AML 2011 Annual Report Highlights 20Mtpa Phase I Capacity

Annual Report 2011
Mining and processing

20Mtpa
Capacity in Phase I
10Mt
What we do The Company currently operates the world class Tonkolili iron ore mine and was the first company to export iron ore from Sierra Leone in over 30 years. Phase I of the Tonkolili project will ramp up to full capacity of 20Mtpa during 2012, making African Minerals the largest iron ore producer in West Africa.
expected production in 2012
Who we are African Minerals Limited is a minerals exploration, development, and production company with significant interests in Sierra Leone. It is listed on the Alternative Investment Market of the London Stock Exchange, and is headquartered in London, United Kingdom.
Community
40,000t
Port
maiden shipment in November 2011
Contents
Business overview 02 Mission, What to expect 03 Highlights 04 Tonkolili project 06 Port 08 Rail 10 Mining and processing 12 Community 14 Executive Chairmans statement Strategy 16 Strategy 17 Business model 18 Strategic context 20 Growth 22 KPI reporting 24 Principal risks and uncertainties Group operational and financialreview 26 Operational review 28 Financial review
$1.5bn
Investment by SISG in March 2012
Rail
Sustainability 32 Corporate responsibility Corporate governance 36 Board of Directors and Management 38 Directors report 40 Corporate governance statement 43 Directors remuneration report Financial statements 47 Independent auditors report 48 Consolidated statement of comprehensive income 49 Consolidated statement of financialposition 50 Consolidated statement of cash flow 51 Consolidated statement of changes in equity 52 Notes to the financial statements 79 Advisors and Company information
200km
Distance from mine to ocean
Annual report 2011
African Minerals Limited
Business overview
Mission To reward our shareholders by using our skills to identify, develop and operate a variety of African natural resource assets whilst enriching the communities affected by our operations today and in the future.
What to expect African Minerals will continue to build upon its transformation in 2011 from a developer to producer, with the completion of the expansion of Phase I to 20Mtpa by the end of this year. In 2012, we will commence work towards our next quantum expansion of circa 30Mtpa.
15 months
to commence exports
$ 85/tonne
African Minerals Limited Annual report 2011
lowest decile capital intensity
Highlights

2011
Commenced exports in November 2011, just 15 months from receipt of Mining Lease and the Environmental Impact Assessment Licence. Iron ore sales for 2012 and 2013 fully committed. Increase in scope of Phase I capacity to 20Mtpa with forecast cost at completion of $1.7bn by end 2012, giving lowest decile capital intensity of $85/tonne. Memorandum of Understanding signed with China Communications Construction Company (CCCC) for the development of the final engineering study for Phase II Infrastructure of the Tonkolili project. Achieved a Long-Term Injury Frequency Rate (LTIFR) of 1.55 per million hours worked. This highlights AMLs growing commitment to health and safety standards across the Tonkolili project.
2012
Closing of Shandong Iron and Steel Group (SISG) $1.5bn investment in the Tonkolili project in March 2012. $418m secured loan facility repaid. Low gearing post SISG, with a debt facility of $100m and $350m of Convertible Bond at the corporate level, and debt of $93m at the project level. CRM completes subscription of $50m Convertible Bond. 2012 is a commissioning and ramp-up year, with its associated inherent uncertainties, but expect to achieve exports of circa 10Mt during 2012. Phase I completion progressing on target; the Company remains confident of attaining production run rate of 20Mtpa during Q4 2012, with cash costs under $30/t on a Free on Board (FOB) basis.
Annual report 2011
Business overview
Tonkolili project
One of Africas fastest developed mines.
Port Loko airstrip
Lungi Airport
Port Loko
Port operation camp
Pepel
Port construction camp

Tagrin Point
Lunsar
Marampa Mine
Pepel Lunsar Tonkolili rail, phase I Deviated Pepel rail, phase II Tagrin Lunsar rail, phase II
Rail stockyard Ferry terminal
Tagrin lease area
Infrastructure lease boundary
10
15
20 kilometres
Port
Rail
Progress
Progress

Trans-shipping vessels are used in normal operation to load Cape Size vessels at a transhipment point 38 nautical miles from Pepel Port off the coast of Sierra Leone. Currently expanding the port stockyard to have a standing capacity of 1Mt.
Rail operational from mine to port; commissioning and de-stressing continuing. Train cycle times reducing as commissioning advances at rail and port. Train fleet increasing with 20 locos and 456 ore cars now in complement and continuing to increase.
Annual report 2011
Guinea
Europe Sierra Leone
China
Freetown
Sierra Leone Liberia
Mine operation camp
Mine construction camp
Pit fly rock zone

Bumbuna
Numbara Pit
Hematite process plant

Makeni
Farangbaia Forest Reserve
Marampon Pit
Simbili Pit
AML Mine lease area Raw water dams Tailings storage facility cell 1 Tailings storage facility cell 2
Saprolite process plant Tailings storage facility option 2 Magnetite process plant
Project investigation area
200km
Mining and processing
Community
Progress
Progress
The project is currently the largest private sector employer in Sierra Leone, with 7,405 people involved in the project in various capacities in 2011. In 2011, AML spent $3.2 million on various community initiatives. AML has had a direct and indirect effect on the community. Direct: the Company has promoted business incubators for activities ranging from brickmaking to carpentry to textiles. Indirect: the Companys activities have spurred indirect entrepreneurship in hospitality, transport, infrastructure and construction.
Annual report 2011 African Minerals Limited
Mine in production, with 1.3Mt produced in 2011, regular annualised production of in excess of 6-8Mtpa already achieved in 2012 with semi-permanent plants. Completion of wet process facility progressing well, commissioning midyear and ramp up in Q3 2012.
Business overview
Annual report 2011
1Mt
Stockpile capacity on completion of expansion in 2012
45,000t
Capacity of transhipment vessels that self unload on to a Cape Size vessel in the ocean
The port infrastructure is complete with commissioning under way; AML has successfully rehabilitated the Pepel Port with new infrastructure to support ore dumping, a new butterfly stacker, reclaimer, stockyard and rehabilitated an existing ship loader. AML is also utilising two transhipment vessels, with 45kt capacity, to load Cape Size vessels at a berth point 38 nautical miles from Pepel Port off the coast of Sierra Leone. In future phases, the Company plans to move to Tagrin Point, and construct a new deep water port, capable of supporting Cape Size vessels.
Annual report 2011
Business overview
Annual report 2011
20Mtpa
Export capacity in Phase I
200km
Length of new and fully reconstructed rail from Tonkolili to Pepel
AML has reconstructed 74km of rail and built a new 126km narrow gauge railroad to the mine site. AML has also begun an exercise to replace portions of the track to support increased axle loads of 25t. In May 2011, we signed a Memorandum of Understanding with CCCC one of the major Chinese port and rail construction companies to carry out the engineering studies required for the major infrastructure components of the Phase II expansion, most notable being the establishment of a new deep water port facility at Tagrin Point. Those studies, which now have a scope to support expanded production of up to 50Mtpa, are currently in progress.
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Business overview
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75%
Ownership of subsidiary companies by AML (SISG 25%)
$1.5bn
Size of SISG investment to gain 25% stake in project
We have successfully achieved our first goal of bringing the Tonkolili Mine into production. AML is now focused on bringing production up to our 20Mpta run rate. A key element of achieving this production level is the commissioning of the wet processing plant that will achieve 15Mtpa. The mine operation currently includes a dry processing plant, mining and drilling fleet, product stockyards and rail loading area, laboratory, camp and health facilities.
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Business overview
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7,405
People employed on the Tonkolili project in 2011
82%
Percentage of Sierra Leone nationals employed on the Tonkolili project in 2011
AML continues to enjoy the support of the Government and people of Sierra Leone. In 2011 the Company has contributed significantly to the development agenda of the country and its communities as part of its corporate social responsibility. AML has invested significantly in community infrastructure and other communityrelated support projects. In 2011, the Companys flagship scholarship programme covered 1,912 students across the project areas. The Company paid all fees for the pupils and provided education materials including exercise and text books, pens, and pencils to various schools across the project areas.
Image: New accommodation built by AML for Farangbaia village.
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Business overview
Executive Chairmans statement

