directors, fair values cannot be reliably determined, are not recognised. Freehold land is not depreciated. Mineral reserves are depreciated down to their residual values using the unit of production method based on proven and probable reserves. Depreciation is provided on all other items of property, plant and equipment so as to write off the carrying value of an item, less its estimated residual value, on a straight-line basis over the expected useful economic life of that item as follows: • Office equipment 3 to 5 years • Fixtures and fittings 3 to 10 years • Motor vehicles 3 to 5 years • Plant and machinery 3 to 10 years • Electrical facilities 10 years • Buildings 25 years • Refuse dams 5 years • Leasehold improvements over the remaining period of the lease The estimated useful lives, residual values and depreciation method are reassessed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Items of property, plant and equipment which are not yet in the location and condition necessary for such items to be capable of being operated for the purpose intended by management are classified as capital work in progress and are carried at cost, less any recognised impairment loss. Depreciation is only provided in respect of such items once they are in such location and condition. Capital work in progress includes costs of purchase of the item, including any import duties and non-refundable taxes, after deducting trade discounts and rebates, plus any costs directly attributable to preparing the asset for the use intended by management, but does not include an estimate of the costs of dismantling and removing the item. Examples of directly attributable costs include costs of employee benefits arising directly from the acquisition or construction of the item, costs of site preparation, initial delivery and handling costs, installation and assembly costs and professional fees. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the item and is recognised in profit or loss. 252
- 253. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs to its tax base, except for differences arising on: • the initial recognition of goodwill; • goodwill for which amortisation is not tax deductible; • the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and • investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the deferred tax asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities (assets) are settled (recovered). Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: • the same taxable Group company; or • different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost. Inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition, including an appropriate portion of fixed and variable overheads. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Provisions Provisions are recognised for liabilities of uncertain timing or amount that have arisen as a result of past transactions and are discounted at a pre-tax rate reflecting current market assessments of the time value of money and the risks specific to the liability. The only provisions recognised relate to environmental reinstatement obligations as detailed in note 21. 253
- 254. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 2. Critical accounting estimates and judgements The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: • Exploration and evaluation costs are capitalised as intangible assets and are assessed for impairment when circumstances suggest that the carrying amount may exceed the recoverable value thereof. This assessment involves judgement as to the likely future commerciality of the asset and when such commerciality should be determined as well as future revenues and costs pertaining to the utilisation of the mining lease or mineral production rights to which such capitalised costs relate and the discount rate to be applied to such future revenues and costs in order to determine a recoverable value. As at 31 December 2007, the total amount of capitalised exploration and evaluation assets amounted to £1,856,354 (as at 31 December 2006 : £700,197), details of which are set out in note 15. • While conducting an impairment review of its assets, the Group exercises judgement in making assumptions about future commodity prices, mineral reserves / resources and future development and production costs. Changes in the estimates used can result in significant charges to the income statement. Core assumptions employed in formulating the cash flows used to perform the impairment review included an Asia Standard Sinter Feed Price per dry metric ton Fe unit of between 108.16 and 120.00 US cents for the period from 2008 to 2011. The latest price announcements by Companhia Vale do Rio Doce (CVRD) indicate that the actual 2008 reference price will be slightly higher than the price used in the impairment review. The gross cash flows so derived have been discounted using an after-tax discount rate of 14%. The policy in respect of impairment of non-financial assets (excluding inventories) set out in note 1 above has been followed in conducting the impairment review. • Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on management’s estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the income statement in specific periods. More details, including carrying values, are included in notes 14 and 15. The total amount charged to the income statement for the year in respect of amortisation and depreciation was £695,774 (2006 : £1,855). The useful economic lives are set out above in the accounting policies note on property, plant and equipment. • In determining the fair value of share-based payments made during the year to employees and those parties providing services of a similar nature, a number of assumptions have been made by management. The details of these assumptions are reflected in note 29. The total charge to the income statement in respect of share-based payments for the year was £3,383,866 (2006 : £279,969). • The cost of non-current inventory acquired on the purchase by the Group of the entire issued share capital of London Mining Brasil Mineracao Ltda during the year and the related liability for deferred payment arising in respect of the purchase of that non-current inventory was determined as the present value of the expected stream of deferred payments to be made. As set out in note 20, the timing of these payments is dependent upon the occurrence of certain events and judgement was employed by management in determining the likelihood and timing of the occurrence of those events and thereby the expected timing of the payments. In addition, as further set out in note 20, judgement has been applied in determining a market-related rate of interest applicable to loans of a similar nature for use in determining the present value and the amount of the interest cost for the year to be recognised on the unwinding of the discount. 254
- 255. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 • In determining the net realisable value of, and demand for, inventory of the Group, to ensure that the recorded inventory is stated at the lower of costs or net realisable value, management take into account factors that could impact estimated demand and selling prices, including timing and success of future technological innovations, competitor actions, supplier prices and global economic trends. The total inventory of the Group amounted to £10,526,366 at 31 December 2007 (£Nil at 31 December 2006), details of which are set out in note 18. • In determining the amount of the provision for the present value of the cost of dismantling and removing property, plant and equipment and the effecting of environmental rehabilitation on cessation of mining operations, which costs are expected to be incurred an appreciable number of years into the future, it is necessary for management to exercise judgement and take into account diverse factors such as expected life of mine, type and extent of mining operations, current and anticipated environmental legislation, expected technological developments and market related interest rates in determining the amount of the provision and the amount of the discount to be unwound and charged to the income statement for the year. The amount of the provision and the amount charged to the income statement in respect of the unwinding of the discount on the provision for the year are set out in notes 21 and 10. • In accordance with IFRS, the Group recognises a provision where there is a present obligation from a past event, a transfer of economic benefits is probable and the amount of costs of the transfer can be estimated reliably. In instances where the criteria are not met, a contingent liability may be disclosed in the notes to the financial statements. Obligations arising in respect of contingent liabilities that have been disclosed, or those which are not currently recognised or disclosed in the financial statements, could have a material effect on the Group’s financial position. Application of these accounting principles in legal cases require the Group’s management to make determinations about various factual and legal matters beyond its control. The Group reviews outstanding legal cases following developments in the legal proceedings and at each balance sheet date, in order to assess the need for provisions or disclosures in its financial statements. Among the factors considered in making decisions on provisions are the nature of litigation, claim or assessment, the legal process and potential level of damages in the jurisdiction in which the litigation, claim or assessment has been brought, the progress of the case (including the progress after the date of the financial statements but before those statements are issued), the opinions or views of legal advisors, experience on similar cases and any decision of the Group’s management as to how it will respond to the litigation, claim or assessment. Details of contingent liabilities identified by management to exist at the end of the year are set out in note 34. • The Group is subject to income tax in several jurisdictions and significant judgement is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Group recognizes tax liabilities based on whether additional taxes and interest will be due. The Group believes that its accruals for tax liabilities, which are reflected in note 22 and the tax liabilities line in the balance sheet, are adequate for all open audit years based on its assessment of many factors, including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgements about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect income tax expense in the period in which such determination is made. 255
- 256. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 3. Financial instruments – Risk Management Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 1. The details of the categories of financial instruments of the Group are as follows: As at 31/12/2007 As at 31/12/2006 £ £ Financial assets: Loans and receivables – Trade receivables balances (see note 19) 445,493 - – Directors’ current accounts (see note 19) 168 1,299 – Other receivables (see note 19) 7,735 399,555 – Cash and cash equivalents 45,573,154 285,566 46,026,550 686,420 Financial liabilities measured at amortised cost: – Callable and Putable Bonds 2007/2012 (see note 20) 34,231,684 - – Deferred payment portion of acquisition cost of subsidiary (see note 20) 9,287,162 - – Instalment sale payables (see note 20) 80,537 - – Liability in respect of acquisition of mining lease (see note 20) - 1,360,700 – Convertible loan notes (see note 20) - 1,027,036 – Trade and other payables (see note 23) 3,796,649 801,652 47,396,032 3,189,388 The Group is exposed through its operations to one or more of the following risks: • Credit risk; • Fair value or cash flow interest rate risk; • Foreign exchange risk; • Liquidity risk; and • Other market price risk In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: • Trade receivables; • Cash at bank; • Trade and other payables; • Fixed rate long-term Bonds; • Fixed and floating rate instalment sale borrowings; and • Interest-free liability in respect of deferred payment portion of acquisition cost of subsidiary. 256
- 257. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Board receives regular reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales made by its Brazilian operations owned by London Mining Brasil Mineracao Ltda. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts to supply such customers. External credit agencies are consulted to determine the credit history of prospective new customers. The Group does not enter into derivatives to manage credit risk. Credit risk applicable to cash balances and other funds forming part of cash and cash equivalents is addressed by holding and investing such balances and funds with reputable banking institutions. Quantitative disclosures of the credit risk exposure in relation to trade and other receivables, which are neither past due nor impaired, are set out in note 19. The utilisation of credit limits is monitored on an ongoing basis by the management of London Mining Brasil Mineracao Ltda and at regular intervals by the Board. The total customer base of London Mining Brasil Mineracao Ltda is 14 customers, which allows for the taking of specific action, such as requiring customers to pay for loads before the effecting of delivery thereof or to pay for the previous load before delivery of the next load is effected to that customer. At the reporting date, no losses are expected from non-performance by the counterparties. Market risk Market risk arises from the Group’s use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). Fair value or cash flow interest rate risk. As the only borrowings of the Group at variable interest rates are instalment sale creditors denominated in Brazilian Reals in an amount of £56,231 at 31 December 2007 (£ Nil at 31 December 2006) which are expected to be repaid in full by 15 August 2008, the exposure of the Group to cash-flow interest rate risk is considered to be immaterial and at an acceptable level. Accordingly, no action has been taken to mitigate this risk. Fair value risk arises in the case of fixed rate interest-bearing borrowing as a result of the movement in market interest rates. As a market-related rate of interest has been used to determine the book value of the liability in respect of the deferred payment of portion of the purchase price of London Mining Brasil Mineracao Ltda, this risk has no effect on that liability. However, the fair value of the Callable and Putable Bonds 2007/2012 is affected by movements in market rates of interest for loans of a similar nature. Whereas the actual nominal rate of interest on the 257
