1.  INTRODUCTION

1.1  

Background

SRK Consulting (South Africa) (Proprietary) Limited (“SRK”) is a subsidiary of the international group holding company, SRK Global Limited (the “SRK Group”). SRK has been commissioned by the directors of Kumba Resources Limited (“Kumba”) to prepare an independent competent person’s report (“CPR”) on the principal assets (the “Material Properties”) which will be incorporated into Exxaro Limited (“Exxaro”) and Kumba Iron Ore Limited (“Kumba Iron Ore”). The description of the transaction is summarised in Section 1.2.1. The Material Properties of Exxaro comprise the following:

• Iron Ore
  • A 20% interest in Sishen Iron Ore Company (Proprietary) Limited (“Sishen Iron Ore”). The other shareholders in Sishen Iron Ore will include Kumba Iron Ore Limited, with a 74% stake, with the remaining 6% being acquired by the Northern Cape Community Group and the Sishen Iron Ore Employee Share Option Plan, Sishen Iron Ore has:
    • A 100% interest in the Sishen Iron Ore Mine (“Sishen Mine”), including 100% of the first phase (“Phase I”) of the Sishen Expansion Project (“SEP”).
    • A 100% interest in the first phase (Phase I) of the Sishen South Project.
    • A 100% interest in the Thabazimbi Iron Ore Mine (“Thabazimbi Mine”).
    • Various exploration properties located in South Africa
  • An exploration property in Senegal.
• Coal
  • A 100% interest in Kumba Coal (Proprietary) Limited (“Kumba Coal”) which has:
    • A 100% interest in the Grootegeluk Coal Mine (“Grootegeluk Mine”), including the Grootegeluk West and Van Wykspan prospecting areas.
    • A 100% interest in the Leeuwpan Coal Mine (“Leeuwpan Mine”).
    • A 100% interest in the Tshikondeni Coal Mine (“Tshikondeni Mine”).
    • A 100% interest in the closed coal mining operations of Durnacol Mine, Hlobane Mine, and Northfield Mine.
    • A 50% interest in the Inyanda Coal Project (“Inyanda Project”).
    • A 100% interest in the Char Project (“Sintel Char Project”).
    • Various exploration properties located in South Africa and Australia.
  • A 100% interest in Eyesizwe Coal (Proprietary) Limited (“Eyesizwe”), which has:
    • A 100% interest in Arnot Colliery.
    • A 100% interest in Matla Colliery.
    • A 100% interest in New Clydesdale Colliery.
    • A 100% interest in the North Block Complex, which comprises:
      • A 100% interest in Glisa Colliery.
      • A 100% interest in Strathrae Colliery.
      • A 100% interest in the Eerstelingsfontein Reserves.
      • A 100% interest in the Grootpan/Klippan Reserves.
    • A 35% interest in Twistdraai Colliery (subject to ratification of the transaction and therefore not included or valued in the CPR), a joint venture with Sasol Limited (“Sasol”).
    • A 100% interest in the Belfast Coal Project (“Belfast Project”).
    • A 50% interest in the Inyanda Project.
    • A 50% interest in the Mafube Joint Venture (“Mafube JV”) Phase II.
    • A 50% interest in the Ingcambu Coal Project (“Ingcambu Project”).
    • Various exploration properties located in South Africa.
• Heavy Minerals
  • A 100% interest in Ticor South Africa KZN (Proprietary) Limited (“Ticor SA”), which has:
    • A 100% interest in Hillendale Mine, and Fairbreeze Project and Block P Projects.
    • A 51% interest in the Port Durnford Project.
  • A 100% interest in Ticor South Africa (Proprietary) Limited (“Ticor Smelter”).
  • A 100% interest in Ticor (Proprietary) Limited (“Ticor”), which has:
    • A 50% interest in the Tiwest JV Limited Joint Venture (“Tiwest JV”).
    • A 50% interest in the Jurien project (“Jurien Project”).
    • A 100% interest in Magnetic Minerals (Proprietary) Limited (“Dongara Project”).
  • Various exploration properties located in South Africa and Australia.
  • An option to acquire a 100% interest in Namakwa Sands (Proprietary) Limited from Anglo Operations Limited, a division of Anglo American plc.
  • An option to acquire Madagascar Resources NL (“MRNL”) heavy mineral assets in Madagascar.
• Base Metals
  • A 89.5% interest in Rosh Pinah Zinc Corporation (Proprietary) Limited (“
  • A 100% interest in Zincor, a division of Kumba Base Metals (Proprietary) Limited, which has a 100% interest in the Zincor Base Metals smelter and refinery (“Zincor Refinery”).
  • A 100% interest in Kumba Base Metals China Limited (Hong Kong), which has a 60% economic interest in Chifeng Kumba Hongye Zinc Corporation Limited (“Chifeng”) Phase II and will have a 25% interest in the Chifeng Phase III expansion project (the Phase II interest will reduce to 38% upon commissioning). This will ultimately give Exxaro a 22% effective stake in Chifeng.
  • Various exploration properties located in South Africa and Namibia.
  • An option to acquire a 26% interest in the Black Mountain Mine and Gamsberg Project of Anglo Operations Limited, a division of Anglo American plc.
• Industrial Minerals
  • A 100% interest in Glen Douglas Dolomite (Proprietary) Limited (“Glen Douglas”).
  • A 100% interest in Kumba FerroAlloys (Proprietary) Limited (“Kumba FerroAlloys”).