We are pleased to welcome Shandong Iron & Steel Group, one of the worlds largest steel producers, asa strategic investor in the Tonkolili project. This partnership confirms the potential for Sierra Leone to become one of the worlds major iron ore producing nations thereby creating lasting benefits for its people.
SISG $1.5bn investment
Dear Shareholder, At the start of last year, we looked forward to 2011 being a transformational year for African Minerals and I am pleased to report that your Company has indeed made that significant step. In 2011 AML became a large iron ore producer by developing the mine and associated infrastructure to ship product to international export markets. We made our first shipment in November 2011 and are on the way to becoming the largest iron ore producer in West Africa. Post year end we also completed our landmark $1.5bn transaction with Shandong Iron and Steel Group (SISG). More importantly, for both our shareholders and broader stakeholders, we have demonstrated a strong momentum to grow, and created within the Company a distinctive culture and appetite for further development. Our team continues to prove its capabilities, despite the specific challenges of working in the region, of simultaneously constructing, commissioning and operating a new fully integrated mine, rail and port operation. At the same time we have ensured that we have adequate financial resources to deliver our long-term plans. In so doing we have also ensured that the people and Government of Sierra Leone prosper from our partnership with them, both at grassroots and Government level. We have created a new source of raw material supply from West Africa, and forged strong links between Sierra Leone and the large business community in China, including SISG, CCCC, China Railway Materials Commercial Corp (CRM) and others.
Frank Timis with Mr. Zhongchen Zou, Chairman of SISG.
SISG steel manufacturing plant in Jinan, Shandong Province, China.
In March 2012, we completed a $1.5bn investment transaction with SISG, one of the worlds largest iron and steel groups, specialising in the smelting, processing and the sale of steel and related commodities. It currently produces circa 25Mtpa of steel, and plans to increase its steel output to circa 40Mtpa by 2015. Details of the transaction SISG has invested $1.5bn in return for a 25% shareholding in the subsidiaries holding the project assets, namely Tonkolili Iron Ore (SL) Limited, African Power (SL) Limited, and African Railway and Port Services (SL) Limited. The funds from the investment will principally be used by the project companies to accelerate the Phase II development of the mine operation at Tonkolili and for construction of the related infrastructure in Sierra Leone and has been used to repay the outstanding secured loan facility debt of $417.7m to Standard Bank Limited, including interest to be repaid to AML.
SISG has the right to appoint two out of five directors to the board of each project company (with the exception of African Railway and Port Services, where SISG has the right to appoint two out of seven directors with the additional two board seats to be reserved for the Government of Sierra Leone) and one Director to the Board of AML, and will have other typical minority governance rights at the project company level. Mr Cui Jurong, currently Vice President of SISG, has been nominated by SISG to the Board of AML. SISG has also signed discounted off-take agreements in respect to iron ore produced at the Tonkolili Mine. SISG will purchase 2Mtpa of Phase I production, an incremental 8Mpta after Phase II is commissioned, and a total of 10Mtpa during Phase III, with discounts in each phase ranging from 0% to 15%.
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In order to achieve our goal of first ore on ship in 2011 we completed the reconstruction and construction works on our 200km narrow gauge railway as well as the required civil and marine engineering works to the port at Pepel. During 2011, we also began construction of the Phase IB wet processing facility and, following a review of the operational capacity of the mine and supporting infrastructure, significantly increased the scope of Phase I of the project from 12Mtpa to 20Mtpa. The continued support of the Government of Sierra Leone has been a key factor in our progress and our fruitful relationships with Chinese suppliers, including CRM, ensured necessary equipment was readily available. In addition, bringing Tonkolili to production would not have been possible without the commitment and hard work of everyone at the Company. This year we employed and trained over 6,500 Sierra Leone nationals, who now make up over 80% of our workforce.
performance audited. However, it is with deep regret that we report five fatal incidents during 2011 and we extend our heartfelt condolences to the families that suffered tragic loss. We are rigidly enforcing our existing safety policies with a target of zero fatalities in the coming year. As a result of our commitment to international health and safety standards, AML has achieved a very commendable LTIFR of 1.55. Our Community Liaison Officers have an ongoing dialogue with local communities and keep them informed on our activities and their expectations. In 2011, one of our key priorities was focusing our efforts on improving literacy and numeracy in local communities. Additionally, one of the greatest risks to the health of our employees is malaria. To combat this, we have built medical centres and educated medical professionals in order to protect our workforce and local communities.
cash flow and skills to underpin the development of Phases II and III. In the year ahead, this will remain our priority. During the first half of 2011, we strengthened our Board of Directors with the addition of Nina Shapiro as Independent Non-Executive Director (NED) and in early July, Bernard Pryor joined the Board also as an Independent NED. Following the successful completion of the SISG investment, we are pleased to have appointed Mr Cui Jurong onto the Board of AML. In May 2012, Alan Watling retired from AML after serving as the Companys Chief Executive Officer for three years. Your Board would like to thank Alan for his invaluable contribution to the commencement of production at the Tonkolili project. In addition to the Remuneration Committee and Audit Committee, the Board recently established a Risk Committee to monitor the various Company operations. This strengthening and adjustment of the Board will continue with an aim to having a majority of independent Directors on the Board in due course. In terms of outlook for 2012, we remain confident of achieving the 20Mtpa capacity even though the mine, rail and port are still in the construction and commissioning phase. Expansion includes significant process and stockyard enhancement, together with the completion of the rail upgrade programme. Given these challenges, we expect to achieve exports of circa 10Mt in 2012. Maintaining cost discipline is fundamental to our long-term goal and in the year ahead the operating cost base will be controlled below $30 per tonne. I would like to extend my thanks to everyone at African Minerals for their hard work and dedication in this pivotal year which saw the Company become a producer and exporter; you should be incredibly proud of what we have achieved. I would also like to thank our shareholders and the people and Government of Sierra Leone for their continued and invaluable support for the Company. Vasile (Frank) Timis Executive Chairman
Our achievements at Tonkolili underline your Companys core strengths and The achievement of first ore on ship illustrate, in tangible and practical marks a major milestone for the region terms, the long-term strategic vision in the development of its links with the for the years ahead. This years report international community. AMLs pivotal role articulates the strategic drivers which in this process demonstrates a commitment we believe will help to achieve our to overcoming the physical, cultural core aim and unlock the value inherent and commercial obstacles which have in the regions natural resources. historically constrained such industrial links. Our now proven ability to identify resources Whilst our achievements in 2011 were and establish unique partnerships with substantial, there were several challenges governments and global steel industry encountered during the year which players has allowed us to access capital. negatively affected our performance. By attracting, developing and retaining In September 2011, we reported the diverse skills required to develop setbacks in our railway construction the projects, we have established our due to adverse weather conditions. credentials in delivering complex projects in The wet season in Sierra Leone is one Africa; ultimately, by securing a market for of our key operational challenges, and our products, we have enabled the value our experiences during 2011 will help of the Earths resources to be captured to ensure that our future construction in a way which supports our stakeholders projects do not face these same delays. and rewards our shareholders. Due to a number of commissioning issues we were unable to meet our Your Board and senior managements original production target figure for 2011. appetite to replicate our achievements However, we are pleased to report that so far is, of course, a key aspect of these issues are being resolved and our future growth. Longer term, our appetite 2012 projects are currently on schedule. may extend beyond the scope of our current resource but we are committed The safety and wellbeing of our employees to acting prudently and managing our is a priority of African Minerals, and we speed of development. In the case of have continued to implement our safety Tonkolili, our partnerships with CRM, standards to ensure that our employees SISG and other counterparties, clearly are trained, vigilant, compliant and their demonstrate that we have secured future
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Strategy
Strategy
Corporate objective
To be a leading independent mining company, providing superior returns to shareholders.
Strategy to deliver
To invest in and develop quality assets to achieve long-term sustainable growth for the benefit of all our stakeholders. Strategic drivers