- 258. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Bonds is 11.5%, advisors to the Group have indicated a range of rates of between 12% and 14% that would be applicable to bonds issued on similar terms on 31 December 2007. On that basis, the fair value of the Callable and Putable Bonds as at 31 December 2007 has been determined on the basis of a nominal interest rate of 13% per annum (see note 20). The sensitivity of the fair value of the Callable and Putable Bonds 2007/2012 to movements in applicable interest rates for bonds issued on similar terms is as follows: Nominal interest rate per annum Fair value Effect on profit before tax and net asset value £ £ 10% 34,071,974 (678,044) 11.5% 33,393,930 - 12.5% 32,272,271 1,121,659 13% 31,724,597 1,669,333 Foreign exchange risk Foreign exchange risk arises because the Group has operations located in parts of the world whose functional currency is not the same as the Group’s primary functional currency of sterling. Although its global market penetration reduces the Group’s operational risk, in that, it has diversified into several markets, the Group’s net assets arising from such foreign operations are exposed to currency risk resulting in gains on retranslation into sterling. Only in exceptional circumstances will the Group consider hedging its net investments in foreign operations as generally it does not consider that the reduction in foreign currency exposure warrants the cash flow risk created from such hedging techniques. Foreign exchange risk also arises when individual Group operations enter into transactions denominated in a currency other than their functional currency. The policy of the Group is, where possible, to allow Group entities to settle liabilities denominated in their functional currency (primarily Brazilian Reals and US Dollars) with the cash generated from their own operations in that currency. In the case of the funding of non-current assets such as projects to expand productive capacity entailing material levels of capital expenditure, the central Group treasury function will assist the foreign operation to obtain matching funding in the functional currency of that operation and shall provide additional funding where required. The currency in which that additional funding is provided is determined by taking into account the following factors: • the currency in which the revenue expected to be generated from the commissioning of the project will be denominated; • the degree to which the currency in which the funding provided is a currency normally used to effect business transactions in the business environment in which the foreign operation conducts business; and • the currency of any funding derived by the Company for onward funding to the foreign operation and the degree to which it is considered necessary to hedge the currency risk of the Company represented by such funding derived. 258
- 259. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The currency profile of the Group financial assets and liabilities is as follows: As at 31/12/2007 As at 31/12/2006 £ £ Financial assets: Sterling 7,141,348 320,338 US Dollars 31,916 359,198 Brazilian Reals 3,252,537 6,884 Norwegian Krone 35,600,749 - 46,026,550 686,420 Financial liabilities: Sterling 1,467,733 1,189,823 US Dollars 9,645,478 1,986,011 Brazilian Reals 1,172,565 12,889 Australian Dollars 64,528 665 Norwegian Krone 34,933,067 - Danish Krone 112,661 - 47,396,032 3,189,388 The Group is exposed to material currency risk (excluding currency risk related to retranslation of foreign operations which would be credited to the foreign exchange reserve) from the following sources: Financial liabilities Financial Net asset amount Callable and Deferred Consulting Cash Putable Bonds payment fees – balances 2007/2012 and portion of Marampa accrued acquisition lease interest thereon cost of negotiations subsidiary Currency in which denominated NOK US Dollar US Dollar NOK £ Balance at 31/12/2007 in currency in which denominated (377,533,405) (18,487,024) (500,000) 384,797,818 Translation rate at 31/12/2007 10.8087 1.9906 1.9906 10.8087 Translated sterling amount (34,928,660) (9,287,162) (251,181) 35,600,749 (8,866,254) Effect on profit before tax and net assets of appreciation in sterling of: 5% 1,663,270 442,246 11,961 (1,695,274) 422,203 10% 3,175,333 844,288 22,835 (3,236,432) 806,024 15% 4,555,912 1,211,369 32,763 (4,643,576) 1,156,468 Effect on profit before tax and net assets of depreciation in sterling of: 5% (1,838,350) (488,798) (13,220) 1,873,724 (466,644) 10% (3,880,962) (1,031,907) (27,908) 3,955,639 (985,138) 15% (6,163,881) (1,638,911) (44,326) 6,282,485 (1,564,633) The off-take agreements entered into by the Group to date provide for the making of sales by the Group on the basis of selling prices denominated in US Dollars. As and when sales are effected in terms of these agreements, currency risk will arise on the conversion of the US Dollar-denominated sales proceeds into the relevant functional currency of the Group company making the sale. As the functional currency of London Mining Company Limited is US Dollars, there will be little or no effect on the Sierra Leonean operations of the Group. The effect on the Brazilian operations may be material, however, and suitable strategies will have to be employed in future to address this risk. 259
- 260. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations. It is the policy of the Group to ensure that it will always have sufficient cash to allow it to meet its liabilities when they fall due. To achieve this aim, the Group maintains cash balances at levels considered appropriate to meet ongoing obligations. In addition, the Group has sought to reduce liquidity risk by fixing interest rates on the major part of its non-current borrowings. Cash flow is monitored on a regular basis. Projections for the next 12 months reflected in the Group working capital model indicate that the Group will have sufficient liquid resources to meet its obligations under all reasonably expected circumstances and will not need to seek further external resources. The liquidity risk of the Brazilian operations of the Group is managed by the management of these operations, with overview by the group financial controller. The provision of funding for the expansion projects of the Brazilian operations and the liquidity risk of the rest of the Group is managed centrally, with detailed funding requirement budgets being provided to the group financial controller in respect of the conduct of these operations and the expansion project capital expenditure. The spending of funds in excess of the levels set out in or for purposes other than those set out in the funding requirement budgets is not permitted. All surplus cash is currently held by the Company in order to maximise investment returns thereon. The type of cash instruments used and maturity dates thereof will depend on the Group’s forecast cash requirements. Surplus cash generated by the Brazilian operations is retained for use in funding expansion project capital expenditure. In order to minimise risk, surplus cash is not invested for periods of longer than 90 days. Other market price risk As none of the financial assets of the Group are quoted in any way, the directors are of the opinion that the exposure of the Group to market price risk is not material and is at an acceptable level. Capital disclosures Capital is defined by the Group to be the capital and reserves attributable to equity holders of the Company. The Group’s objectives when maintaining capital are: • to safeguard the ability of the entity to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and • to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the debt to equity ratio. This ratio is calculated as net debt to equity. Net debt is calculated as total debt (as shown in the balance sheet) less cash and cash equivalents. Equity comprises all components of equity attributable to equity holders of the Company. 260
- 261. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The debt to equity ratios at 31 December 2007 and 31 December 2006 were as follows: As at As at 31/12/2007 31/12/2006 £ £ Total debt 48,255,908 3,195,202 Less: Cash and cash equivalents (45,573,154) (285,566) Net debt 2,682,754 2,909,636 Total equity attributable to equity holders of the Company 55,301,060 1,354,848 Debt to equity ratio 0.05 : 1 2.15 : 1 The strengthening of the equity base of the Group during the year through raising of equity through private and public placing of Ordinary shares of the Company together with acquisition of an operating mine in Brazil during the year has fundamentally improved the debt to equity ratio of the Group. The terms of the Callable and Putable Bonds 2007/2012 provide that the Group shall maintain a ratio of equity : total assets of at least 0.35 to 1 throughout the term of the Bonds. As at 31 December 2007, the ratio of equity : total assets was 0.53 : 1. 4. Revenue Revenue arises solely from the sale by London Mining Brasil Mineracao Ltda of iron ore in lump form (“granulado”) at the mine gate, at which point ownership thereof passes to the customer. This revenue is recognised in accordance with the accounting policy in respect of revenue recognition detailed in note 1 above. 5. Loss from operations Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 Restated Restated £ £ £ Loss from operations is stated after charging (crediting): Staff costs including directors’ emoluments (see note 6) 5,665,642 538,739 78,434 Depreciation of property, plant and equipment 682,663 1,855 484 Amortisation of intangible assets 13,111 - - Impairment of intangible asset - 1,411 - Audit fees 172,656 40,630 10,000 Fees paid to auditors for non-audit services 29,994 12,000 - Operating lease costs – property 72,040 29,863 10,405 Profit on disposal of property, plant and equipment (42,817) - - Share-based payment to consultants 893,891 3,210 - The audit fees comprise fees payable for the audit of the Company of £111,030 (2006 : £34,525) and fees payable for the audit of subsidiaries of £61,626 (2006 : £6,105). Fees paid to auditors for non-audit services by the Company amounted to £12,950 (2006 : £12,000) and fees paid by subsidiaries to auditors for non-audit services amounted to £17,044 (2006 : £Nil). 261
- 262. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 6. Staff costs (including directors’ and key management personnel remuneration) Staff costs (including directors’ Year to 31/12/2007 Year to 31/12/2006 Period to and key management personnel 31/12/2005 remuneration) comprise: Group Company Group Company Group and Company £ £ £ £ £ Staff other than directors and key management personnel: Wages and salaries 858,991 98,328 25,487 25,487 - Company contribution to health schemes 15,720 527 171 171 - Share-based payment expense 43,437 3,010 3,611 3,611 - Employer’s national insurance and social security contributions 198,268 9,527 2,832 2,832 - Short-term non-monetary benefits 39,234 - - - - Total cost of staff other than directors and key management personnel 1,155,650 111,392 32,101 32,101 - Directors’ and key management personnel remuneration: Wages and salaries 1,251,719 1,156,722 92,000 92,000 26,667 Consulting fees 689,912 689,912 130,720 130,720 48,980 Company contribution to private health scheme 708 708 279 279 - Share-based payment expense 2,446,538 2,156,559 273,148 273,148 - Employer’s national insurance contributions 121,115 121,115 10,491 10,491 2,787 Total directors’ and key management personnel remuneration 4,509,992 4,125,016 506,638 506,638 78,434 Total staff costs 5,665,642 4,236,408 538,739 538,739 78,434 Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, being the directors of the Company, the chief executive of London Mining Brasil Mineracao Ltda and the group financial controller. There were 6 directors during the year (2006 : 4) and 220 employees (2006 : 1). The employee levels by department were as follows: Year to 31/12/2007 Year to 31/12/2006 Group Company Group Company Number Number Number Number Management 15 1 - - Administration 33 5 1 1 Sales 1 - - - Mining 9 - - - Processing 10 - - - Transport 31 - - - Technical 23 - - - Maintenance 23 - - - Sinter feed plant project 6 - - - Security 64 - - - Canteen 5 - - - 220 6 1 1 262
- 263. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 None of the directors are members of a company pension fund. Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 £ £ £ Emoluments of highest paid director 1,605,705 365,117 47,500 7. Segment reporting Based on risks and returns the directors consider that the primary reporting format is by business segment. The directors consider that there is only one business segment, being mining, extraction and production of iron ore. Therefore the disclosures for the primary segment have already been given in these financial statements. The secondary reporting format is by geographical analysis. The operations are based in four main geographical areas, being the UK, North America, South America and Africa. The UK is the home country of the parent company. The analysis in the table below is based on the location of the capital expenditure: Group Year to 31/12/2007 Revenue Segmental Segmental Segmental Capital Result Assets Liabilities Expenditure £ £ £ £ £ UK - (8,974,098) 42,879,526 35,505,009 20,782 North America - - 1,020,343 113,336 535,137 South America 4,697,111 1,729,880 55,202,275 11,382,810 36,866,132 Africa - (554,004) 4,454,824 387,614 1,322,319 4,697,111 (7,798,222) 103,556,968 47,388,769 38,744,370 Tax liabilities excluded - - - 867,139 - 4,697,111 (7,798,222) 103,556,968 48,255,908 38,744,370 Group Year to 31/12/2006 Revenue Segmental Segmental Segmental Capital Result Assets Liabilities Expenditure £ £ £ £ £ UK - (1,067,906) 353,098 1,188,968 6,850 North America - - 291,057 1,519 106,518 South America - (18,060) 846,763 123,211 - Africa - (6,105) 3,059,365 1,875,690 2,924,257 - (1,092,071) 4,550,283 3,189,388 3,037,625 Tax liabilities excluded - - - 5,814 - - (1,092,071) 4,550,283 3,195,202 3,037,625 Company Year to 31/12/2007 Revenue Segmental Segmental Segmental Capital Result Assets Liabilities Expenditure £ £ £ £ £ UK - (8,974,098) 42,879,526 35,505,010 20,782 North America - - 1,020,343 113,336 535,137 South America - (247,487) 37,362,450 92,594 - Africa - (159,675) 4,797,084 296,678 833,811 - (9,381,260) 86,059,403 36,007,618 1,389,730 Tax liabilities excluded - - - - - - (9,381,260) 86,059,403 36,007,618 1,389,730 263