Certain Material Properties incorporated within the above companies have been valued by SRK and incorporated into the Equity Value derived for Exxaro.

In addition to the above, Exxaro also hold interests in Direct Subsidiaries, Indirect Subsidiaries, Joint Ventures (Direct and Indirect) and Associate Companies (Direct and Indirect) hereinafter referred to as other assets (the “Other Assets”). These subsidiaries, joint ventures and associate companies include exploration companies, investment holding companies, marketing companies, mineral right holding companies, mining related services companies and property holding companies.

Exxaro has informed SRK that the Other Assets do not materially contribute to the Equity Value of Exxaro and accordingly those have been excluded.

1.2  

Independent Technical Report – Requirement, Structure and Compliance

1.3  

Effective date, Valuation date and Base Technical information date

The effective date (the “Effective Date”) of this CPR is deemed to be 8 June 2006, with the Valuation Date and cashflow projections incorporated effective 1 January 2006. The valuation of the Material Properties is dependent upon the following:

• Technical information as generated by Kumba, Eyesizwe and Ticor in accordance with their annual planning process defined as the Base Technical Information Date (“BID”), which is 1 January 2006.
• Appropriate adjustments made by SRK to technical information which, inter alia, includes depletion, historical performance and any additional material information provided by Exxaro from the BID to the Effective Date.

1.4  

Verification, Validation and Reliance

This CPR is dependent upon, technical, financial and legal input. The technical information as provided to and taken in good faith by SRK has not been independently verified by means of re-calculation. SRK has however:

• Conducted a review and assessment of all material technical issues likely to influence the future performance of the Material Properties, which included the following:
  • Inspection visits to the Material Properties’ processing facilities, surface structures and associated infrastructure undertaken between July 2005 and November 2005;
  • Discussion and enquiry following access to key on-mine and head office personnel between July 2005 and November 2005;
  • An examination of historical information 2002(F), 2003(F), 2003(H2), 2004(C) and 2005(C) and results made available by Exxaro in respect of the Material Properties;
    

    (F)	Financial Year ended 30 June (1 July to 30 June);
    (H2)	Six months ended 31 December due to the change of Financial Year (1 July to 31 December);
    (C)	Calendar Year ended 31 December (1 January to 31 December);

  • An examination of the forecast 2006 financial year, 2006^(C);
    

    (C)	Calendar Year ended 31 December (1 January to 31 December);

  • A review and where considered appropriate by SRK, modification of the Material Properties estimates and their classification of Mineral Resources and Mineral Reserves to reflect the position as at 1 January 2006;
  • A review and where considered appropriate by SRK, modification of the Material Properties production forecasts contained in the Life-of-Mine (“LoM”) plans and one-year budgets; and
  • Obtained forecasts for certain macro-economic parameters and commodity prices from Exxaro, and in some cases independent external information providers, and relied on these as inputs into the derivation of the Equity Value of the Material Properties; and
• Satisfied itself that such information is both appropriate and valid for valuation as reported herein. SRK considers that with respect to all material technical-economic matters it has undertaken all necessary investigations to ensure SAMREC compliance, in terms of the level of disclosure.