Resources
Approach
Capital
Skills
Sales
We have proven our ability to identify resources and markets as well as to judge the potential for their commercial development.
Our entrepreneurial approach and technical expertise enabled us to establish unique partnerships with large steel industry players in China, and strengthened our relationships with the Government and people of Sierra Leone.
AML has nurtured and developed a strong and diverse investor base, which has allowed us to access capital from banks and the debt and equity markets as necessary.
We have attracted and retained the diverse skills required to develop the project whilst also recruiting and training large numbers of indigenous employees.
Early stage projects need to secure a market for their eventual production in order for the value to ultimately be captured.
Strategy in action
At Tonkolili we have identified a large 12.8bt ore body, from grass roots exploration, and successfully developed the mine and infrastructure required to exploit the resource. We fast-tracked construction to ensure that we were able to begin exports of iron ore within 15 months of receiving the requisite licences and permits. Our maiden shipment in November 2011 was Sierra Leones first export of iron ore in more than 30 years. At Tonkolili we have solved numerous issues including licensing, infrastructure, logistics and funding to successfully develop an early stage resource project. This ability to access finance has allowed the Company to accelerate its development plans and to continue to leverage the growth of both the Tonkolili deposit and the production expectations. The major refinancing we carried out in January 2012 represented a maturation from high cost debt to low cost facilities with commercial banks on standard terms. The recent conclusion of SISGs $1.5bn cash investment in Tonkolili is testament to our abilities in this regard. Our flat management structure promotes effective two-way communication with our employees and enables us to efficiently implement growth plans and address risks across the Company. In the case of Tonkolili, our partnerships with CRM, SISG and other counterparties, in return for product off-take, clearly demonstrate that we have secured future cash flow to underpin the development of Phases II and III.
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Business model
ncial Discipline Fina
Ide
ify nt
Inv
t es
Sound Governance
Ma
rk et
Mi
ne
Identify
Invest
Mine
Market
Our highly experienced and entrepreneurial commercial team has a vast network which enables us to identify a wide range of commercial opportunities, from potentially viable ore bodies to mutually beneficial marketing arrangements. Regarding the ore bodies, our exploration and appraisal teams may seek to create value from these opportunities by acquiring mineral exploration rights and identifying the optimal commercial approaches to exploration, development and operation of the resources.
Through disciplined execution of capital investment projects, we seek to bring new operations into the portfolio and expand existing operations. Streamlined and effective Group level decisionmaking and deployment of resources enables our engineering, construction and procurement teams to create value through rapid mine development within strict budgetary controls.
We are able to generate significant value through the operation of our mining activities. Further value is provided as mine plans evolve over the course of their development through the optimisation of processes, production increases and mine life extension. Given the long life and capital intensity of our assets, operating sustainably is a key driver of long-term value. We focus on the impact on the local communities of our mining operations and infrastructure and we work closely with them to ensure they benefit through employment and a range of community programmes.
We have established a long-term relationship with SISG and work closely with them so that our Tonkolili investment decisions are aligned with their requirements and the market trends which would impact the requirements of other customers.
Replicate
It is our intention to use this model within our strategy to replicate the success we have achieved at Tonkolili elsewhere in West Africa once Phase I of the Tonkolili project is fully commissioned.
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Strategy
Strategic context
Global Crude Steel Production (000 tonnes)
80000 70000 60000 50000 40000 30000 20000 10000 0 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Source: World Steel Association Year China ROW
Case study Julius Sambo Before joining AML as Maintenance Planning Engineer in October 2010, Julius had gained several years of experience working in the Sierra Leone mining industry. He was able to transfer his prior experience of maintaining an existing enterprise into developing and implementing maintenance systems for a new operation. He is currently in charge of maintaining logistics operations within the mines Engineering Department, and recognises the importance of his contribution to the successful operation of the Tonkolili project. In addition to being responsible for requisitions and corrective maintenance, he supervises the maintenance staff, making sure strict deadline adherence is maintained. This ensures that maximum production is attained as machinery and plant equipment remain operational while unnecessary spending and waste is minimised.
Julius believes that AMLs greatest contribution to the Tonkolili area is increased trade. The mine supports a large number of local businesses (anything from transportation to goods delivery and farming), whose enterprise feed into the broader community, increasing employment and skills, while directly contributing to a working communications network and an increased housing and construction industry. The trickledown effect of the mine reaches outside the local community to the rest of the country as increased revenues produce effective taxation which has a positive effect on Sierra Leone as a whole. Although the impact of AML has been dramatic, Julius recognises the importance of not becoming complacent. Whilst expectations are high within the community, economic development and the creation of sustainable wealth take time. Political stability, secure democratic institutions, improved healthcare and education are all future challenges for the development of Sierra Leone, which Julius hopes he will be part of making a reality. AMLs transition from exploration to production in record time is a remarkable achievement which would not have been possible without the contribution of skilled workers such as Julius. The rapid development of the Tonkolili mine underlines the local communitys commitment to the project, and demonstrates its ability to act as a source of lasting improvements for the region.
Strategic context in which African Minerals operates The successful delivery of African Minerals strategy is dependent on a number of external economic and competitive influences which are beyond the Companys direct control. These factors can broadly be defined by three core areas: Global economicenvironment & demand The iron ore produced by African Minerals will be sold to customers all over the world. The pricing and demand for AMLs iron ore is influenced by the global macroeconomic environment and the demand for end use products, most notably steel.
Operating in Sierra Leone Sierra Leone is a politically stable, rapidly developing country where African Minerals is the most significant commercial enterprise. Unlike many of the worlds iron ore producing countries, Sierra Leone has a relative shortage of skilled labour, and numerous infrastructure constraints relating to the supply of goods and services as well as an unsophisticated framework of industrial relations.
The scale of the development by the Company is not reflected elsewhere in the region (with the exception of a
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small number of projects in Liberia), which has led to significant human migration toward AMLs operations. High unemployment, very limited provision of public services, essential utilities and healthcare creates challenges and opportunities for community governance and for managing the expectations of the population. This is further constrained by limited formal communication networks. Malaria is also a real problem for the health of AMLs workforce and the community more broadly, affecting a significant portion of people within the region. Additionally, the heavy rainfall that Sierra Leone experiences during its rainy season (from May to November) creates a challenge for the successful construction and operation of the mine and its supporting infrastructure. Competitive environment The global market for iron ore is highly concentrated and very competitive, with a small number of large producers effectively acting as price-setters for the rest of the sector, given their ability to guarantee longterm high volume contracts which are preferable to steel mills. Whilst AML has the ability to offer these long-term high volume contracts, the Companys status as a new producer means that it will have to establish its reputation before it can act as a price-setter. As a result, AML currently operates as a price-taker rather than a price-setter for its products.