- 264. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Company Year to 31/12/2006 Revenue Segmental Segmental Segmental Capital Result Assets Liabilities Expenditure £ £ £ £ £ UK - (1,067,906) 353,098 1,188,968 6,850 North America - - 291,057 1,519 106,518 South America - (16,059) 841,625 113,741 - Africa - - 1,699,892 508,885 971,799 - (1,083,965) 3,185,672 1,813,113 1,085,167 Tax liabilities excluded - - - 5,814 - - (1,083,965) 3,185,672 1,818,927 1,085,167 Depreciation, amortisation and impairment charges by segment are as follows: Year to 31/12/2007 Year to 31/12/2006 Group Company Group Company £ £ £ £ UK 6,120 6,120 3,266 3,266 North America 7,709 7,709 - - South America 643,503 - - - Africa 38,442 5,307 - - 695,774 19,136 3,266 3,266 264
- 265. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 8. Expenses by nature The total expenses of the Group comprise the following: Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 Restated Restated £ £ £ Share-based payments to consultants 893,891 3,210 - Share-based payments to staff, directors and key management 2,489,975 276,759 - Staff costs, excluding share-based payments 3,175,667 261,980 78,434 Costs related to investigation of possible listing 74,873 111,820 - Exploration costs not capitalised - - 89,628 Costs incurred in negotiating off-take agreements 118,477 50,018 - Consultancy fees 362,386 42,750 - Depreciation, amortisation and impairment charges 695,774 3,266 847,532 Audit fees 172,656 40,630 10,000 Fees paid to auditors for non-audit work 29,994 12,000 - Operating lease costs – property 72,040 29,863 10,405 Equipment hire 184,825 Profit on disposal of property, plant and equipment (42,817) - - Legal fees 243,816 23,456 2,974 Travelling expenses 143,584 10,545 2,283 Indirect taxes on bank transactions of Brazilian subsidiaries 132,885 - - Fuel costs 382,809 - - New venture research and development expenditure 3,840 - - Mining consumables 60,782 - - Electricity 94,132 - - Maintenance costs 395,844 - - Insurance 22,428 28,760 1,794 Changes in inventories (198,986) - - Other costs 664,347 68,418 68,575 10,173,222 963,475 1,111,625 The total expenses are disclosed in the income statement as follows: Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 £ £ £ Cost of sales 2,255,564 - - Corporate development expenses 1,478,124 161,838 89,628 Sales and distribution expenses 143,442 - - Administrative expenses 6,296,092 801,637 1,021,997 10,173,222 963,475 1,111,625 The amount in respect of share-based payments relates solely to equity settled arrangements. 265
- 266. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 9. Finance income Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 £ £ £ Interest income from cash and cash equivalents 1,166,082 10,522 3,135 Exchange differences 3,479,049 - - 4,645,131 10,522 3,135 10. Finance costs Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 Restated Restated £ £ Interest on bank overdrafts 4,039 112 110 Interest on convertible loan notes 622,964 110,524 - Interest on Callable and Putable Bonds 2007/2012 2,502,294 - - Interest on instalment sale creditors 17,120 - - Amortisation of issue costs of Callable and Putable Bonds 2007/2012 95,733 - - Total interest and issue cost amortisation calculated using effective interest method. 3,242,150 110,636 110 Unwinding of discount on deferred payment portion of MIL purchase price 335,625 - - Unwinding of discount on provision for environmental rehabilitation 30,858 - - Cost of administering Callable and Putable Bonds 2007/2012 11,956 - - Exchange differences 3,346,653 28,482 601 6,967,242 139,118 711 11. Taxation Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 £ £ £ Income tax recognised in profit or loss: Analysis of charge in year: Current tax 220,740 - - Deferred tax charge (credit) relating to origination and reversal of temporary differences 456,600 (548) - 677,340 (548) - Analysis of charge in year: Loss before taxation (7,798,222) (1,092,071) (1,109,201) Expected tax charge based on rate of corporation tax in UK of 19% (2006 : 19%) (1,481,662) (207,493) (210,748) Expenses not deductible for taxation 962,933 79,612 161,195 Tax losses carried forward 1,259,470 128,005 49,553 Exempt income (2) - - Capital allowances in excess of depreciation (99,087) - - Effect of difference between “lucro real” and “lucro presumido” basis of taxation in Brazilian subsidiary (262,285) - - Different tax rates applied in foreign jurisdictions 297,973 (672) - 677,340 (548) - 266
- 267. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 London Mining Brasil Mineracao Ltda is taxed on the “lucro presumido” basis of taxation in Brazil, in terms of which taxable income is determined by the application of legislated percentages to the turnover and gross revenue of that company. The alternative basis of determination of taxable income in Brazil is the “lucro real” basis, in terms of which taxable income is determined based on profit before taxation, adjusted for differences between tax allowances and accounting charges. Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 £ £ £ Income tax recognised directly in equity: Arising on transactions with equity participants: Initial recognition of equity component of convertible loan notes - 6,362 - 6,362 - 12. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. During the year the Group has issued warrants and options which represent dilutive potential ordinary shares. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below: Year to Year to Period to 31/12/2007 31/12/2006 31/12/2005 £ £ £ Earnings: Loss attributable to equity holders of parent (8,745,565) (1,091,515) (1,109,201) Earnings used in basic EPS (8,745,565) (1,091,515) (1,109,201) Effect of dilutive securities - - - Earnings used in diluted EPS (8,475,565) (1,091,515) (1,109,201) Weighted average number of shares : Used in basic EPS 77,058,832 49,545,196 30,448,873 Effect of dilutive securities - - - Used in diluted EPS 77,058,832 49,545,196 30,448,873 Basic and diluted EPS – pence (11.00) (2.20) (3.64) The following potential issues of Ordinary Shares which may be dilutive in future years have been excluded from the calculation of diluted earnings per share for the year as these potential issues are anti- dilutive for the year: No. of potential shares Contingently issuable (see note 24): Warrants issued in the prior year and periods prior thereto 3,808,000 Warrants and options issued during the year 11,392,500 Rights to subscribe for shares at par value awarded during the year 3,000,000 18,200,500 267
- 268. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Subsequent to 31 December 2007, 1,028,000 of the warrants issued in prior periods and 512,500 of the warrants issued during the year were exercised. 13. Dividends No dividends have been proposed or paid during the year. 14. Property, plant and equipment Group Mineral Freehold land Industrial Office Capital Total Reserves and leasehold buildings, equipment work in improvements plant and and progress machinery furniture and motor vehicles £ £ £ £ £ £ Cost As at 01/01/2006 - - - 3,069 - 3,069 Additions - - - 8,261 154,007 162,268 As at 31/12/2006 - - - 11,330 154,007 165,337 Additions - 57,053 361,724 106,921 2,299,099 2,824,797 Acquired through business combinations 32,748,854 468,755 860,837 5,721 223,105 34,307,272 Disposals - - (18,490) (1,070) - (19,560) Transfers - - 215,448 (215,448) - Net exchange differences 4,035,534 62,150 126,657 6,087 90,160 4,320,588 As at 31/12/2007 36,784,388 587,958 1,546,176 128,989 2,550,923 41,598,434 Depreciation As at 01/01/2006 - - - 484 - 484 Charge for the year - - - 1,855 - 1,855 As at 31/12/2006 - - - 2,339 - 2,339 Charge for the year 445,789 1,153 221,236 14,485 - 682,663 Disposals - - (18,490) (619) - (19,109) Net exchange differences 25,289 29 12,846 284 - 38,448 As at 31/12/2007 471,078 1,182 215,592 16,489 - 704,341 Net carrying value As at 01/01/2006 - - - 2,585 - 2,585 As at 31/12/2006 - - - 8,991 154,007 162,998 As at 31/12/2007 36,313,310 586,776 1,330,584 112,500 2,550,923 40,894,093 268
- 269. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Company Mineral Freehold land Industrial Office Capital Total Reserves and leasehold buildings, equipment work in improvements plant and and progress machinery furniture and motor vehicles £ £ £ £ £ £ Cost As at 01/01/2006 - - - 3,069 - 3,069 Additions - - - 8,261 154,007 162,268 As at 31/12/2006 - - - 11,330 154,007 165,337 Additions - - 30,742 20,782 92,507 144,031 Disposals - - - (1,070) - (1,070) Transfers - - 92,507 (92,507 - Transfer to subsidiary - - - - (104,057) (104,057 As at 31/12/2007 - - 123,249 31,042 49,950 204,241 Depreciation As at 01/01/2006 - - - 484 - 484 Charge for the year - - - 1,855 - 1,855 As at 31/12/2006 - - - 2,339 - 2,339 Charge for the year - - 13,016 6,120 - 19,136 Disposals - - - (619) - (619) As at 31/12/2007 - - 13,016 7,840 - 20,856 Net carrying value As at 01/01/2006 - - - 2,585 - 2,585 As at 31/12/2006 - - - 8,991 154,007 162,998 As at 31/12/2007 - - 110,233 23,202 49,950 183,385 The Group capital work in progress balance at 31 December 2007 represents the costs incurred to date in the construction of a sinter feed plant and supporting infrastructure by London Mining Brasil Mineracao Ltda as well as costs incurred by London Mining Company Limited in redeveloping the infrastructure at the Marampa mine in Sierra Leone. The Company capital work in progress figure represents the costs of pumps forming part of the cost of redevelopment of the Marampa mine, which have not yet been delivered to the mine site. The sinter feed plant is expected to commence production in June 2008 whereas mining and processing activities are planned to commence at the Marampa mine in January 2009. The first fixed charge which was passed on 20 December 2006 over all the property, plant and equipment owned by the Group or held by it in terms of any lease or hire purchase arrangements as security for the performance of its obligations in respect of secured convertible loan notes was extinguished on the repayment of these loan notes on 1 May 2007. Motor vehicles with a carrying value of £296,309 (2006 : £Nil) constitute security for the performance by the Group of its obligations in respect of instalment sale credit agreements. 269
- 270. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Property, plant and equipment with a net carrying value of £40,177,978 (2006 : £Nil) constitute security for the performance by the Group in terms of its obligations in respect of the Callable and Putable Bonds 2007/2012, comprising the following: Net carrying value £ Mineral reserves 36,313,310 Freehold land and leasehold improvements 586,776 Industrial buildings, plant and machinery and motor vehicles 757,891 Office equipment and furniture 63,752 Capital work in progress 2,456,249 40,177,978 15. Intangible assets Group Licences and Mineral Website Total options rights and development exploration and evaluation costs £ £ £ £ Cost As at 01/01/2006 122,754 184,539 1,411 308,704 Additions - 2,963,967 - 2,963,967 Reclassification (122,754) 122,754 - - Impairment - - (1,411) (1,411) Net foreign currency exchange differences - (87,199) - (87,199) As at 31/12/2006 - 3,184,061 - 3,184,061 Additions - 1,563,702 - 1,563,702 Acquired through business combinations - 48,599 - 48,599 Net exchange differences - (16,197) - (16,197) As at 31/12/2007 - 4,780,165 - 4,780,165 Amortisation As at 01/01/2006 - - - - Charge for the year - - - - As at 31/12/2006 - - - - Charge for the year - 13,111 - 13,111 Net exchange differences - 334 - 334 As at 31/12/2007 - 13,445 - 13,445 Net carrying value As at 01/01/2006 122,754 184,539 1,411 308,704 As at 31/12/2006 - 3,184,061 - 3,184,061 As at 31/12/2007 - 4,766,720 - 4,766,720 270
- 271. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Company Licences and Mineral Website Total options rights and development exploration and evaluation costs £ £ £ £ Cost As at 01/01/2006 122,754 184,539 1,411 308,704 Additions - 1,100,634 - 1,100,634 Reclassification (122,754) 122,754 - - Impairment - - (1,411) (1,411) Transfer to subsidiary - (176,324) - (176,324) As at 31/12/2006 - 1,231,603 - 1,231,603 Additions - 1,245,699 - 1,245,699 As at 31/12/2007 - 2,477,302 - 2,477,302 Amortisation As at 01/01/2006 - - - - Charge for the year - - - - As at 31/12/2006 - - - - Charge for the year - - - - As at 31/12/2007 - - - - Net carrying value As at 01/01/ 2006 122,754 184,539 1,411 308,704 As at 31/12/2006 - 1,231,603 - 1,231,603 As at 31/12/2007 - 2,477,302 - 2,477,302 Mineral rights includes an amount of £2,868,919 (31 December 2006 : £2,483,864) representing the carrying value of the mining lease in respect of the Marampa iron ore mine in Sierra Leone acquired by the Group on 15 September 2006. The mining lease is held by London Mining Company Limited and expires on 31 January 2030, but may be renewed for further periods as agreed between the Group and the Government of Sierra Leone. Exploration and evaluation costs represents exploration and evaluation expenditure capitalised in line with IFRS 6. The exploration and evaluation expenditure is attributable to geographic regions as follows: North Africa Total America £ £ £ As at 01/01/2006 184,539 - 184,539 Additions 106,518 409,140 515,658 As at 31/12/2006 291,057 409,140 700,197 Additions 442,630 711,791 1,154,421 Net exchange differences - 1,736 1,736 As at 31/12/2007 733,687 1,122,667 1,856,354 The mining lease in respect of the Marampa iron ore mine was acquired on a deferred payment basis, with the vendors thereof having a right of reassignment of the lease until the payment of an amount of 2,675,000 US Dollars on 28 February 2007. The right of reassignment over the Marampa mining lease was extinguished on the making of the requisite payment on 28 February 2007. The Group has 271