SRK’s approach in undertaking a review of the Mineral Resource and Mineral Reserve estimations and classifications is detailed in Section 4 of this CPR, as is its opinion in respect of SAMREC compliance.

In summary, SRK has reported Mineral Resource and Mineral Reserve statements based on a review of the LoM Plans and the methodologies applied for estimation and classification of Mineral Resources and Mineral Reserves. SRK has not however re-calculated the base information supporting the Mineral Resource estimates as derived from borehole and assay data. Where fundamental base data has been provided (LoM Plans, capital expenditures, operating budgets, etc) for the purposes of review, SRK recognise the requirements of 12.3(e) and accordingly state that SRK has performed all necessary validation and verification procedures deemed appropriate in order to place an appropriate level of reliance on such information.

1.4.1  

Technical Reliance

SRK places reliance on the Competent Persons at Kumba and Eyesizwe that all technical information provided to SRK at the BID date and all subsequent depletions are both valid and accurate for the purpose of compiling this CPR. The information with respect to Mineral Resources and Mineral Reserves as stated by Kumba and Eyesizwe respectively has been prepared under the direction of each individual as named below who are employees of the respective companies:

• Kumba

  Mr Hennie van den Berg has 34 years’ experience in the mining industry, five of which have been with Kumba. Mr van den Berg is currently the Manager: Geological Services at Kumba.

• Eyesizwe

  Dr Humphrey Mathe has more than 30 years’ experience in the mineral exploration and mining industry for various commodities, including gold, base metals, diamonds, heavy and industrial minerals, as well as coal. Dr Mathe is currently Eyesizwe’s COO.

The information with respect to commodity prices and macro-economic forecasts is based on:

• Consumer Price Indices (“CPI”) for South Africa, Namibia, Australia, China and the United States;
• South African, Australian and Chinese exchange rates quoted against a denomination of one United States dollar (“USD”);
• Projected Commodity Prices.

These commodity prices and macro-economic forecasts have been prepared under the direction of each individual or organisation named below:

• Iron Ore, Coal, Base Metals and Industrial Minerals

  Mr Eddie Fourie, Manager Strategic Services and commodity analyst at Kumba, who will serve as competent person in this regard. Mr. Fourie has 31 years’ mining industry experience, five of which have been at Kumba.

• Heavy Minerals

  The heavy minerals price forecasts and market outlook was provided by TZ Minerals International (Proprietary) Limited (“TZMI”) on a nominal and real 2005USD basis: TZMI specialises in the collection, analysis and distribution of data on the titanium minerals, zircon and TiO₂ pigment industries. David Moore of TZMI agreed to act as the competent person in this regard.

1.4.2  

Financial Reliance

In consideration of all financial aspects relating to the Material Properties, SRK has placed reliance on the Financial Officers of Kumba and Eyesizwe that the following information is appropriate as at 1 January 2006:

• Derivation of Exxaro’s weighted average cost of capital (“WACC”);
• Unredeemed capital balances;
• Assessed losses;
• Opening balances for debtors, creditors and stores;
• Working capital and taxation logic;
• Balance sheet items, specifically cash on hand, debt and mark to market value of derivative instruments and other liabilities required to present the Equity Value of Exxaro; and
• Values ascribed to interests in unlisted and listed entities.

The financial information referred to above has been prepared under the direction of Mr van Staden of Kumba and Ms Madge Koch of Eyesizwe. Mr van Staden is the Executive Director: Finance and has more than 20 years’ experience in financial management, five years of which have been at Kumba. Ms Koch is the Financial Manager and has more than 30 years’ experience. Before joining Eyesizwe five years ago, she was the Financial Director of ABB Power Generation and ABB-Alstom Power.