Growing economic uncertainty and weakening Chinese demand led to a fall in demand for commodities in the second half of 2011. This reduced demand resulted in a softening of prices for a number of commodities including coal and iron ore. Iron ore market The first half of 2011 saw strong demand growth for iron ore fuelled by improving market sentiment and a more positive global economic outlook. This heightened demand led to a strong pricing environment, with iron ore prices approaching their pre-2008 financial crisis levels. However, these increased demand levels were not sustained throughout the second half of 2011, with growing negative economic sentiment and uncertainty causing a sharp fall in demand for iron ore in H2 2011. The decline in demand for iron ore, which began in Q3 2011, continued throughout the rest of the year, accelerating sharply in Q4. The weakness in the global macroeconomic environment was the key driver of the decline in demand for iron ore, with numerous steel mills and furnaces in Europe shutting during H2 2011. In addition to the negative sentiment in Europe, the reduction in global demand for iron ore was heightened by growing concerns in China over visibly weaker future demand for ore, which led to significant inventory destocking and fall in output of Chinese steel mills. Whilst the demand slump witnessed in the second half of 2011 resulted in a substantial decrease in iron ore prices, they remain significantly above historic levels. The impact on pricing from the reduced demand for iron ore was eased by a tightening of supply due to the faster than anticipated reduction of output from India, with a number of high cost exporters withdrawing production due to the weakening price environment. Notwithstanding weaker forecasts, the continuing demand for iron ore from China, decreasing grades of iron ore in Australia and Brazil, iron ore prices remaining substantially above historic levels and tightening supply, has encouraged mining companies to pursue assets in jurisdictions that they previously did not have operations. This has led to a race for resources in West and Central Africa, as low operating costs, and large high quality
resources offset specific in-country risks. Increased political and macroeconomic stability, in countries such as Sierra Leone, have substantially de-risked the region and encouraged companies to invest resources and human capital in these assets. AML already provides investors a substantial foothold into West Africa, having brought to production a very large ore body with a life of mine in excess of 60 years at a capital intensity of $85/t, which is in the lowest decile of iron ore projects. The Company also operates its own rail and port infrastructure, and Sierra Leones location means AML is able to competitively transport its products to steel mills in both Europe and China. These advantages create a distinct platform for AML in the iron ore market and the steel market in general. Competitive environment The global iron ore industry is one with large barriers to entry due to the significant capital requirements and long lead time involved with bringing a mine to production. Global iron ore supply has historically been dominated by the Big 4 iron ore producers: Vale, BHP Billiton, Rio Tinto and Anglo American, who have in turn acted as price-setters for the rest of the industry. In recent years, the emergence of Fortescue Metals has challenged their dominance; however, the sector remains dominated by a few key players. In addition to competing globally with the Big 4 and Fortescue, African Minerals also faces competition from other large African iron ore producers such as ArcelorMittal and Kumba. Due to the concentrated nature of the iron ore industry, African Minerals competitive position may also be negatively affected by the ability of its competitors effectively to act as pricesetters for the rest of the sector, resulting in AML operating as a price-taker. Additionally, some of African Minerals competitors will have advantages over the Company in terms of geographic location in relation to customers and other large international iron ore companies may have greater financial resources and more extensive global operations than AML.
Global economic environment &demand During the first half of 2011, the global economys positive recovery from the financial crisis of 2008/09 continued, following sustained monetary and fiscal stimulus packages in many of the G20 economies. However, this positive sentiment did not continue into the second half of 2011, with the sovereign debt crisis and continuing uncertainty over the future of the Euro having a knock-on effect to the real economy, highlighted by equity market fragility and diminishing consumer confidence. The economic slowdown in the second half of the year was further exacerbated by the implementation of strict monetary policy controls in China and austerity measures in the USA to balance budget deficits.
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Strategy
Growth
Summarised project parameters Incremental capacity Max production Metallurgy 20Mtpa Capex $bn Phase Opex $/t Production Commence Infrastructure Life
Phase I (DSO) 20Mtpa of Direct Shipping Ore Phase II (Saprolite) Phase III (Magnetite) 30Mtpa of hematite conc. To be determined
Mass Yield: 85% Q4 2011 DSO c.58% Mass Yield: 3040% Hem Conc 64%
Pepel Port + 1.7 Transhipment NarrowGauge Rail c.3
<$30/t 6+ years c.$21 15+ years 60+ years
50Mtpa
3036 months Tagrin Port from funding Tagrin Port
To be Mass Yield: 26% To be determined Mag Conc 70%+ determined
To be c.$23 determined
Phase I Construction of Phase I of the Tonkolili project began in mid-2010, with first ore on ship achieved in November 2011. The scope of Phase I of the project has been increased by 150% from 8Mtpa to 20Mtpa during its development through a number of scope increases to mine and infrastructure capacity.
African Minerals expects to achieve a production rate of 20Mtpa by the end of 2012.
150%
Increased scope of Phase I of the project from 8Mtpa to 20Mtpa
Phase II The Companys next expansion is currently contemplated as being an additional circa 30Mtpa to a total of 50Mtpa. The Phase II expansion project will entail the development of a new purpose-built port at Tagrin Point. The new port will have the ability to load Cape Size vessels alongside Phase I was initially envisaged as an the quay and avoid the costs of using 8Mtpa road haulage project, however transhipment vessels. At the mine a new AML was able to increase capacity major concentrator will be built, producing to an initial 10Mtpa and then 12Mtpa circa 30Mtpa of high grade hematite after deciding to implement an all-rail concentrate. The transport solution for the transport solution through a successful movement of this concentrate from mine equity and debt funding in 2010. African to port be it expanded narrow gauge rail, Minerals further increased the capacity new standard gauge rail or slurry pipeline of Phase I to 15Mtpa in August 2011, during design of the Phase IB wet process is currently under consideration. This phase will be capable of supporting this plant and optimisation of rail and port expanded production for around 15years, infrastructure. The Phase IB plant is expected to be commissioned by mid 2012. at a cash cost estimated to be around $21/t. Higher quality product at lower cash costs will drive expanded margins. This 15Mtpa capacity was further supplemented by the Companys decision The capital costs, operating costs, and to construct a 5Mtpa expansion for the construction schedule are currently production of All in 32mm (AI32) being developed by our engineering hematite product in November 2011, partners, CCCC, with a Final Engineering taking total Phase I production capacity Study (FES) planned to be completed to 20Mtpa when fully developed. in 2013. Previous assessments of capital intensity for Phase II would In order to support this revised 20Mtpa suggest a circa $3bn capital cost. capacity, 74km of rail will be upgraded during 2012 to support increased axle Phase III weights of 25t from 20t and the rail Phase III involves the production of fleet will be increased from 20 locos magnetite concentrate from the primary and 456 wagons to an initial 34 locos magnetite mineralisation following the and 856 wagons. At Pepel Port, a construction of a series of large-scale second stockyard will be commissioned magnetite concentrators on-site. and certain modifications will be made to allow it to support production of Capital costs and maximum production 20Mtpa when fully developed. tonnage remain to be determined.
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Production and growth profile of Tonkolili