- 272. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 contracted capital commitments to make further payments totalling 4,300,000 US Dollars (2006 : 4,300,000 US Dollars) in respect of the Marampa mining lease, contingent upon the occurrence of certain events, as described in note 33. The first legal mortgage passed over the mining lease in respect of the Marampa iron ore mine and the exploration licence in respect of the Isua magnetite iron ore project in Greenland, which included all of the mineral rights and exploration and evaluation costs, and the first fixed charge passed over the intellectual property rights of the Group as security for the performance of the obligations of the Group in respect of secured convertible loan notes outstanding were extinguished on the repayment of these loan notes on 1 May 2007. Mineral rights with a net carrying value of £41,447 (2006 : £Nil) constitute security for the performance by the Group in terms of its obligations in respect of the Callable and Putable Bonds 2007/2012. As set out in note 2, an impairment review of the intangible assets has been conducted as at 31 December 2007, incorporating certain core assumptions about production commencement dates and product revenues and costs. 16. Investments in subsidiaries As at 31 December 2007, the Group comprised the Company and the following directly held subsidiaries: Proportion of Country of Principal activity ownership interest at: incorporation 31/12/2007 31/12/2006 Hammersmyth Management Ltd 100% 100% Canada Dormant London Mining Company Limited 100% 100% Sierra Leone Mining London Mining Participacoes Ltda 100% 99.59% Brazil Investment holding company London Mining Trustee Ltd United 100% - Kingdom Investment holding company The Company increased its holding in London Mining Participacoes Ltda to a level of 99.7% in January 2007. On 5 April 2007, London Mining Participacoes Ltda became a wholly-owned subsidiary of the Company on the acquisition of the remaining shareholding of 0.3%, following the transfer of these shares to Mr DG Hossie, a director of the Company. Mr Hossie now holds these shares in trust on behalf of the Company. Brazilian legislation requires that shareholders of companies registered in Brazil shall be registered as taxpayers in that country. The registration of Mr Hossie as a Brazilian taxpayer was effected on 22 February 2007. The carrying value of investments in subsidiaries as well as Group companies which are not directly held subsidiaries of the Company as at 31 December 2007 are as follows: As at As at 31/12/2007 31/12/2006 Company £ £ London Mining Company Limited 930,393 279,973 London Mining Participacoes Ltda 20,178,755 60,000 London Mining Trustee Ltd 1 - 21,109,149 339,973 Amounts capitalised in respect of investment of Group in London Mining Brasil Mineracao Ltda 1,914,668 - 23,023,817 339,973 272
- 273. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 As described in note 31, the Group, via London Mining Participacoes Ltda acquired the entire issued share capital of London Mining Brasil Mineracao Ltda on 3 May 2007. The amounts capitalised in respect of the investment of the Group in London Mining Brasil Mineracao Ltda represent 700,000 US Dollars of the purchase price payable for that company prepaid by the Company on behalf of London Mining Participacoes Ltda as well as costs incurred by the Company directly related to the acquisition. The Company is precluded by Brazilian foreign exchange regulations from charging these amounts to London Mining Participacoes Ltda. On 31 December 2007, the Company agreed to convert £574,889 (2006 : £257,453) of the amount owing by London Mining Company Limited at that date to ordinary shares in that company. Amounts of £75,531 and £330,406 in respect of share-based payments are respectively included in terms of IFRIC 11 in the investment in London Mining Company Limited and the amounts capitalised in respect of the investment of the Group in London Mining Brasil Mineracao Ltda. The amounts owing by subsidiaries and Group companies as at 31 December 2007 are as follows: As at As at 31/12/2007 31/12/2006 Company £ £ Non-current: London Mining Brasil Mineracao Ltda 1,890,000 - 1,890,000 - Current: London Mining Company Limited 2,047,690 313,124 London Mining Participacoes Ltda 13,379,027 - 15,426,717 313,124 17,316,717 313,124 The amount owing by London Mining Company Limited represents short-term funding repayable on demand, subject to that company being able to meet its obligations as they fall due and the total assets of that company, fairly valued, exceeding its total liabilities. The loan to London Mining Participacoes Ltda is non-interest bearing and comprises an amount of 25 million US Dollars (£12,559,027) payable on 27 April 2008, which repayment date may be deferred by the mutual consent of the parties for additional periods of six months and an amount of £820,000 repayable on 5 February 2008. The Company has consented to the deferral of the repayment of the amount of £820,000 to a date to be determined by the Company, at its discretion. The loan to London Mining Brasil Mineracao Ltda represents funding provided for the capital expenditure programme in respect of the sinter feed plant and supporting infrastructure and is non-interest bearing. The loan shall be repaid, at the discretion of the Company, at any time between 30 October 2008 and 29 October 2009, or repayment may be postponed by mutual consent of the parties for additional periods of six months. The first fixed charge which was passed on 20 December 2006 over all investments held by the Company and any amounts due to the Company by subsidiaries as security for the performance of its obligations in respect of secured convertible loan notes was extinguished on the repayment of these loan notes on 1 May 2007. As set out in note 20, all of the shares held by the Company in London Mining Participacoes Ltda and all balances owing to the Company by London Mining Participacoes Ltda and subsidiaries of that company as well as all of the shares in London Mining Brasil Mineracao Ltda held by London Mining Participacoes Ltda have been pledged as security for the performance by the Company of its obligations in respect of the Callable and Putable Bonds 2007/2012. 273
- 274. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The carrying values of the amounts owing by subsidiaries and Group companies are denominated in the following currencies: As at As at 31/12/2007 31/12/2006 Company £ £ Pound sterling 2,710,000 - US Dollar 14,606,717 313,124 17,316,717 313,124 17. Investment in associate As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Investment in Anglo Mexican Mining Ltd 201,859 201,859 - - 201,859 201,859 - - With effect from 1 July 2007, the Company acquired a 49% holding in Anglo Mexican Mining Ltd (“ANMEX”), a company registered in the British Virgin Islands which controls a group holding exploration and mining rights in respect of an iron ore deposit in Mexico. In terms of an investment agreement entered into between ANMEX and the Company, ANMEX was to provide the Company with a final mining plan in respect of the mining of the Mexican iron ore deposit by 28 December 2007. By mutual agreement, this date has been extended to the end of April 2008, which represents a further extension to the date of the end of March 2008 previously reported in the unaudited condensed fourth quarter interim and preliminary annual financial statements of the Group for the year ended 31 December 2007. The Company shall have a period of 60 days from receipt of the final mining plan to make changes thereto and, within its sole discretion, to provide 49% of funding via equity and 51% of funding via loan in an amount of up to 7 million US Dollars for the bringing into production of the iron ore deposit. If such funding is not provided by the Company, the equity holding of the Company in ANMEX will be reduced from 49% to 5%. The post-acquisition share of the income of ANMEX is £Nil. There has been no movement in the fair value of the investment since acquisition and accordingly no amount has been recognised in this regard in the income statement. The assets and liabilities of ANMEX as at 31 December 2007 are as follows: £ Assets 199,215 Liabilities - Net asset value 199,215 The assets primarily comprise capitalised exploration and evaluation costs and cash and cash equivalents. As the holding of the Company in ANMEX represents 49% of the issued ordinary share capital of that company, the goodwill component of the investment in that company as at 31 December 2007 amounts to £104,243 (31 December 2006: £Nil). 274
- 275. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 18. Inventories As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Non-current: Ore tailings / ore stockpiles 10,266,569 - - - 10,266,569 - - - Current: Consumables 154,632 - - - Finished goods 105,165 - - - 259,797 - - - 10,526,366 - - - 19. Receivables As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Non-current: Prepayments 3,835 - - - Other receivables 111,345 - - - 115,180 - - - Current: Trade receivables balances 445,493 - - - Directors’ current accounts 168 168 1,299 1,299 Prepayments 166,081 43,651 872,875 814,621 Other receivables 867,854 75,023 43,484 43,133 1,479,596 118,842 917,658 859,053 1,594,776 118,842 917,658 859,053 Non-current assets includes an amount of £86,367 (2006 : £Nil) in respect of input taxes on property, plant and equipment acquired by London Mining Brasil Mineracao Ltda which is claimable over a period of 48 months in equal monthly instalments from the date of making the capital expenditure. The directors’ current accounts represent amounts withdrawn from the company by directors. The largest amount outstanding during the year was £9,809 (2006 : £3,196) and by the date of signing the financial statements, all amounts had been repaid. Pursuant to the acquisition of the entire issued share capital of London Mining Brasil Mineracao Ltda (previously named Minas Itatiaiucu Ltda) on 3 May 2007, an amount of £356,071 (700,000 US Dollars) paid in respect of the exclusive right to acquire that company (and which was accepted as a prepayment of the purchase price payable for the acquisition) and an amount of £473,808 of costs incurred in respect of the negotiation of the MIL acquisition agreement which were both included in prepayments at 31 December 2006 were reallocated to the cost of the acquisition. Other receivables includes an amount of £134 (2006 : £156) owing in respect of shares allotted, called up but not yet paid. An amount of £637,951 (2,271,758 Brazilian Reals) (2006 : £Nil) in respect of advances to contractors constructing the sinter feed plant is included in other receivables. These advances have been made for mobilisation purposes and repayment thereof is secured by guarantees from financial institutions. 275
- 276. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The trade receivables balances at 31 December 2007 have all arisen from the sale of finished goods by London Mining Brasil Mineracao Ltda to customers. On the acquisition of that company on 3 May 2007, a provision for doubtful debts amounting to 229,368 Brazilian Reals (£57,010) was in place. During the year, trade receivables balances with a gross carrying value of £57,010 were written off against this provision. No further charges in respect of impairment of trade receivables balances have been recognised during the year and the provision balance at 31 December 2007 is £Nil. All of the trade receivables balances at 31 December 2007 are expected to be collected by the end of the first quarter of 2008. The average days credit sales in trade receivables at 31 December 2007 (determined using the exhaust method) amounted to 27.9 days, with individual trade receivables balance days ranging from 18.9 days to 36.8 days at that date. The trade receivables balance represents six customers of a total base of 14 customers. One customer, whose balance outstanding at 31 December 2007 is £Nil, is currently operating on the basis of paying in advance for supplies, and another customer, whose balance outstanding at 31 December 2007 is similarly £Nil, operates on the basis of being supplied with a load once payment has been made for the previous load. There are no receivables which are past due at 31 December 2007. The carrying values of the receivables are denominated in the following currencies: As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Pound sterling 118,842 118,842 502,982 502,982 Brazilian Real 1,353,131 - 58,493 - US Dollar 122,803 - 356,183 356,071 1,594,776 118,842 917,658 859,053 Receivables with a carrying value of £1,353,131 (2006 : £Nil) constitute security for the performance by the Group of its obligations in respect of the Callable and Putable Bonds 2007/2012. The first fixed charge which was passed on 20 December 2006 over all the receivables of the Group as security for the performance of its obligations in respect of secured convertible loan notes was extinguished on the repayment of these loan notes on 1 May 2007. Financial assets classified as loans and receivables included in receivables are as follows: As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Current: Trade receivables balances 445,493 - - - Directors’ current accounts 168 168 1,299 1,299 Other receivables 7,735 7,473 399,555 399,204 453,396 7,641 400,854 400,503 The carrying values of these loans and receivables are denominated in the following currencies: As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Pound sterling 7,641 7,641 44,432 44,432 Brazilian Real 445,493 - 239 - US Dollar 262 - 356,183 356,071 453,396 7,641 400,854 400,503 276
- 277. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The fair values of receivables as at 31 December 2007 are considered by the directors to be the same as the carrying values thereof. 20. Borrowings As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Current: Secured convertible loan notes - - 1,027,036 1,027,036 Liability in respect of acquisition of mining lease - - 1,360,700 - Deferred payment portion of MIL purchase price 1,436,729 - - - Instalment sale creditors 80,537 - - - 1,517,266 - 2,387,736 1,027,036 Non-current: Callable and Putable Bonds 2007/2012 33,393,930 33,393,930 - - Deferred payment portion of MIL purchase price 7,850,433 - - - 41,244,363 33,393,930 - - 42,761,629 33,393,930 2,387,736 1,027,036 The Callable and Putable Bonds 2007/2012 (the “Bonds”) comprise 740 bonds of 500,000 Norwegian Krone (NOK) each issued on 26 April 2007, representing an aggregate indebtedness of NOK 370,000,000. The Bonds carry a fixed coupon rate of 11.5% per annum payable quarterly in arrears, with the due interest dates being 26 January, 26 April, 26 July and 26 October of each year. Accrued interest of NOK 7,533,405 (£696,976) on the Bonds is included in trade and other payables at 31 December 2007. The maturity date of the Bonds is 26 April 2012, with no instalments being payable between now and that maturity date. The Company does, however, have a call option allowing for early redemption of part or all of the Bonds, with the following rights: • the option to redeem at any time from the date of issuing of the Bonds to 25 April 2009 at 110% of par plus accrued interest on the redeemed amount; • the option to redeem at any time from 26 April 2009 to 25 April 2010 at 108% of par plus accrued interest on the redeemed amount; • the option to redeem at any time from 26 April 2010 to 25 April 2011 at 105.5% of par plus accrued interest on the redeemed amount; and • the option to redeem at any time between 26 April 2011 and 25 April 2012 at 103% of par plus accrued interest on the redeemed amount. The holders of the Bonds (the “Bondholders”) have a put option conferring upon them the following rights: • where London Mining Participacoes Ltda (“LMP”) sells part of its shares in London Mining Brasil Mineracao Ltda (“MIL”), up to that level which represents 50% of the equity of MIL, at any time before 26 April 2008, then each Bondholder shall have the right to sell its Bonds to the Company pro rata at a price equal to 105% of the par value plus accrued interest and expenses; • where LMP sells part of its shares in MIL, up to that level which represents 50% of the equity of MIL, at any time after 25 April 2008, then each Bondholder shall have the right to sell its Bonds to the Company pro rata at the same redemption price that would be payable by the Company on exercising its call option rights; and 277