1.4.3  

Legal Reliance

In consideration of all legal aspects relating to the valuation of the Material Properties, SRK has placed reliance on the legal representatives of Kumba and Eyesizwe that the following are correct:

• In respect of 12.8(e) and 12.10(g) that, at 1 January 2006, the effective date of this CPR:
  • There were a number of appeals/pending appeals to the DME relating to the conversion of old order mining rights to new order mining rights. It has been assumed that these old order rights will be converted to new order rights following receipt of a letter from Kumba’s legal counsel relating to the conversion applications. In the case of Leeuwpan Mine, where rights have been refused but may eventually be granted, SRK has tabulated the proportion of the Resources/Reserves which may be affected. In respect of Eyesizwe it has been assumed that the new order mining rights in respect of New Clydesdale Colliery and Mafube JV Phase II as set out in the circular to Kumba Shareholders will be granted;
  • There was no legal uncertainty on the ownership of the Falémé Exploration Project, an iron ore deposit located in south-east Senegal. However, on 19 February 2006 it was announced that Miferso, the state owned company which owns the iron ore deposit, had signed a Memorandum of Understanding with Mittal Steel, thus creating legal uncertainty on the ownership of those rights by Kumba. At 1 January 2006, there was no legal uncertainty on the ownership of the Falémé Exploration Project. Since Kumba had conducted significant exploration work on the project, there is no reason to believe, at this time, that Kumba will lose the rights to this project. Accordingly the value of this project, limited to actual exploration costs incurred to date, has been included in the Equity Values provided in Section 15;
• In respect of 12.10(e) that the legal ownership and of all mineral and surface rights has been verified; and
• In respect of 12.14(a)(xii), apart from the conversion of mining rights at the Falémé Exploration Project mentioned above, that no significant legal issue exists which would affect the likely viability of a project and/or on the estimation and classification of the Mineral Reserves and Mineral Resources as reported herein.

The legal statements referred to above are based on information provided by the management of Kumba and Eyesizwe and are true and correct to the deponents best knowledge and belief:

• Kumba

  Ms Marie Viljoen is the Kumba Legal Advisor. She has 27 years’ experience, five of which have been with Kumba.

• Eyesizwe

  Mr Bethuel Ngwenya is the Eyesizwe Group Legal Advisor. He is an admitted attorney, notary and conveyancer with a Masters degree from the University of the Witwatersrand. Prior to joining Eyesizwe in mid-2001, he worked for the legal department of Anglovaal Mining.

1.5  

Exchange Rates

The following exchange rates were applied on 1 January 2006: ZAR/USD: 6.17; ZAR/AUD: 4.77 and ZAR/RMB: 0.86.

1.6  

Valuation Basis

The Equity Valuation of Exxaro comprises the following:

• The LoM Plans as provided and Net Present Values (“NPVs”) at Exxaro’s respective discount rates;
• Enterprise Values for each of the Material Properties. The Enterprise Values are derived using discounted cash flow (“DCF”) techniques applied to post-tax pre-finance cash flows (commencing 1 January 2006 and reported in financial years ending 31 December) derived from the underlying LoM Plans and the associated Technical Economic Parameters (“TEPs”). The Enterprise Values are reported as NPVs quoted at Exxaro’s discount rates;
• Valuation of certain Exploration Projects; and
• Valuation Adjustments including unallocated corporate expenses, Eyesizwe purchase consideration, net (debt)/cash, mark to market value of derivative instruments and other liabilities as at 1 January 2006.
• Two valuation scenarios are presented in Section 14 of this report:
  • Scenario I (the Base Case Scenario)
    • Sishen Mine

      The SRK Financial Model (“FM”) for Scenario I excludes: Inferred Resources in the LoM Plan; ore from selective mining and various surface stockpiles.