Tonkolili JORC resource December 2010 Material DSO Phase I Category Measured Indicated M and I Inferred M and I and I Saprolite Phase II Measured Indicated M and I Inferred M and I and I Magnetite Phase III Measured Indicated M and I Inferred M and I and I
Source: SRK Consulting Dec 10 Resource Upgrade Report
Tonnes (millions) 25.5 57.4 82.9 43.6 126.5 6.1 101.3 107.4 1,017.1 1,124.5 2,500 3,700 6,200 5,300 11,500
Fe Total % 59.1 58.1 58.4 57.6 58.1 52.2 46.6 46.9 39.3 40.0 30.2 30.4 30.3 29.8 30.1
SiO2 % 2.0 2.4 2.3 2.8 2.5 6.8 17.1 16.5 21.9 21.4 44.9 44.8 44.8 45.1 45.0
AI2O3 % 5.5 6.0 5.8 6.2 6.0 8.4 7.1 7.2 11.6 11.2 4.8 5.0 4.9 5.3 5.1
P % 0.12 0.09 0.10 0.08 0.09 0.17 0.12 0.12 0.08 0.08 0.07 0.06 0.06 0.06 0.06
Beyond Tonkolili AML and its Board remain open to reviewing options to explore growth via mergers and acquisitions. While this is certainly not a priority for 2012, we will review opportunities as they arise. The Company enjoys a strong balance sheet coupled with the prospect of strong consistent cash flows and can act on opportunities that the Board deems necessary to our strategy.
Three-Phase Development Plan
DSO Phase I