- 278. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 • where LMP decreases its ownership interest in MIL to a level below 50% of the equity of that company at any time during the term of the Bonds, each Bondholder shall have the right to sell its Bonds to the Company at the same redemption price that would be payable by the Company on exercising its call option rights. The proceeds from the issue of the Bonds have been used to redeem the 950,000 secured convertible loan notes in issue by the Group as at 31 December 2006 and for partly financing the acquisition by the Group of the entire issued share capital of MIL. The balance of the proceeds, being NOK 174,628,419 (£16,156,283) at 31 December 2007, is held in a defined Escrow account and may only be used for the purposes of funding capital expenditure in MIL. The security for the obligations of the Company in respect of the Bonds comprises the following: • a first priority pledge of the balance of Bond proceeds funds held on the defined Escrow account; • a first priority pledge of the funds held on the MIL Escrow account, this account being an account held by the Company into which all dividends received from LMP shall be paid; • a first priority pledge over all of the present shares in LMP held by the Company and shares to be issued by LMP in the future (with the Company being obliged not to reduce its interest in LMP below 100% during the term of the Bonds); • a first priority pledge granted by LMP over all of the present shares in MIL held by LMP and all future shares to be issued by MIL; • an on-demand guarantee of NOK 370,000,000 granted by MIL in favour of the trustee appointed to administer the Bonds, on behalf of the Bondholders, which shall become enforceable where an event of default has occurred in respect of the Bonds; • a first priority charge granted by each of the Company, LMP and MIL over all inter-company receivables arising between the Company, LMP and MIL; and • a negative pledge in terms of which the Company undertakes to ensure that, while the Bonds are outstanding, LMP and its subsidiaries shall not create or permit to subsist any mortgage, charge, pledge, lien or any other form of encumbrance upon any present or future assets and shares (excluding any contractors’ retention rights to goods and equipment sold to LMP or its subsidiaries and any lien arising by operation of law or in the ordinary course of business). The deferred payment portion of the MIL purchase price comprises sixteen payments of 1.5 million US Dollars each payable on 30 June and 31 December of each year subsequent to the occurrence of the earlier of the commencement of sales of fines of iron ore from the fines stockpiles situated at MIL, the beginning of operation of a logistic connection enabling the transportation of ore from MIL to a point where it can be loaded on railway trucks in quantities equal to or exceeding one million tonnes per annum and the fourth anniversary of the date of acquisition. An effective annual discount rate of 6.60% (2006 : Nil%) has been used to determine the carrying value of the liability. This rate is based on the Brazilian long-term interest rate (TJLP) of 6.25% per annum, adjusted for risk and the making of payments on a six monthly basis. The instalment sale creditors represent indebtedness in terms of instalment sale agreements in respect of trucks used for mining operations and is denominated in Brazilian Reals. Of the instalment sales creditors, an agreement with an amount outstanding at 31 December 2007 of £24,306 (2006 : £Nil) bears interest at a fixed rate of 16.49% per annum and agreements with an aggregate balance outstanding at 31 December 2007 of £56,231 (2006 : £Nil) bear interest at a floating rate of TJLP (the Brazilian Long Term Rate) + 5%, which translates to an effective rate of 11.25% per annum. The final instalments due in terms of these agreements fall due on 16 April 2008, 30 May 2008 and 13 August 2008. 278
- 279. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The movements in borrowings during the comparative periods were as follows: Year to 31/12/2007 Year to 31/12/2006 Group Company Group Company £ £ £ £ Opening balance 2,387,736 1,027,036 - - Issue of 300,000 secured convertible loan notes - - 300,000 300,000 Issue of 650,000 secured convertible loan notes - - 616,512 616,512 Raising of liability on acquisition of mining lease - - 1,360,700 - Issue of 3,000,000 secured convertible loan notes 3,000,000 3,000,000 - - Settlement of liability in respect of acquisition of mining lease (1,360,700) - - - Recognition of imputed interest on convertible loan notes 622,964 622,964 110,524 110,524 Redemption of convertible loan notes (1,650,000) (1,650,000) - - Conversion of convertible loan notes (3,000,000) (3,000,000) - - Net proceeds of issue of Callable and Putable Bonds 2007/2012 30,133,470 30,133,470 - - Recognition of issue costs on Callable and Putable Bonds 2007/2012 95,733 95,733 - - Raising of deferred payment portion of MIL purchase price 8,943,044 - - - Unwinding of discount on deferred payment portion of MIL purchase price 335,625 - - - Instalment sale creditor assumed on business combination 142,985 - - - Interest recognised on instalment sale creditors 17,120 - - - Repayments of instalment sale creditors (92,130) - - - Net exchange differences 3,185,782 3,164,727 - - Closing balance 42,761,629 33,393,930 2,387,736 1,027,036 The Company issued 3,000,000 secured convertible loan notes on 5 February 2007, which were converted into 7,500,000 Ordinary Shares on 30 April 2007. On 1 May 2007, the Company repaid in cash all of the convertible loan notes which were outstanding at 31 December 2006. Accordingly, the charges and mortgages passed over the assets of the Group to secure its obligations in respect of the secured convertible loan notes were extinguished. On 28 February 2007, the Group paid the amount of 2,675,000 US Dollars due for the acquisition of the mining lease in respect of the Marampa iron ore mine in Sierra Leone, resulting in the right of reassignment held by the vendor of the mining lease being extinguished. The deed of assignment in terms of which the mining lease was acquired provides for the making of further payments of 1,400,000 US Dollars on 31 December 2007 and 2,900,000 US Dollars on 31 July 2009. The obligation of the Group to make these payments is conditional upon the occurrence of certain events and these amounts have been reflected as contracted capital commitments. Details of the conditions applicable to the making of these payments are set out in note 33. On 26 April 2007, the Callable and Putable Bonds 2007/2012 were issued and on 3 May 2007, the Group incurred a liability to make deferred payment for part of the purchase price payable for the acquisition of MIL. 279
- 280. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 As the prepaid unamortised bond issue costs deducted from the face value of the Callable and Putable Bonds 2007/2012 of NOK 9,977,408 (£837,754) is effectively a prepaid expense and therefore does not fit the definition of a financial instrument, the financial liabilities portion of borrowings is determined as follows: As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ As at 31 December 42,761,629 33,393,930 2,387,736 1,027,036 Add back: unamortised prepaid issue costs 837,754 837,754 - - 43,599,383 34,231,684 2,387,736 1,027,036 The maturity analysis of the financial liabilities portion of borrowings is as follows: As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Not later than 1 month 15,882 - - - Later than 1 month and not later than 3 months 31,764 - 1,360,700 - Later than 3 months and not later than 6 months 759,399 - 1,027,036 1,027,036 Later than 6 months and not later than 12 months 710,221 - - - Later than 1 year and not later than 5 years 39,141,728 34,231,684 - - After more than 5 years 2,940,389 - - 43,599,383 34,231,684 2,387,736 1,027,036 The carrying values of the financial liabilities portion of borrowings are denominated in the following currencies: As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Pound sterling - - 1,027,036 1,027,036 Brazilian Real 80,537 - - - Norwegian Krone 34,231,684 34,231,684 - - US Dollar 9,287,162 - 1,360,700 - 43,599,383 34,231,684 2,387,736 1,027,036 The exchange risk attributable to the NOK-denominated Callable and Putable Bonds 2007/2012 has been addressed by the holding of NOK-denominated cash and cash equivalents balances, with the respective balances at 31 December 2007 being as follows: Group Company NOK £ NOK £ Callable and Putable Bonds 2007/2012 370,000,000 34,231,684 370,000,000 34,231,684 Accrued interest balance 7,533,405 696,976 7,533,405 696,976 377,533,405 34,928,660 377,533,405 34,928,660 Cash and cash equivalents 384,797,818 35,600,749 384,797,818 35,600,749 384,797,818 35,600,749 384,797,818 35,600,749 280
- 281. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 All exchange differences on these NOK-denominated balances are charged to profit or loss. The book value and fair value of loans and borrowings are as follows: Group As at 31/12/2007 As at 31/12/2006 Book value Fair value Book value Fair value £ £ £ £ Current: Secured convertible loan notes - - 1,027,036 1,027,036 Liability in respect of acquisition of mining lease - - 1,360,700 1,360,700 Deferred payment portion of MIL purchase price 1,436,729 1,436,729 - - Instalment sale creditors 80,537 80,537 - - 1,517,266 1,517,266 2,387,736 2,387,736 Non-current: Callable and Putable Bonds 2007/2012 33,393,930 31,724,597 - - Deferred payment portion of MIL purchase price 7,850,433 7,850,443 - - 41,244,363 39,575,040 - - 42,761,629 41,092,306 2,387,736 2,387,736 Company As at 31/12/2007 As at 31/12/2006 Book value Fair value Book value Fair value £ £ £ £ Current: Secured convertible loan notes - - 1,027,036 1,027,036 - - 1,027,036 1,027,036 Non-current: Callable and Putable Bonds 2007/2012 33,393,930 31,724,597 - - 33,393,930 31,724,597 - - 33,393,930 31,724,597 1,027,036 1,027,036 The fair value of the Callable and Putable Bonds 2007/2012 as at 31 December 2007 has been determined using a nominal rate of 13% per annum, which is the indicative rate provided by the advisors of the Group were the Callable and Putable Bonds 2007/2012 to have been issued on that date. The book value of the deferred payment portion of MIL purchase price is considered by the directors to approximate to the fair value thereof as at 31 December 2007 as the book value has been determined using an effective annual interest rate of 6.60%, which is considered to be a market rate for similar debt. 21. Provisions As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Provision for environmental rehabilitation 830,491 - - - 830,491 - - - The provisions balance at 31 December 2007 solely represents the estimated cost of dismantling plant and machinery, buildings and other permanent structures and the costs of rehabilitating the mine site in accordance with current applicable legislation at the London Mining Brasil Mineracao Ltda operations. 281
- 282. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The movements on this provision for the year are as follows: Year to 31/12/2007 Group Company £ £ As at 01/01/2007 - - Acquired through business combinations 707,264 - Unwinding of discount 30,858 - Net exchange differences 92,369 - As at 31/12/2007 830,491 - 22. Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using the respective tax rates applicable to the tax jurisdictions in which the temporary differences originate or reverse. The movements in the deferred tax liability for the current and prior year, by source of deferred tax are as follows: Group Equity Unrealised Accelerated Recognition Total component of foreign capital of convertible exchange allowances inventory loan notes gains balance £ £ £ £ £ As at 01/01/2006 - - - - - Charged (credited) to income (548) - - - (548) Charged (credited) to reserves 6,362 - - - 6,362 As at 31/12/2006 5,814 - - - 5,814 Arising on business combinations - - 58,475 - 58,475 Charged (credited) to income (5,814) 400,157 7,390 54,867 456,600 Net exchange differences - 28,481 7,653 1,397 37,531 As at 31/12/2007 - 428,638 73,518 56,264 558,420 Company Equity Unrealised Accelerated Recognition Total component of foreign capital of convertible exchange allowances inventory loan notes gains balance £ £ £ £ £ As at 01/01/2006 - - - - - Charged (credited) to income (548) - - - (548) Charged (credited) to reserves 6,362 - - - 6,362 As at 31/12/2006 5,814 - - - 5,814 Charged (credited) to income (5,814) - - - (5,814) As at 31/12/2007 - - - - - Deferred tax assets are only recognised in relation to tax losses and other temporary differences which would give rise to deferred tax assets (deductible temporary differences) where it is considered probable that these assets will be utilised in the foreseeable future. 282