    • Grootegeluk Mine

      19-year LoM. Exxaro will not have a coal supply contract with the Matimba Power Station which extends for an additional 20 years to 40 years, and therefore SRK consider it prudent to investigate a 19-year LoM option up to the year the current Matimba Power Station contract expires (Scenario I) and a 40-year option (Scenario II).

    • Mafube JV Project Phase II

      Excluding Nooitgedacht Inferred Resources.

  • Scenario II
    • Sishen Mine

      The SRK FM for Scenario II includes: Inferred Resources in the LoM Plan; ore from selective mining and various surface stockpiles. The Inferred Resources reported have had modifying factors applied to them, such as mining losses and dilution, such that they represent headfeed tonnages and grades.

    • Grootegeluk Mine

      40-year LoM. Assumes that mine will supply Matimba Power Station with coal for 40 years up to 2045.

    • Mafube JV Project Phase II

      Including Nooitgedacht Inferred Resources.

The post-tax pre-finance cash flows presented for each Mining Asset incorporate the macro-economic projections as presented in Table 1.2 and Table 1.3 and the commodity price projections included in Section 13.

For each operating entity SRK has developed FMs, the results of which are presented in Section 14 and Section 15 of this CPR. The FMs presented in nominal terms are based on annual cash flow projections determined at endpoint, that is to say 31 December of each year and TEPs stated in 1 January 2006 money terms.

Taking cognisance of the volatile nature of both the commodity prices and the exchange rates above, SRK presents sensitivities in respect of the following:

• NPVs for revenue ranges (USD commodity price) between –30% and +30% assuming the forecasts as included in Table 1.2 and Table 1.3;
• NPVs for working costs between –15% and +15% assuming the forecasts as included in Table 1.2 and Table 1.3; and
• NPVs for capital expenditure between –15% and +15% assuming the forecasts as included in Table 1.2 and Table 1.3.

Table 1.2  

Table 1.3  

1.7  

Limitations, Reliance on Information, Declarations, Consent and Copyright

1.8  

Disclaimers and Cautionary Statements for US Investors

The United States Securities and Exchange Commission (the “SEC”) permits mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce from. Certain terms are used in this report, such as “resources”, that the SEC guidelines strictly prohibit companies from including in filings.

Ore Reserve (equivalent to Mineral Reserves) estimates are based on many factors, including, in this case, data with respect to drilling and sampling. Ore Reserves are derived from estimates of future technical factors, future production costs, future capital expenditure, future product prices and the exchange rate between the ZAR and the USD and the AUD and the USD. The Ore Reserve estimates contained in this report should not be interpreted as assurances of the economic life of the Material Properties or the future profitability of operations. As Ore Reserves are only estimates based on the factors and assumptions described herein, future Ore Reserve estimates may need to be revised. For example, if production costs increase or product prices decrease, a portion of the current Mineral Resources, from which the Ore Reserves are derived, may become uneconomical to recover and would therefore result in lower estimated Ore Reserves. The LoM Plans, the TEPs and the FMs include forward-looking statements in compliance with the requirements of the Listing Requirements. These forward-looking statements are necessarily estimates and involve a number of risks and uncertainties that could cause actual results to differ materially.

1.9  

Qualifications of Consultants

The SRK Group comprises 500 staff, offering expertise in a wide range of resource engineering disciplines. The SRK Group’s independence is ensured by the fact that it holds no equity in any project. This permits the SRK Group to provide its clients with conflict-free and objective recommendations on crucial judgment issues. The SRK Group has a demonstrated track record in undertaking independent assessments of resources and reserves, project evaluations and audits, CPRs and independent feasibility evaluations to bankable standards on behalf of exploration and mining companies and financial institutions, world-wide.

The SRK Group has also worked with a large number of major international mining companies and their projects, providing mining industry consultancy service inputs. SRK also has specific experience in commissions of this nature.

This CPR has been prepared based on a technical and economic review by a team of 35 consultants sourced from the SRK Group’s offices in South Africa, the United Kingdom and Australia over a seven-month period. These consultants are specialists in the fields of geology, resource and reserve estimation and classification, underground and open pit mining, rock engineering, metallurgical processing, hydrogeology and hydrology, tailings management, infrastructure, environmental management and mineral economics.