20Mtpa Direct Shipping Ore @ 58%+ $1.7bn capex and sub-$30/t on ship Narrow Gauge Railway to Pepel Port Transhipment 6yr+ life Commence Q4 2011
Saprolite Phase II

1.1Bnt resource, +30Mtpa Hematite Concentrate @ 64% Tagrin Point Direct loading to Cape Size vessels 15yr+ life Capex, Opex and Schedule under review
Magnetite Phase III

11.6Bnt resource, Magnetite Concentrate @ 70%+ 60yr+ life Capex, Cost and Scale TBD
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Strategy
KPI reporting
AML currently uses a range of financial and nonfinancial key performance indicators (KPIs) to monitor and measure its performance; however, in order to reflect the Companys development into an operating mining company, these KPIs will evolve significantly over time. We will develop and implement a range of KPIs which reflect our focus on operational excellence, strong risk management capabilities, financial discipline and sustainable development.
Indicator Financial Total shareholder return (TSR) Total shareholder return, calculated from the growth in share price together with any dividend income from the shares, with dividend income assumed to be reinvested. New and continuing investment inprojects. Cash and cash equivalents lessborrowings. We achieved a TSR of 4.5% during 2011. 1 Jan 2011: 4.21 31 Dec 2011: 4.36 Description 2011
Capital investment
We invested $1.1bn in the Tonkolili project during the year. We had cash and cash equivalents of $16m at 31 Dec 2011. Borrowings of $589m were generated during 2011.
Net cash
Non-financial Fatalities LTIFR Fatal accidents recorded over the Tonkolili project including subcontractors. Long-Term Injury Frequency Rate permillion hours worked. The Company recorded five fatalities in2011. 1.55
Employee diversity (Localisation)/turnover
Diversity of workforce percentage of workforce who are Sierra Leonean nationals (including contractors).
At end December 2011, 81% of the Companys workforce (including contractors) are Sierra Leoneans.
Corporate social investment
Total investment in community per annum.
$3.2m
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23
Total shareholder return 2011

4.5%
2.2%
10.1% 12 AML 10 8 6 FTSE250 4 2 0 2 4 6
FTSE100
Source: Thomson Reuters DataStream
2010
Target
Comment
We achieved a TSR of 0.47% during 2010.
We do not have a formal TSR target. However, we are committed to creating long-term shareholder value and aim to outperform our peer group. As at 31 Dec 2011 we expect further investments of $300m in 2012 including initial stages of Phase II development. We do not have a formal target for net cash; however, we manage our finances conservatively.
As we ramp up Phase I to full capacity and benefit from the associated cash flows and improved definition of Phase II, we expect a significant improvement in TSR in 2012. We expect levels of capital investment will continue to be significant as we continue the phased development of Tonkolili. Subsequent to year end, the Group received $350m from the Convertible Bonds issue and a further $18m from the equipment finance credit facility. In March 2012, SISG completed its investment, providing $1,017m cash at the project level, after repaying the full amount of $418m under the Secured Loan Facility, and providing an additional $65m at the AML corporate level.
We invested $380m in the project during 2010. We had cash equivalents of $372.4m at year end in 2010.
One fatality was recorded in 2010. 2.625
We aim to achieve zero fatalities. We continuously review our safety processes and are working with our contractors and healthcare team on the ground to ensure that such incidents are avoided entirely with the aim of zero harm. We do not have a formal target for the proportion of workforce who are Sierra Leonean; however, we are committed to increasing it over time. We have established two funds to support community development and to fund environmental and social protection and impact mitigation. Each fund will receive a sum equivalent to 0.1% of AMLs gross annual sales per annum.
Unfortunately, five people working on the Tonkolili project lost their lives in 2011. Our reported LTIFR combines all mining operations and construction projects, including contractors.
78% of the Companys workforce (including subcontractors) are Sierra Leone nationals.
We aim to increase levels of employment and training of Sierra Leoneans over time to ensure maximum benefits from our operations are passed to local communities. AML is committed to supporting local communities around the Tonkolili project and we have already invested significant sums in areas such as the provision of clean water supplies project and supporting the provision of education. We expect these sums to increase significantly as we develop our operations.
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24
Strategy
Principal risks and uncertainties

The Groups ability to successfully deliver its strategy is subject to a number of material risks and the effective management of these is critical to creating value for shareholders. The determination of these principal risks and uncertainties is conducted on an ongoing basis by the Board. Risk Operational and marketrisks
Fluctuations in iron ore prices As currently a single commodity producer, changes in the iron ore price and market could have a material positive or negative impact upon the Group and the development of its projects. There are inherent uncertainties in the estimation of iron ore resources and in projecting future rates of iron ore production. Fluctuations in these variables may have a material impact on the long-term financial condition and prospects of the Group. The development of mining projects can be affected by a multitude of factors, many of which are outside the Groups control (such as weather). A failure to effectively manage these factors could result in delays in construction, increases in capital costs, or reduction in planned exports. We manage the risk of fluctuations in the iron price by ensuring that our operations are constructed as low-cost, efficient operations. See Strategic context on page 18.
Impact
Mitigation
Further information
Estimates of resources
The Group adheres to the best practice standards set out in the Australasian Code for Reporting of Mineral Resources and Ore Reserves and uses independent, external consultants to review all exploration work undertaken and to produce resource and reserve estimates. The Group has appointed an extremely experienced management team who have significant experience of developing similar projects.
See Reserves & Resource Statement on page 21.
Project development
See Corporate Governance on page 40 and Operational Review on pages 2627.
Financial risks
Going Concern Risk The Groups ability to implement its business strategy is dependent on the availability of directors with engineering, mining and financial expertise. Loss or diminution in the services of key management personnel could have an adverse effect on the Groups business, financial condition, results of operations and prospects. The Directors have considered these risks and are confident that the Group will continue to have adequate resources to continue in operation for the foreseeable future. Following completion of the acquisition of SISG of a 25% shareholding in the Tonkolili project companies, the Group received cash of $1.5bn. See the Going Concern disclosure, note2, for the full details of risk and mitigation. See note 2 to the Accounts.
Funding Risk
The delivery of the Groups strategy will require significant additional capital to fund the further development of the Tonkolili project. Delays in the completion of Phase I of the Tonkolili project and access to the resulting cash flows could affect the Groups ability to trade as a going concern. Failure to obtain additional financing as needed, or on terms which are acceptable, could mean the Group is not able to fulfil itsexpansion strategy.
Having considered: the estimated cost to complete Phase I of the project; detailed cash flow forecasts; assumptions underpinning those forecasts; and the risks and uncertainties associated with the ramp up of production to a forecast level of 20Mtpa, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. SISGs investment has provided over $1bn of funding at the project level to accelerate Phase II expansion. We ensure that our operations are constructed as low-cost, efficient operations. Our Phase I production has a relatively low power requirement. In the future, we expect to benefit from the availability of abundant hydro-electric potential.
Costs
There are inherent uncertainties in the estimated development and operating costs of the mine, including the costs of skilled labour, power, water and fuel. Fuel and labour costs are a major component of the total cost of the operation and any increase in the price of fuel may have a material adverse effect on the Groupsperformance.
See page 20.
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25
Risk Non-financial risks