- 283. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 No deferred tax is recognised on the unremitted earnings of foreign subsidiaries. As the earnings are continually reinvested by the Group and there is no intention for these entities to pay dividends, no tax is expected to be payable on them in the foreseeable future. If the earnings were remitted, tax of £248,019 (2006 : £Nil) would be payable, arising from temporary differences of £1,305,363 (2006 : £Nil). A deferred tax asset has not been recognised for the following: As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Unused tax losses 1,437,028 1,217,644 177,558 175,346 Deductible temporary differences 224,846 224,846 4,560 4,560 1,661,874 1,442,490 182,118 179,906 There is no limit on the carry forward of the unused tax losses or the deductible temporary differences. 23. Trade and other payables As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Trade payables 954,716 200,908 159,844 151,323 Other taxation and social security 406,933 18,249 7,732 7,188 Accruals 2,435,000 2,394,531 634,076 627,566 3,796,649 2,613,688 801,652 786,077 Accruals includes fees in an amount of £251,181 (500,000 US Dollars) due to a consultant for services rendered in negotiating the acquisition of the mining lease in respect of the Marampa iron ore mine in Sierra Leone as well as an amount of £696,976 (NOK 7,533,405) in respect of accrued interest payable on the Callable and Putable Bonds 2007/2012. All of the trade and other payables are classified as financial liabilities carried at amortised costs and are expected to be paid within the next three months. To the extent trade and other payables are not carried at fair value in the consolidated balance sheet, book values approximate to fair value at both 31 December 2007 and 2006. The carrying values of trade and other payables are denominated in the following currencies: As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Pound sterling 1,467,733 1,467,733 162,787 162,787 Brazilian Real 1,092,028 - 12,889 3,419 Norwegian Krone 701,383 701,383 - - US Dollar 358,316 267,383 625,311 619,206 Danish Krone 112,661 112,661 - - Australian Dollar 64,528 64,528 665 665 3,796,649 2,613,688 801,652 786,077 The fair values of trade and other payables as at 31 December 2007 are considered by the directors to be the same as the carrying values thereof. 283
- 284. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 24. Share capital As at As at 31/12/2007 31/12/2006 Authorised share capital: £ £ 200,000,000 Ordinary Shares of £0.002 each 400,000 400,000 As at 31/12/2007 As at 31/12/2006 Allotted, called up and fully paid: No. £ No. £ Ordinary Shares of £0.002 each 99,085,175 198,170 50,690,675 101,381 As at 31/12/2007 As at 31/12/2006 Allotted, called up but not yet paid: No. £ No. £ Ordinary Shares of £0.002 each 66,667 134 78,000 156 As at 31/12/2007 As at 31/12/2006 Total issued share capital: No. £ No. £ Ordinary Shares of £0.002 each 99,151,842 198,304 50,768,675 101,537 The Ordinary Shares carry one vote per share. They entitle the holder to share equally in a distribution of the profits or assets of the Company by dividend with all other holders of Ordinary Shares, in proportion to the holders’ aggregate holding of all Ordinary Shares. 284
- 285. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The movements in share capital and share premium reserve during the current and prior year were as follows: Issue Number Consideration Movement for year Price issued received (pence) Share Share capital premium £ £ £ Balance at 01/01/2006 48,000,000 1,900,200 96,000 1,804,200 Issued for cash under placing 20.0 1,000,000 200,000 2,000 198,000 Issued for cash under placing 50.0 922,000 461,000 1,844 459,156 Issued for cash under placing 0.2 78,000 156 156 - Issued for cash under placing 100.0 732,300 732,300 1,465 730,835 Issued for cash under placing 120.0 36,375 43,650 72 43,578 Less: expenses incurred in issuing shares - (85,038) - (85,038) Balance at 31/12/2006 50,768,675 3,252,268 101,537 3,150,731 Issued for cash under placing 79.06 7,675,000 6,067,855 15,350 6,052,505 Issued on loan note conversion 27.46 7,500,000 2,059,800 15,000 2,044,800 Issued for cash under placing 151.04 13,556,000 20,475,142 27,112 20,448,030 Issued for cash under placing 153.48 18,824,000 28,891,417 37,648 28,853,769 Issued for cash under placing 153.89 572,500 881,047 1,145 879,902 Issued on exercise of warrants and rights to shares at par value 88.17 333,667 294,200 668 293,532 Unpaid shares cancelled (78,000) - (156) - Less: expenses incurred in issuing shares - (6,299,365) - (6,299,365) 99,151,842 55,622,364 198,304 55,423,904 The 13,556,000 shares issued for cash were issued at NOK 18 each and were listed on the over-the-counter market of the Oslo Stock Exchange prior to being listed on the Axess Market of that stock exchange. A private placement of 18,824,000 shares at NOK 17 each was effected prior to the listing of all the Ordinary Shares of the Company on the Axess Market of the Oslo Stock Exchange on 9 October 2007, with a further 572,500 Ordinary Shares at NOK 17 each being issued pursuant to a public placing on listing. In addition to certain issue expenses, commission at a rate of 6.0% and Stamp Duty Reserve Tax at a rate of 1.5% were deducted from the gross proceeds of both the private and public placements. Potential issues of shares: On 9 March 2007, the Company issued 3,837,500 warrants, each to subscribe for one Ordinary Share in the Company at 200.0 pence at any time between the date of issue thereof and the date falling 365 days after the admission of the Ordinary Shares of the Company to trading on the Alternative Investment Market of the London Stock Exchange (“AIM”) or any other recognised stock exchange. On 30 April 2007, the Company issued 1,500,000 warrants, each to subscribe for one Ordinary Share in the Company at an exercise price of 125.0 pence at any time between the date of issue thereof and the later of the date falling 365 days after such date of issue and the date falling 365 days after the date of admission of the Ordinary Shares of the Company to trading on AIM or any other recognised stock exchange. 285
- 286. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 On 12 July 2007, the Company approved the establishment of a Group share option scheme and 4,450,000 options, each to acquire one Ordinary Share in the Company at an exercise price of 174.0 pence, with differing vesting periods, were issued to directors and certain Group employees under the terms of the scheme. The earliest exercise date and expiry date for the 4,450,000 options are reflected as follows: Number of options Earliest exercise Expiry date date 4,150,000 12/07/2008 11/07/2013 50,000 01/06/2009 11/07/2013 150,000 12/07/2009 11/07/2013 50,000 01/10/2008 11/07/2013 50,000 01/04/2009 11/07/2013 On 13 August 2007, in terms of the Long Term Incentive scheme for senior executives formally adopted by the Company on that date, the right to subscribe for 1,500,000 Ordinary Shares at par was awarded to each of Mr CR Brown and Mr DG Hossie. These awards will entitle Mr Brown and Mr Hossie to 1,500,000 Ordinary Shares each at par if they remain in service with the Company up to and including 13 August 2010. Pursuant to the entering into on 20 August 2007 of a long term purchasing agreement between the Company and Suns Trading Ltd (“Suns”), on that date, 500,000 warrants, each to acquire one Ordinary Share in the Company at an exercise price of 20.0 pence, and 1 million warrants, each to acquire one Ordinary Share in the Company at an exercise price of 174.0 pence, were granted to a consultant. Of the 500,000 20.0 pence warrants, 250,000 vested on the date of grant thereof, with the remaining 250,000 20.0 pence warrants and 500,000 of the 174.0 pence warrants vesting on the earlier of 31 August 2008 or the date of receipt by the Group of funds from the first purchase by Suns of product from the Group. The remaining 500,000 174.0 pence warrants vest on the earlier of 31 December 2008 or the date falling after six months of regular monthly purchasing of product from the Group by Suns. On 13 September 2007, 180,000 options, each to acquire one Ordinary Share in the Company at an exercise price of 174.0 pence, were issued to consultants rendering services to London Mining Company Limited similar to those rendered by employees. Of these 180,000 options, 40,000 vest on the finalisation of an agreement between the Group and the Government of Sierra Leone for the use of the Pepel Port and Marampa railway line (“Condition 1”), 40,000 vest on the finalisation of the detailed terms of the mining lease in respect of the Marampa iron ore mine (“Condition 2”), 50,000 vest on the satisfaction of both Condition 1 and Condition 2 simultaneously and the remaining 50,000 vest on the first day that the mining of iron ore by the Group commences at the Marampa iron ore mine. During the year, an employee was awarded the right to acquire 66,667 Ordinary Shares at par on 3 November 2007. During periods prior to 1 January 2007, the Company issued the following: • 3 million warrants expiring 31 March 2011, each to subscribe for one Ordinary Share at an exercise price of 20.0 pence each, exercisable at any time between 9 October 2007 and the expiry date of the warrants, of which 100,000 have lapsed; • 100,000 warrants expiring 1 May 2011, each to subscribe for one Ordinary Share at an exercise price of 20.0 pence each, exercisable at any time between 9 October 2007 and the expiry date of the warrants; and • 1 million warrants expiring 4 October 2007, each to subscribe for one Ordinary Share at an exercise price of 8.5 pence each, exercisable at any time between the admission of the Company’s Ordinary Shares to trading on any recognised stock exchange and the expiry date of the warrants. On 12 July 2007, the expiry date of these 1 million warrants was extended to a date being the later of 30 April 2008 and the date falling six months after the listing of all of the Ordinary Shares of the Company on a recognised stock exchange. 286
- 287. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Pursuant to the listing of the Company on the Axess market of the Oslo Stock exchange, the Company has an obligation to issue Ordinary Shares in settlement of an amount of 500,000 US Dollars (£251,181) due to a consultant at 31 December 2007 for services provided in the conduct of negotiations with regard to the acquisition of the mining lease in respect of the Marampa iron ore mine in Sierra Leone. The number of Ordinary Shares to be issued is determined by reference to the Initial Public Offer price per Ordinary Share immediately prior to such listing of NOK 17, translating to 161,453 Ordinary Shares. 25. Share premium reserve As at As at 31/12/2007 31/12/2006 £ £ Opening balance 3,150,731 1,804,200 Arising on issue of shares 58,572,538 1,431,569 Share issue expenses (6,299,365) (85,038) Closing balance 55,423,904 3,150,731 The share premium reserve holds the balance of consideration received in excess of the par value of Ordinary Shares issued. Share issue costs are set off against this reserve as appropriate. Details of the number of Ordinary Shares issued during the year and the price per share at which these shares were issued are set out in the note on share capital. 26. Other reserves As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Warrant and option reserve 5,970,515 5,970,515 279,969 279,969 Foreign exchange reserve 4,357,492 - (3,799) - Option premium on convertible loan notes - - 27,126 27,126 10,328,007 5,970,515 303,296 307,095 The warrant and option reserve arises on the granting of share options or similar instruments to employees and other parties providing similar services as well as the issuing of warrants for cash. Further information about share-based payments to employees and other parties providing similar services is provided in note 29. The foreign exchange reserve relates to exchange differences arising on the translation of the transactions of the Group’s foreign subsidiaries from their respective functional currencies into sterling in accordance with the accounting policy set out in note 1. The option premium on convertible loan notes arising from the issue of convertible loan notes in 2006 was transferred to retained earnings during the year on the repayment of the convertible loan notes. Details of movements in these reserves are reflected in the statement of changes in equity. 287
- 288. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 27. Retained earnings Retained earnings represents cumulative net gains and losses recognised in the income statement. Group Company £ £ As at 01/01/2006 (1,109,201) (1,109,201) Retained loss for the year (1,091,515) (1,083,417) As at 31/12/2006 (2,200,716) (2,192,618) Retained loss for the year (8,475,565) (9,375,446) Transfer of option premium on redemption of convertible loan notes 27,126 27,126 As at 31/12/2007 (10,649,155) (11,540,938) 28. Leases The following operating leases between Group companies and lessors in respect of property, which provide for cancellation upon giving of the requisite notice by the lessee, were in effect during the year: Description of property Period of Date on Amounts Amounts lease – which lease payable payable months ends during 2008 during 2009 £ £ Head office – 47 Charles Street, London 12 07/05/2008 14,490 - Head office – 47 Charles Street, London 12 07/08/2008 8,400 - Offices and warehouse – Belo Horizonte, Brazil 24 01/05/2009 8,425 2,808 Offices and warehouse – Belo Horizonte, Brazil 24 01/09/2009 10,615 7,077 41,390 9,885 A penalty of £4,760 is payable on cancellation of the leases in respect of the offices and warehouse in Belo Horizonte, Brazil. The following non-cancellable leases in respect of property in Sierra Leone entered into by London Mining Company Limited have been prepaid during the year and terminate during 2008: Description of property Prepaid Date on Amounts to rental which lease be charged amount ends to income during 2008 US Dollars £ Office in Freetown 25,000 30/11/2008 11,513 Accommodation at Lunsar 16,667 31/03/2008 1,884 13,397 288
- 289. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The following non-cancellable leases in respect of property in Sierra Leone, each for a period of 25 years, were entered into by London Mining Company Limited during the year: Description of property Future value of minimum lease payments Date on Not later Later than Later than which than one one year and five years lease ends year not later than five years £ £ £ Marampa mine surface rights 06/03/2032 12,934 50,236 240,715 Pepel port surface rights 03/10/2032 7,535 30,142 149,452 20,469 80,378 390,167 29. Share-based payment The Group issues warrants and options to subscribe for Ordinary Shares in the Company to employees, directors and those parties rendering services similar to those performed by employees. At the end of the year, 5,233,000 warrants and 4,630,000 options had been granted as share-based payment and had not been exercised, comprising the following: Number Grant date Expiry Exercise Vesting Fair value date price date at grant date Pence Pence In issue and exercisable: Warrants: Issued 3 October 2005 1,000,000 03/10/2005 30/04/2008 8.5 09/10/2007 4.311 Issued 15 March 2006 2,750,000 15/03/2006 31/03/2011 20.0 09/10/2007 11.717 Issued 1 May 2006 28,000 01/05/2006 01/05/2011 20.0 09/10/2007 12.038 Issued 20 August 2007 175,000 20/08/2007 20/08/2010 20.0 20/08/2007 154.00 In issue and not exercisable: Warrants: Issued 1 May 2006 30,000 01/05/2006 01/05/2011 20.0 01/05/2008 12.038 Issued 20 August 2007 250,000 20/08/2007 20/08/2010 20.0 31/05/2008 154.775 Issued 20 August 2007 500,000 20/08/2007 20/08/2010 174.0 31/05/2008 65.266 Issued 20 August 2007 500,000 20/08/2007 20/08/2010 174.0 30/11/2008 67.334 Options: Issued 12 July 2007 4,150,000 12/07/2007 11/07/2013 174.0 12/07/2008 79.256 Issued 12 July 2007 50,000 12/07/2007 11/07/2013 174.0 01/06/2009 83.706 Issued 12 July 2007 150,000 12/07/2007 11/07/2013 174.0 12/07/2009 84.320 Issued 12 July 2007 50,000 12/07/2007 11/07/2013 174.0 01/10/2008 80.234 Issued 12 July 2007 50,000 12/07/2007 11/07/2013 174.0 01/04/2009 82.881 Issued 13 September 2007 40,000 13/09/2007 12/09/2012 174.0 31/03/2008 73.888 Issued 13 September 2007 90,000 13/09/2007 12/09/2012 174.0 31/03/2008 74.576 Issued 13 September 2007 50,000 13/09/2007 12/09/2012 174.0 01/01/2009 78.424 The weighted average exercise price of these warrants and options as at 31 December 2007 is 106.7 pence (2006 : 17.2 pence). On 12 July 2007, the expiry date of the 1,000,000 warrants issued on 3 October 2005 was extended from 4 October 2007 to an effective date of 30 April 2008. 289