The Competent Persons with overall responsibility for reporting of Mineral Resources is Dr Michael Harley, Pr. Sci Nat. (SACNASP), MSAIMM, MAusIMM, PhD who is a partner of SRK. Dr Michael Harley is a mining geologist with 15 years’ experience in the mining industry and has been responsible for the reporting of Mineral Resources on various properties in Southern Africa and internationally during the past five years.

The Competent Person with overall responsibility for the CPR and for reporting of Mineral Reserves is Mr Roger Dixon, Pr. Eng, FSAIMM, BSc (Mining) who is an employee of SRK. Roger Dixon is a mining engineer with 34 years’ experience in the mining industry and has been involved in the reporting of Mineral Reserves on various properties in Southern Africa and internationally during the past 10 years.

The individuals who have provided input to this CPR, who are listed below, have extensive experience in the mining industry and are members in good standing of appropriate professional institutions:

• Alan Naismith, FSAIMM, FSANIRE, MSc, MBA;
• Alan Percival, PrEng, CEng, MIChE, BSc (Chem Eng);
• Andre Pieter Vorster, BSc (Hons), MSc, MBA;
• Andre van der Merwe, B.Sc (Geology), B.Sc (Hons), Geophysics), GDME, Pr Sci Nat;
• Andrew McDonald, CEng, FSAIMM, MIMMM, MSc, MBL;
• Andy Birtles, BSc (Hons) Mining, Pr Eng, CEng, MSAIMM, MIMMM;
• Brian Read, PrSciNat, MSAIAE, MGSSA, Nat Dip, BSc, BSc (Hons);
• Brad Williams, PrEng, BScEng, Mech. Engineers Cert. of Competency (Mines and Works);
• Carel Roode, BSc, B Com, FSAIMM, MSAIMM, FSAIChemE, AMIChemE, MMMMA, MSAWEK;
• Claude Prinsloo, SAICE, B Eng (Civil);
• Colin Healy, FA Arb., Pr CPM;
• Dennis Bosch, BSc (Chem Eng) (Wits); MSc (London);
• Ebrahim Takolia, BEconSc, MBA, ELP;
• Fiona Cessford, BSc (Hons) (Biology), MSc (Environmental Science), C Bio (UK), Pr Sci Nat;
• Grant van Heerden, BSc (Hons), GDE (Mining);
• H G (Wally) Waldeck, PrEng, FSAIMM, AMAMMSA, BScEng, MBA;
• Iestyn Humphreys, AM.I.Min.E, AIME, PhD;
• James Lake, Pr Sci Nat, MSc;
• Johannes de Korte, PrEng, MSACPS, BEng (Hons), MDP;
• John Cowan, BSc (Hons), PCE, PrSciNat;
• John Miles, C. Eng., MIMMM, MSc;
• John Sparrow, Pr Sci Nat, BSc (Hons) (Geology), COM Cert Rock Mech;
• Kenneth Stanford, Pr Tech. Eng;
• Leonardo Kleiman, Pr Eng, MSc Eng, BSc (Mech Engineering);
• Malcolm Maber, BTech (Civil), MSAICE;
• Mark Wanless, BSc (Hons) Pr Sci Nat;
• Michael Harley, Pr Sci Nat., MAusIMM, MSAIMM, PhD;
• Mike Warren, BSc (Mining Eng.), MBA, MAusIMM, FAICD:
• Richard Stuart, P Tech (Eng);
• Rob McNeill, Pr Tech (Eng);
• Rocky Kinghorn, MSAIMM, MFFF, Higher Nat Dip (Mining);
• Roger Dixon, Pr. Eng, FSAIMM, BSc (Mining);
• Ross McMillan, BEng (Mining);
• Sjoerd Rein Duim, MAusIMM, MSc (Eng), Ir; and
• Vic Hills, Pr.Eng., MSAIMM, B.Eng.