- 290. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Of the 1,500,000 warrants granted on 20 August 2007, 250,000 vested on the date of grant, 750,000 are expected to vest on 31 May 2008 and 500,000 are expected to vest on 30 November 2008. Of the 4,450,000 options granted on 12 July 2007, 4,150,000 are expected to vest on 12 July 2008, 50,000 on 1 June 2009, 150,000 on 12 July 2009, 50,000 on 1 October 2008 and 50,000 on 1 April 2009. Of the 180,000 options granted on 13 September 2007, 130,000 are expected to vest on 31 March 2008 and 50,000 are expected to vest on 1 January 2009. The weighted average fair value of the warrants and options granted during the year is 83.358 pence (2006: 11.349 pence). The fair value of warrants and options granted has been recognised in accordance with the respective vesting periods applicable thereto. The warrants and options granted during the year were priced using a binomial model. Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions and behavioural considerations. Expected volatility has been determined on a weighted average basis using the share price volatilities reflected by groups engaged in the mining industry with characteristics similar to those of the Group. The inputs into the model for the respective tranches of options and warrants granted are as follows: Risk-free Grant date Exercise Expected Contracted interest share price price volatility expiry date rate Pence Pence Issued 12 July 2007 4,150,000 174.0 174.0 52.43% 11/07/2013 5.63% 50,000 174.0 174.0 52.43% 11/07/2013 5.63% 150,000 174.0 174.0 52.43% 11/07/2013 5.63% 50,000 174.0 174.0 52.43% 11/07/2013 5.63% 50,000 174.0 174.0 52.43% 11/07/2013 5.63% Issued 20 August 2007 250,000 174.0 20.0 55.07% 20/08/2010 5.17% 250,000 174.0 20.0 55.07% 20/08/2010 5.17% 500,000 174.0 174.0 55.07% 20/08/2010 5.17% 500,000 174.0 174.0 55.07% 20/08/2010 5.17% Issued 13 September 2007 40,000 175.0 174.0 54.98% 12/09/2012 4.97% 90,000 175.0 174.0 54.98% 12/09/2012 4.97% 50,000 175.0 174.0 54.98% 12/09/2012 4.97% 290
- 291. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The following reconciles the warrants and options granted as share-based payments at the beginning and end of the current and prior year: Year to 31/12/2007 Year to 31/12/2006 Number Weighted Number Weighted average average exercise exercise price price Pence Pence Warrants: Opening balance 4,000,000 17.2 1,000,000 8.5 Granted during the year 1,500,000 122.7 3,100,000 20.0 Exercised during the year (267,000) 20.0 - - Lapsed during the year - - (100,000) 20.0 Closing balance 5,233,000 47.2 4,000,000 17.2 Options: Opening balance - - - - Granted during the year 4,630,000 174.0 - - Closing balance 4,630,000 174.0 - - The average weighted contractual lives of the options in issue as at 31 December 2007 from date of issue to date of expiry was 71.5 months (31 December 2006 : Nil) and the average remaining weighted contractual lives of the options in issue as at that date was 66.0 months (31 December 2006 : Nil). The average weighted contractual lives of the warrants in issue as at 31 December 2007 from date of issue to date of expiry was 48.2 months (31 December 2006 : 51.4 months) and the average remaining weighted contractual lives of the warrants in issue as at that date was 30.3 months (31 December 2006 : 40.6 months). The combined average weighted contractual lives of the options and warrants in issue as at 31 December 2007 from date of issue to date of expiry was 59.1 months (31 December 2006 : 51.4 months) and the combined average remaining weighted contractual lives of the options and warrants in issue as at that date was 47.1 months (31 December 2006 : 40.6 months). As set out in the note on events after the year end, a total of 203,000 of the warrants to take up Ordinary Shares at an exercise price of 20.0 pence and 1,000,000 of the warrants to take up Ordinary Shares at an exercise price of 8.5 pence were exercised after 31 December 2007. A Long Term Incentive scheme (“LTIP”) for senior executives was formally adopted by the Company on 13 August 2007 and awards under that scheme were granted on that date in favour of Mr CR Brown and Mr DG Hossie. As with the Company’s share option plan, grants of shares under the scheme fall within the maximum limit of 10% of share capital that may be awarded for share incentive programmes. Under the scheme, which is a standard one in the United Kingdom, these awards will entitle Mr Brown and Mr Hossie to 1,500,000 Ordinary Shares each at par if they remain in service with the Company up to and including 13 August 2010. The fair value per share at the date of grant was 174.0 pence. On 20 August 2007, under the LTIP, the Company formed a subsidiary, London Mining Trustee Limited (“LTML”), which will buy the requisite Ordinary Shares from the Company at the ruling market price on the date of purchase and hold them until the conditions of the awards have been satisfied. The necessary funds will be lent by the Company to LTML to fund the acquisition of the Ordinary Shares. No Ordinary Shares had been acquired by LTML by 31 December 2007. 291
- 292. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 A bonus in the form of the awarding of the right to take up 66,667 Ordinary Shares at par on 3 November 2007 was granted to an employee during the year, with the fair value at date of award being 154.0 pence per share. The fair value of rights granted to subscribe for shares at par value has been recognised in accordance with the respective vesting periods applicable thereto. 30. Notes for the statements of cash flows Year to 31/12/2007 Year to 31/12/2006 Group Company Group Company Cash flows from operating £ £ £ £ activities Loss for the year (8,475,562) (9,375,446) (1,091,523) (1,083,417) Adjusted for: Impairment of intangible asset - - 1,411 1,411 Depreciation 682,663 19,136 1,855 1,855 Amortisation of intangible assets 13,111 - - - Finance income (4,645,131) (3,321,330) (10,522) (10,229) Finance costs 6,967,242 6,606,442 139,118 139,118 Repayment of instalment sale creditors (92,130) - - - (Profit) loss on disposal of property, plant and equipment (42,817) 451 - - Share-based payments expense 3,383,866 2,977,929 279,969 279,969 Income tax expense (credit) 677,340 (5,814) (548) (548) (1,531,418) (3,098,632) (680,240) (671,841) Increase in non-current receivables (32,366) - - - Decrease (increase) in current receivables 156,354 740,189 (858,215) (967,235) Increase in non-current inventories (161,302) - - - Increase in current inventories (37,684) - - - Increase in payables 1,448,841 875,103 108,300 92,940 Cash flow from operating activities (157,575) (1,483,340) (1,430,155) (1,546,136) Year to 31/12/2007 Year to 31/12/2006 Group Company Group Company Payments to acquire intangible £ £ £ £ assets Acquisition of intangible assets (1,563,702) (1,245,699) (2,963,967) (1,100,634) Less: amounts accrued 254,336 254,336 1,970,012 531,406 Payments to acquire intangible assets (1,309,366) (991,363) (993,955) (569,228) Year to 31/12/2007 Year to 31/12/2006 Group Company Group Company Ordinary Shares issued £ £ £ £ Issue of equity share capital 96,789 96,789 5,381 5,381 Share premium on issue of equity share capital 58,331,873 58,331,873 1,431,569 1,431,569 Share issue expenses (6,299,365) (6,299,365) (85,038) (85,038) Ordinary Shares issued 52,129,297 52,129,297 1,351,912 1,351,912 292
- 293. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Except as noted below, cash and cash equivalents balances solely comprises cash available on demand. The cash and cash equivalents balance includes an amount of £16,156,283 (NOK 174,628,419) held in a defined Escrow account which has been pledged as security for the performance by the Company of its obligations in respect of the Callable and Putable Bonds 2007/2012. In addition, cash and cash equivalents balances held by the Brazilian operations in the aggregate amount of 9,995,940 Brazilian Reals (£2,807,044) constitutes security for the performance by the Group of its obligations in respect of the Callable and Putable Bonds 2007/2012. The cash and cash equivalent balances are denominated in the following currencies: As at 31/12/2007 As at 31/12/2006 Group Company Group Company £ £ £ £ Pound sterling 7,133,707 7,133,707 275,906 275,906 Brazilian Real 2,807,044 - 6,645 - Norwegian Krone 35,600,749 35,600,749 - - US Dollar 31,654 3,025 3,015 3,015 45,573,154 42,737,481 285,566 278,921 31. Acquisitions On 3 May 2007, the Group, via London Mining Participacoes Ltda, acquired the entire issued share capital of Minas Itatiaiucu Ltda (“MIL”), a Brazilian producer of iron ore, for an overall purchase price of 89 million US Dollars. The purchase price comprises a lump-sum payment of 65 million US Dollars due on the date of acquisition and sixteen payments of 1.5 million US Dollars each payable on 30 June and 31 December of each year subsequent to the occurrence of the earlier of the commencement of sales of fines of iron ore from the fines stockpiles situated at MIL, the beginning of operation of a logistic connection enabling the transportation of ore from MIL to a point where it can be loaded on railway trucks in quantities equal to or exceeding one million tonnes per annum and the fourth anniversary of the date of acquisition. On 29 August 2007, the name of Minas Itatiaiucu Ltda was changed to London Mining Brasil Mineracao Ltda. 293
- 294. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Subsequent to acquisition, the complexion of the identifiable assets and liabilities acquired has been revised. The respective fair values of the identifiable assets and liabilities acquired previously reported and the subsequent revision are reflected as follows: Book Fair value Fair values Subsequent Restated fair values adjustments previously revision to values previously reported fair values reported £ £ £ £ £ Mineral reserves - 32,673,019 32,673,019 75,835 32,748,854 Property, plant and equipment 1,599,504 - 1,599,504 (41,086) 1,558,418 Intangible assets - - - 48,599 48,599 Non-current receivables 71,289 - 71,289 - 71,289 Non-current inventories - 8,943,044 8,943,044 - 8,943,044 Inventories 197,725 - 197,725 - 197,725 Receivables 511,277 - 511,277 107,918 619,195 Cash and cash equivalents 349,615 - 349,615 - 349,615 Non-current borrowings (20,032) - (20,032) - (20,032) Current borrowings (122,953) - (122,953) - (122,953) Provisions - (707,264) (707,264) - (707,264) Trade and other payables (557,705) - (557,705) 54,697 (503,008) Provision for taxation (26,144) - (26,144) (187,488) (213,632) Deferred tax liabilities - - - (58,475) (58,475) Net asset value acquired 2,002,576 40,908,799 42,911,375 - 42,911,375 Consideration settled by: Deferred payment portion of purchase price 8,943,044 Cash payment 33,968,331 42,911,375 The consideration of £42,911,375 includes £1,235,309 of costs incurred directly attributable to the acquisition. The net cash flow arising from the acquisition is as follows: £ Cash payment made to acquire subsidiary (33,968,331) Less: cash and cash equivalents acquired 349,615 Net cash outflow (33,618,716) 294
- 295. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 The fair values of mineral reserves and property, plant and equipment acquired are reconciled to the property, plant and equipment note as follows: Fair values Subsequent Restated fair previously revision to values reported fair values £ £ £ As reported above Mineral reserves 32,673,019 75,835 32,748,854 Property, plant and equipment 1,599,504 (41,086) 1,558,418 34,272,523 34,749 34,307,272 Reallocation of capital work-in-progress to receivables (107,918) 107,918 - Reallocation of mining leases to intangible assets (51,085) 51,085 - Reversal of accrual for land (54,697) 54,697 - 34,058,823 248,449 34,307,272 Reported in note on property, plant and equipment 34,307,272 The results for the year ended 31 December 2007 include profit before tax attributable to MIL of £1,360,427, representing eight months of trading. Had the acquisition of MIL occurred on 1 January 2007, the consolidated revenue for the year ended 31 December 2007 would have been £6,455,401 and the consolidated loss for the year would have been £9,076,072, including finance costs attributable to the acquisition. 32. Related party transactions Mr DG Hossie, a director of the Company, is a director of Venture Development Partners Limited which during the year invoiced an amount of £277,190 (year ended 31 December 2006 : £125,660) to the Group in relation to management consultancy services provided. As at 31 December 2007 £Nil remained outstanding (31 December 2006 : £Nil). In addition, an amount of £336,522 (year ended 31 December 2006 : £Nil) has been charged to the income statement during the year in respect of a bonus of £360,000 payable to Venture Development Partners Limited on 12 January 2008. During the year ended 31 December 2007, an amount of £9,000 (year ended 31 December 2006: £Nil) was invoiced to Capital Fusion Group Ltd for administrative services rendered by the Company. Mr DG Hossie is a director of Capital Fusion Group Ltd. As at 31 December 2007 £7,050 remained outstanding (31 December 2006 £Nil). The amount owing by Mr DG Hossie to the Group in the form of the balance on a director’s current account at 31 December 2007 was £47 (31 December 2006 : £1,299). The amount owing by Mr CR Brown to the Group in the form of the balance on a director’s current account at 31 December 2007 was £121 (31 December 2006 : £Nil). Mr D Fraser is a director of London Mining Company Limited and a director of Fraser Turner Limited, which latter company during the year invoiced an amount of £48,000 (year ended 31 December 2006 : £113,365) to the Group in relation to management consultancy services provided. As at 31 December 2007 £Nil remained outstanding (31 December 2006: £Nil). On 28 February 2007, the Company entered into an agreement with Fraser Turner Limited in terms of which payments have been and will be made to Fraser Turner Limited on the satisfaction of certain criteria relating to the mining lease in respect of the Marampa iron ore mine in Sierra Leone, as set out below. 295
- 296. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 An amount of 30,000 US Dollars was paid on the entering into of the contract and the contract provided for the payment of an amount of 750,000 US Dollars within five business days of the earlier of the securing of rights to use the port and harbour facilities at Pepel on the coast of Sierra Leone and the priority right to use the railway line between the Marampa mine and Pepel, on the one hand, and the listing by the Company of its Ordinary Shares on the Alternative Investment Market of the London Stock Exchange or other recognised stock exchange, on the other hand. Of that amount, 350,000 US Dollars is due on the earlier of the securing of these port and railway access rights and the raising by the Company of funds in excess of seven million US Dollars. A further 12,500 US Dollars is payable on the securing of the port and rail access rights. An advance payment of 100,000 US Dollars has been made in anticipation of the securing of the rights. The contract further provides for the payment of an amount of 750,000 US Dollars within five business days of the earlier of the date falling sixty business days after the date of the securing of the aforementioned port and railway access rights and the date of the listing by the Company of its Ordinary Shares on the Alternative Investment Market of the London Stock Exchange or other recognised stock exchange. As at 31 December 2007, 800,000 US Dollars of the aggregate liability of 1,500,000 US Dollars due and payable on the listing of the Company on a recognised stock exchange had been paid, with the remaining amount of 700,000 US Dollars being due and payable on the securing by the Group of priority rights of access to the Pepel Port and Marampa railway, in terms of amended payment terms agreed on 12 September 2007. Furthermore, in terms of the contract, within thirty days of the receipt by the Group of proceeds from the first sale by the Group of iron ore from the Marampa iron ore mine, an amount of 500,000 US Dollars shall be due and payable in terms of the agreement and in addition, that number of Ordinary Shares which in aggregate has a value of not less than £500,000 shall be issued to Fraser Turner Limited. The contract further provides for the payment of a royalty to Fraser Turner Limited of 10 US cents per tonne of all iron ore sold from the Marampa mining lease area as well as a royalty determined as the excess of a rate of 5% over the rate payable by the Group to the Government of Sierra Leone on sales of iron ore by the Group, with such excess being capped at a level representing 2% of such turnover. On the acquisition of London Mining Brasil Mineracao Ltda on 3 May 2007, a success fee of 1,500,000 US Dollars became due and payable by the Company to Sereno Minerals (BVI) Ltd (“Sereno”), a company in which Mr DG Hossie has a beneficial interest. On instructions of the lawyers of Sereno, half of the fee was paid directly by the Company to Mr Hossie. The immediate parent of the Group is London Mining Plc (incorporated in England and Wales). Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. The only transactions entered into by the Company during the year with subsidiaries have been the taking up of shares and the provision of funding, None of the funding provided has been repaid and the amounts outstanding at 31 December 2007 are reflected in note 16. The key management of the Group at 31 December 2007 consisted of the directors of the Company, the chief executive of London Mining Brasil Mineracao Ltda and the group financial controller. Details of the remuneration of key management are set out in note 6. 33. Contracted capital commitments The deed of assignment in terms of which the mining lease in respect of the Marampa iron ore mine was acquired provides for the making of payments of 1,400,000 US Dollars on 31 December 2007 and 2,900,000 US Dollars on 31 July 2009. The obligation of the Group to make these payments is conditional upon the granting by the relevant government authority in Sierra Leone to the Group of a 296
- 297. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 legally binding licence or other arrangement to enjoy the priority right to use the port and harbour facilities at Pepel on the coast of Sierra Leone and the railway line between the Marampa Mine and Pepel and the non-occurrence of any circumstances which the Group adjudges to have the effect of significantly reducing the profitability or economic viability of mining operations conducted in terms of the lease. In terms of the agreement (as amended) entered into between the Company and Fraser Turner Limited described in the note on related party transactions, an amount of 700,000 US Dollars is due and payable on the securing by the Group of priority rights of access to the Pepel Port and Marampa railway in Sierra Leone. As at 31 December 2007, no legally binding licence or other arrangement to enjoy the priority right to use the port and harbour facilities in Sierra Leone had been obtained by the Group. Negotiations are currently in progress to secure these rights. The amounts payable in respect of these contracted capital commitments shall be capitalised as part of the cost of the mining lease as and when made. As reflected in note 35, on 7 March 2008, the vendor of the Marampa mining lease commenced legal proceedings for the payment by the Group of the payment of 1,400,000 US Dollars which would have been due on 31 December 2007 had the requisite priority right of use been obtained by that date. The directors are of the opinion that there is no legal basis for the claim by the vendor. 34. Contingent liabilities On the acquisition by the Company of the entire issued share capital of London Mining Brasil Mineracao Ltda (“MIL”) on 3 May 2007, the fee of 1,500,000 payable to Sereno Minerals (BVI) Ltd (“Sereno”) previously reflected as a contingent liability was paid, resolving the dispute which arose in November 2006 as to when the amount became due and payable. In terms of an agreement entered into between the Company and Sereno on 18 July 2006, the Company shall pay to Sereno a success fee of 2 million US Dollars in respect of each future acquisition or merger made by any member of the Group in Brazil, excluding the acquisition of MIL. The fee is payable as to 75% in the form of cash and 25% in the form of Ordinary Shares in the Company. Once the Group has made a second acquisition in Brazil, a royalty of 40 US cents per tonne will be payable by the Company on all sales of iron ore produced by Group projects in Brazil introduced by Sereno Minerals, including the MIL operations and all Group projects within a radius of thirty kilometres of the MIL operation. The potential liability of the Company to make certain cash payments to the holders of convertible loan notes on the failure by the Company to effect a listing on a recognised stock exchange by 30 April 2007 was extinguished by the repayment of these loan notes on 1 May 2007. The success fees of 200,000 US Dollars payable to an external consultant in cash on the signing of a long-term purchasing agreement with a large consumer of iron ore previously reflected as a contingent liability was paid during the period pursuant to the entering into of a long term purchasing agreement between the Company and Suns Trading Ltd, a wholly owned subsidiary of Suns International Holdings Ltd, on 20 August 2007. In addition, on that date, 500,000 warrants at an exercise price of 20.0 pence and 1 million warrants at an exercise price of 174.0 pence, forming part of the success fee structure, were issued to the external consultant. Pursuant to a resolution by the directors that Stamp Duty Reserve Tax (“SDRT”) would be payable by the Company on the conversion of all warrants and options which were in existence at the date of the listing of all of the Ordinary Shares of the Company on the Axess Market of the Oslo Stock Exchange, the Company has a contingent liability for SDRT of £764,466 as at 31 December 2007, based on the number of contingently issuable shares, the NOK share price and the GBP : NOK exchange rate on that date. 297
- 298. London Mining Plc Notes to the financial statements (continued) For the year ended 31 December 2007 Bonuses in an aggregate amount of £226,000 are payable to directors where the annual share of the Company of the operating profits of the Brazilian operations of the Group equals or exceeds £2 million. 35. Events after the balance sheet date Of the warrants granted on 1 May 2006, with an exercise price of 20.0 pence each, 28,000 were exercised on 7 January 2008 and of the warrants granted on 21 August 2007, also with an exercise price of 20.0 pence each, 175,000 were exercised on 14 January 2008. On 14 January 2008, 337,500 of the warrants with an exercise price of 125.0 pence granted on 30 April 2007 were exercised. On 11 March 2008, the 1,000,000 warrants granted on 3 October 2005, with an exercise price of 8.5 pence each, were exercised. The formal merger of the companies comprising the Brazilian operations of the Group was effected on 29 January 2008 and application was made to the Brazilian authorities for the approval thereof on 28 February 2008. It is estimated that upon receipt of such approval R$166,291,000 (£46,697,575) of the mineral reserves and non-current inventory acquired on the purchase of London Mining Brasil Mineracao Ltda will be deductible for Brazilian tax purposes over a period of not less than five years, with effect from 29 January 2008. On 12 February 2008, the Company passed a resolution approving the entering into of a joint venture agreement with National Mining Company (“National Mining”) to develop and put into operation an iron ore mine and pelletising plant in Wadi Sawawin near the port of Duba in Saudi Arabia. The joint venture will be conducted through a new company called Saudi London Iron Ltd (“SLI”), held as to 50% by the Company and as to 50% by National Mining. Activities to be conducted by SLI shall initially include the carrying out of confirmatory and planning studies, mineral exploration and feasibility studies followed by the construction of mining and beneficiation facilities, with the Company providing expertise and training to SLI. The Company will undertake and fund a detailed scoping study on a 3mtpa operation including capital and operating cost estimates, which is expected to cost about 1,200,000 US Dollars and be complete by the third quarter of 2008. On 7 March 2008, the vendor of the Marampa mining lease instituted legal proceedings in the form of a claim for payment of the 1,400,000 US Dollars which would have been payable to the vendor on 31 December 2007 had the relevant government authority in Sierra Leone granted to the Group a legally binding licence or other arrangement to enjoy the priority right to use the port and harbour facilities at Pepel on the coast of Sierra Leone and the railway line between the Marampa Mine and Pepel by that date. As such priority right has not been so granted as at the date of authorisation of these financial statements, the directors are of the opinion that the claim of the vendor has no legal basis. On 18 March 2008, it was agreed with the vendors of the shares in London Mining Brasil Mineracao Ltda that the terms of the deferred payment for portion of the purchase price of that company (reflected as deferred payment portion of MIL purchase price in note 20) would be amended so that the sixteen payments of 1.5 million US Dollars constituting such deferred payment would be payable on 31 March and 30 September of each year, commencing on 31 March 2008. The carrying value of the liability as at 31 December 2007 was determined as £9,287,162 (18,487,024 US Dollars) on the assumption that the sixteen payments of 1.5 million US Dollars would be payable on 30 June and 31 December of each year, commencing on 30 June 2008. On the basis of the amended payment terms, the carrying value of the liability at 31 December 2007 would have been £9,436,826 (18,784,944 US Dollars). 298
- 299. SECTION D CONSOLIDATED AUDITED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 London Mining Plc Independent Auditor’s Report to the shareholders of London Mining Plc For the year ended 31 December 2006 To the shareholders of London Mining Plc We have audited the group and parent company financial statements (the “financial statements”) of London Mining Plc for the year ended 31 December 2006 which comprise the Group Income Statement, the Group and Company Balance Sheets, the Group and Company Statement of Changes in Equity and the Group and Company Cash Flow Statements and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and whether the information given in the Directors’ Report is consistent with those financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read the Directors’ Report, Chairman’s Statement and Chief Executive’s Report and consider the implications for our report if we become aware of any apparent misstatements within them. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. 299
- 300. London Mining Plc Independent Auditor’s Report to the shareholders of London Mining Plc (continued) For the year ended 31 December 2006 Opinion In our opinion: • the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at 31 December 2006 and of its loss for the year then ended; • the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at 31 December 2006; • the financial statements have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors’ Report is consistent with the financial statements. BDO STOY HAYWARD LLP Chartered Accountants and Registered Auditors London July 2007 300
- 301. London Mining Plc Consolidated income statement For the year ended 31 December 2006 Year to Period to 31 December 31 December 2006 2005 Note £ £ Revenue - - Operational expenses (161,838) (89,628) Impairment of investment 4 - (847,048) Administrative expenses (830,119) (175,550) Operating loss 5 (991,957) (1,112,226) Finance income 7 10,522 3,135 Finance costs 8 (110,636) (110) Loss on ordinary activities before taxation (1,092,071) (1,109,201) Taxation 9 548 - Loss for the year (1,091,523) (1,109,201) Attributable to: – Equity holders of parent (1,091,515) (1,109,201) – Minority interest (8) - (1,091,523) (1,109,201) Loss per share expressed in pence per share Basic 10 (2.20) (3.64) Dil