Employees
Impact
Mitigation
Further information
Completion of the Groups current projects is dependent upon the successful recruitment and retention of key engineering, financial and technical personnel. Specifically, meeting time and budget targets for Phase II of the Tonkolil project will be influenced by appointment of an effective CEO with relevant skills and experience.
The Groups remuneration policy is to pay a competitive salary that attracts and retains personnel of the highest quality, having regard to their experience and the nature, complexity and location of their work. Levels of pay for African Minerals are significantly higher than the National average for Sierra Leone. The Group has approved a 16% consumer price inflation linked wage increase, applied retrospectively from Jan 2012, for all employees and remains committed to transferring skills to the local Sierra Leone workforce. Individual remuneration for executives is linked to the Groups long-term performance through the award of share options. Following the resignation of Alan Watling the Board with the support of external consultants engaged in a comprehensive international review of CEO candidates. The Group is implementing world class health and safety policies and procedures which exceed local legal standards.
See Directors Remuneration Report on pages 43 to 45.
Health and safety
The development and operation of largescale, complex operations such as the Tonkolili project is inherently risky. Safety regulations in Sierra Leone are developing and adopting global best practice standards will be challenging. The Group is subject to environmental regulations. Non-compliance could result in significant impacts to the development and futureoperation of the Groups projects. Environmental impacts also have the potential to significantly impact community relations. There is potential for the Groups operations to be affected by instability and changes to legal, regulatory or fiscal frameworks in Sierra Leone. This could include, amongst other things, political unrest, changes to royalty or tax rates and the withdrawal or variation of permits. The development of the Groups projects could negatively impact communities near its operations due to resettlements or the ongoing development of the Tonkolili Mine and its associated infrastructure. In addition, given the lack of economic development in the area where we operate, there is a potential for unrealistic community expectations regarding the Groups ability to provide employment and community services. The Groups ability to implement its business strategy is dependent on the availability of directors with engineering, mining and financial expertise. Loss or diminution in the services of key management personnel could have an adverse effect on the Groups business, financial condition, results of operations and prospects.
See Corporate responsibility plan and update on pages 32 to 35.
Environment
AML is committed to sustainable development and has undertaken an extensive Environmental, Social and Health, Impact Assessment of Phase I. AML will strive to develop our operation in line with internationally accepted practices. The Group works closely with the local communities where it operates in order to maintain its social licence to operate. The Group also maintains a regular, transparent and open engagement with the Government and regulatory agencies of Sierra Leone. AML is committed to building strong relationships with national and local governments and organisations. Consultation Committees have been established in seven chiefdoms to manage community needs for Phase I project activities.
See Corporate responsibility plan and update on pages 32 to 35
Political, legal and regulatory
Community relations
See Corporate responsibility plan and update on pages 32 to 35
Corporate governance
The Group has appointed a number of additional Independent Non-Executive Directors and intends to appoint additional Directors to obtain a majority of Independent Directors.
See Corporate Governance statement on page 40
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26
Group operational and financial review
Operational review
856
Number of ore cars in rail fleet by year end
34
Number of locomotives in rail fleet by year end
Case study Tedwina Faulkner Mine Geologist Tedwina joined AML in August 2009 as an Exploration Geologist. She supervises a team of 11 Grade Control Geologists and 25 Geo Technicians, and is responsible for the collection of samples for the metallurgical laboratory. The Geology department is the backbone of the mine as it oversees the quality of AMLs products and is therefore directly responsible for meeting customer specifications. Knowing that AML keeping or losing a customer is directly attributable to how accurately her department performs gives Tedwina a sense of purpose in her job which she greatly enjoys. AML is aiding Tedwinas career development through continuous education in software such as Data Mine Geology Tool, and by allowing her to gain experience as a supervisor in both field work and
management. The insight her work has given her into AMLs corporate structure allows her to better understand the future challenges of the Company and underlines the importance of communication and sharing information, as well as the balance between teamwork and individual promotion. This understanding of the Companys future helps to keep Tedwina motivated as she understands what AML is trying to achieve and how she can help the realisation of these goals. Tedwina appreciates the importance of the Tonkolili project to the local community, through the scholarships and assessment programmes initiated by AML to improve the education of local children and the continued education and training of AML employees like herself. These initiatives to promote education and skills all contribute towards helping Sierra Leone recover from its past troubles and will provide the next generation of Sierra
Leoneans with the skills to continue the countrys development. Despite the encouraging start for AML and the continued development of Sierra Leone, Tedwina maintains a sense of caution when considering the future. She highlights how the introduction of a working train line was major news in the country, and the potential for people to be easily carried away with their expectations of AML. Tedwina emphasises the need for communities to understand that companies operating in Sierra Leone need to be profitable in order for them to continue to assist the countrys development. Tedwina is proud to work on a project which will ensure prosperity for many generations, and is excited about continuing to apply her skills and increase her knowledge as a part of that process.
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27
Expansion to Phase I The significant progress made during 2010 to deliver Phase I of the Tonkolili project continued in 2011 with the successful delivery of first ore on ship in November 2011 and a number of expansions to the scope of the project during the year. In the first half of 2011, AML completed the designs for and began construction of the wet processing facility at the Tonkolili Mine, with an initial production capacity of 15Mtpa. In August 2011, following various changes of scope during construction, AML and SRK Consulting completed a review of the operational capacity of the various elements of the Phase I project, concluding that the Tonkolili plant, mining equipment and wet processing plant would support a sustained production level of 15Mtpa. The operational review also determined that the Phase I rail and port infrastructure was capable of supporting production of 16.2Mtpa. This revised 15Mtpa production capacity for Phase I was further increased in November 2011, with the commencement of construction of an expansion for the production of an AI32 hematite product. The construction of the AI32 expansion was completed in December 2011 and adds in excess of a further 5Mtpa of production, giving Phase I of the project a total production capacity of 20Mtpa. During 2012, in order to support the expanded production capacity of 20Mtpa the Company will continue to upgrade its rail and port infrastructure capacity. Mining and processing In December 2010, we commenced formal mining operations at the Simbili part of the Tonkolili orebody and, over the course of the year, the mine and process plant produced 1.3Mt of Direct Shipping Ore (DSO). Construction of the Tonkolili 15Mtpa wet process facility is progressing well and it is expected to start commissioning mid year 2012. On completion of the wet process facility, we will have sufficient production capacity at the mine to achieve our Phase I target production run rate of 20Mtpa.
Rail & port Our maiden shipment of 40,000 tonnes of DSO from Tonkolili in November followed the opening of the integrated mine, rail and port infrastructure, 200km from the mine to the ocean. The original reconstruction of 74km of existing railway and construction of a new 126km narrow gauge railroad is complete. Our programme to further upgrade the reconstructed narrow gauge rail is underway to allow wagon loads to be increased from 60 tonnes per wagon to 75 tonnes per wagon, with higher rail speeds. The current fleet complement of 20 locos and 456 wagons will be expected to be raised to at least 34 locos and 856 wagons. Civil and marine engineering works were also completed at the port and associated stockyard during 2011 in order to make the first shipment on schedule. We have experienced some temporary issues with materials handling which have had some impact on loading rates, and these issues are being addressed. Similarly, rail speeds are increasing, and cycle times reducing, as the rail upgrade programme continues. The issues encountered in the first quarter of 2012 led us to review our outlook for the year, and we now expect to export circa 10Mt in 2012.
that there were five fatal incidents in 2011. Employee safety is the number one priority of African Minerals, and the Company strictly enforces its safety policies with the aim of zero fatalities in 2012. Sales tonnage Current mine operations are comfortably achieving 8Mtpa, and the current port, rail layout and fleet complement is capable of supporting a production rate of around 6-8Mtpa. Once we have completed the rail upgrade to the higher specification, received the full train fleet complement, commissioned the plant and port expansions, our fully integrated mine, plant, rail and port operations are expected to produce at a run rate of 20Mtpa. This will comprise 15Mtpa of standard lump and fine ore and 5Mtpa of our unscreened AI32 product. Sales and marketing All expected production for 2012 and 2013 is fully committed under existing contracts. As previously announced, our 58% DSO lump and fines sales are priced against the 58% Platts CFR China index with moisture content adjustments in H1 2012 of approximately 8% prior to penalties for deleterious elements or premium for lump. Freight rates are benchmarked against the BCI C3 rate for Cape Size vessels on the TubaraoQingdao route.
SISG transaction completed In March 2012, we successfully completed the transaction with SISG under which they acquired a 25% stake in the Tonkolili project in return for $1.5bn and various off-take arrangements. This followed the receipt of requisite approvals from the Peoples Republic of China and confirmation that our trial ore shipment had been successfully tested in their blast furnaces in February 2012. This investment Health and Safety The safety and wellbeing of our employees is a significant vote of confidence in what we have so far achieved at Tonkolili is the top priority of African Minerals, and we have continued to implement our safety and will enable us to accelerate the development of Phase II whilst also standards to ensure that our employees paying down US$418m of secured debt. are trained, vigilant, compliant and their performance audited. To further improve Phase II expansion Occupational Health and Safety at our In May 2011, we signed a memorandum operations, in 2011 we sent a group of of understanding with CCCC for the employees to South Africa for specialist development of the Final Engineering HSE training. Our HSE efforts delivered Study for Phase II of the Tonkolili project. a creditable result, with a reduction in our With the receipt of the SISG investment, rolling Long-Term Injury Frequency Rate this study will now be accelerated. An (LTIFR) in 2011 to 1.55, compared to update will be provided in due course. 2.63 in 2010. Despite this reduction in LTIFR, the Company regrettably reports The associated expansion at the port, including a second stockyard to meet higher production rates is also progressing well. The expansion will increase port stockpile capacity by 580,000 tonnes, to almost 1Mt, and double port stockpile out-load capacity to support the 20Mtpa production run rate.
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28
Financial review
Annual report 2011
29
AML raised a total of $653m during 2011. In January 2011, 6,991,450 new common shares were issued to CRM for a consideration of $46m in accordance with their pre-emption rights to retain a 12.5% share of the enlarged capital of AML following the $307m placing in November 2010. In February 2011, a Secured Loan Facility of $418m was established with the funds fully drawn down at year end. In August 2011, the Group received approval for the provision of a $93m equipment finance credit facility. $71m was drawn down in 2011 with another $18m drawn down, in January 2012. In November 2011, the Group signed a $100m standby facility agreement. This facility was fully drawn down by the end of 2011. Subsequent to the end of the year, in January 2012, the Group issued Convertible Bonds to the value of $350m, with a maturity of five years, an 8.5% coupon, and a conversion price of 7.00 per share. In accordance with the terms of the Subscription Agreement between CRM and AML, announced 1 April 2010, CRM has the right to maintain its 12.5% shareholding in the event of any equity placings by AML. CRM has subscribed to 12.5% of the Companys convertible bond, taking total proceeds to approximately $400m. These financings together with the funds from SISG, provided the full financial resources required to take Phase I through the construction and commissioning stages until production ramps up in the second half of 2012 to a run rate of 20Mtpa.
Cash position As at the end of December, the Group had a cash balance of $16m. Subsequent to year end, the Group received $350m from the Convertible Bonds issue and a further $18m from the equipment finance credit facility, both as mentioned above. A further $180m has been received from iron ore sales during Q1 2012. In March 2012, SISG completed its investment, providing $1,017m cash at the project level, after repaying the full amount of $418m under the Secured Loan Facility, and providing an additional $65m at the AML corporate level. Taxation Major features of the fiscal regime include:

Mining Lease fee of US$1m pa; 3.2% royalty of the FOB sales price of iron ore production which includes 0.1%, to be contributed to an environmental and social protection and impact mitigation fund, to be managed and controlled by the Company, and 0.1% to a community development fund for the benefit of communities impacted by the Project; corporate tax rate of 25% for the life of the mine, with a four-year accelerated depreciation allowance (40%, 20%, 20%, 20%); 5% withholding tax on dividends; and exemptions for Goods and Services Tax (GST), and import tax for the Company and its contractors.
In February 2012, AML volunteered to prepay $20m (2011: $10m) in Sierra Leone employee withholding tax which will be offset against future tax liabilities, in order to support infrastructure development in the country.
Annual report 2011
30
Financial review continued

Financial result FY 2011 The Group generated an operating loss for the period of $41.5m, which principally consisted of employee costs and travel of $28.5m, including share-based payments of $16.5m. A taxation credit of $27.1m was generated, mainly driven by recognition of deferred tax assets on qualifying capital expenditure in Sierra Leone that is in excess of deferred tax liabilities, resulting in a $13.3m loss after tax. under construction as the Tonkolili project moved to development phase. Including the exploration assets transfer, assets under construction and property, plant and equipment increased by $1,237m since December 2010 to $1,506m, resulting from expenditure on the Tonkolili Mine, the construction and reconstruction of the new and existing rail and the construction and upgrade of the Pepel port facility. Equity increased by $109.7m during 2011 to $982.1m. In January 2011, $46.3m was raised through an equity placing as a result of CRM exercising their pre-emption rights in relation to the equity placing undertaken in November 2010. In February 2011, $38.4m warrants and $17.1m shares were issued to lenders as part of a secured loan facility. There was a $25.7m increase in equity reserves due to share-based payments ($9.2m of this charge was capitalised to assets under construction, resulting in the $16.5m income statement charge). These increases were offset by the $13.3m increase in accumulated deficit. At the end of 2011, cash and cash equivalents amounted to $16.5m (2010: $372.4m). In February 2012, since the end of the period, AML completed a $918m refinancing package, including the $400m convertible bond referred to above. In March 2012, the company completed the $1.5bn investment transaction with SISG, and repaid $418m of debt that was outstanding. This refinancing provided relief from certain restrictive covenants, and brings the average cost of our remaining debt down to circa 8.3%.
As production ramps up in 2012, the Group has increased confidence in its ability to generate taxable profit which can be As the Groups infrastructure and mining assets were still undergoing commissioning utilised against tax losses. This has resulted in an increase in net deferred tax asset at the year end, iron ore sales have been during the year of $28.4m to $36.6m. credited to assets under construction and commissioning costs have been capitalised. Borrowings of $589.2m were generated in the year. The Group closed a secured The other comprehensive loss of $6.8m non-revolving loan facility in February resulted from fair value reductions in for $417.7m. In the second half of the the Groups listed investments, the main year, the Group had also drawn down a components of which were in respect $100m Standby facility and $70.9m of of Cape Lambert Resources ($4.3m) a $92.5m asset-financing facility with and Obtala Resources Plc ($3.5m), the Standard Bank of South Africa. offset by a $1.3m deferred tax credit. Borrowings are held at amortised cost on the balance sheet of $560.8m. The Total comprehensive loss for the $28.4m difference is principally due to period amounted to $20.1m. $84.8m capitalised borrowing cost, less $54.5m interest and fee payments. Balance sheet Exploration and evaluation assets of $190.6m were transferred to assets
6
Number of bridges constructed to connect Tonkolili to Pepel
Case study Prince Valcarcel Since his employment in 2008 as an ATS kitchen worker and food handler, Prince Valcarcels rapid advancement has become emblematic of AMLs strategy of individual career promotion. While working as a chef in Tonkolili, he was identified as a suitable candidate for Emergency Response Training. Prince joined the AML Emergency Response Team as a volunteer in 2010 and received training in fire fighting, rescue, and emergency medical care. While working in the field Princes natural aptitude and talent for emergency work was quickly noted and in 2011 he was sent to the renowned Rescu-Life Africa training scheme in South Africa to become an internationally qualified ambulance assistant, fire fighter, and Hazmat Awareness officer. Since obtaining his qualification (SAESI, HPCSA, SAQA accredited) Prince has become a full member of the AML Emergency Response Team, and continues to train for further qualifications in what has already been a remarkable career for a 28 year old. In addition to the immediate importance of his contribution to AML, Prince has found there is a wider role for the skills he has learnt within the
local community. Environmental awareness is part of his job and he considers himself responsible for sharing that awareness with the people of Tonkolili, teaching them that environmental sustainability is vital to their economic progression. Prince also teaches basic first aid and endeavours to share the sense of achievement and self-confidence his rapid career progression and education at AML has given him. Prince views the information and learning structure provided to him by AML as part of a larger contribution towards modernisation and development in Sierra Leone. Like many of his fellow Sierra Leoneans, Prince has an emotional attachment to the railway as a symbol of progress and unification of previously remote and isolated areas in the country. To him, as to many others, the completion of the Tonkolili railway was tangible proof of something real being done for improvement of Sierra Leone and by working towards a leadership role within AML Prince hopes to be in a position to ensure the continuation of similar achievements in the future.
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Annual report 2011
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Sustainability
Corporate responsibility
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33
In 2011, we made significant progress in improving our internal practices and processes covering health and safety, community relations and the environment. Most significantly we created a new Risk Committee with responsibility to address Strategic, Operational, Compliance and Financial risks for the business. This Committee will advise, monitor and review the adequacy of risks affecting the business and implement mitigants to allow the Company to achieve its goals. The Committee of four, of which two members are independent Non-Executive Directors, is chaired by Bernard Pryor. In Sierra Leone, we continued to build on our activities through the establishment of the Community Development Fund and our Environment Fund in 2011. Each fund will receive proceeds equivalent to 0.1% of AMLs gross sales per annum. Whilst these proceeds belong to the Government and people of Sierra Leone, they will be administered by AML. We are currently in the process of formalising the structure and protocols to administer these funds to ensure that the proceeds are used effectively for the benefit of the country. Employees The Tonkolili project employed 7,405 people at the end of 2011, including expats and Sierra Leone nationals. Of those, 82% were Sierra Leone nationals. AML employs 1,807 people directly; nationals represent 81% of our workforce. This however, does not include the casual labour that we employ on a weekly basis. AML has approved a 16% wage increase (applied retrospectively from January 2012) for all Sierra Leone employees and agreed to annual future wage increases in line with consumer price index inflation. AML has also supported the unionisation of our workforce and the principles of free collective bargaining. AML is strongly committed to training and development, and has performed very well in this regard. From June through to December 2011, almost 6,000 nationals underwent training and development programmes. These training programmes have encompassed work and non-work related topics ensuring our employees are educated in industry best practices and also aware of their environs to take better care of themselves and their families. In May 2012 we approved the establishment of two state of the art training centres at Magburoka and Pepel. These facilities
Annual report 2011
will serve as the centres of excellence for our Sierra Leonean workforce providing them the skills to occupy senior management positions in the future. Community Developing and maintaining positive relations with local communities is vital for any mining company. However, it is a particular focus for AML given the very high levels of community expectations and the historic lack of investment in local communities and infrastructure in the areas around the Tonkolili project. High expectations exist around AMLs ability to deliver employment for locals, and improving standards of living. Approach We aim to work closely with local communities to identify and address local concerns and have developed and implemented a stakeholder engagement plan in 2011 which outlines the process by which AML will engage with stakeholders. During the year, we identified and engaged with local communities including Sectional and Paramount chiefs and other village representatives, artisanal miners, government agencies at district and section levels, and also locally active Non-Governmental Organisations and community-based organisations. We have developed a clearer picture of the impact of our activities upon local communities and begun developing programmes to mitigate them. We have aligned our activities with those of the local Tonkolili District Council Community Development Plan to ensure the impact of our activities is maximised. As a result, the focus of our community development activities will be education, health and safety and the development of road and water infrastructure. Through our own Community Development Plan (CDP) we are also undertaking significant work to promote local small and medium sized enterprises (SMEs) to support broad-based economic development in the areas where we operate. Education In education, key activities undertaken in 2011 included: the funding of stipends for ten school teachers to encourage teacher retention and education; construction of a temporary school structure for Chainmende DEC Primary School; and the funding of scholarships for 1,912 students across the project areas. In addition to the payment of school fees for all pupils and students
7,405
People involved across the Tonkolili project in 2011 of whom 82% are Sierra Leone nationals
1,912
Students received scholarships for education across project areas
34
Sustainability
Corporate responsibility continued
Annual report 2011
35
under the scholarship, the Company donated educational materials including exercise and text books, pens and pencils to various schools across the project areas. Community health and safety In 2011, in the area of community health and safety, we provided financial support for a World Aids Day campaign and continued our support for initiatives to fight malaria. In addition, we launched a significant ongoing campaign to educate local people about railway safety. The majority of the local population have never come into contact with trains and, ahead of the completion of the railway line in late 2011, we visited all communities along the rail line as well as 30 primary and secondary schools, two colleges and one university, to raise awareness of safety issues. Infrastructure We have funded the development of significant infrastructure intended for sole or partial use by local communities. This reflects the impact of changes to population levels as a result of our operations, as well as the historic lack of infrastructure in the area. For example, we have constructed a range of drinking water projects for sole use by local communities such as a fully operational water dam to serve Bumbuna Township, the donation of hand pumps and the construction of a number of wells. We have also improved and maintained the network of roads in the area, some of which are for the sole use of communities, as well as assisting in the upgrading of law enforcement infrastructure to reflect the growing population. Support for SMEs In order to facilitate the development of sustainable businesses in the Tonkolili area, we have recruited a number of Business Development Officers to help promote initiatives in support of SMEs with a focus on supporting women and young people. During the year, we awarded a number of contracts to local businesses or consortia, including for the provision of uniforms for the AML security department and the supply of vegetables, fruit and fish for our hospitality and catering contractors. In addition, we provided supplies of waste aluminium cans to local aluminium pot makers and undertook studies into the provision of alternative work for those whose livelihoods had been impacted by our presence.
Resettlement While we seek to avoid resettlement wherever possible, in some cases resettlement is necessary and in these cases we plan carefully and ensure we communicate openly and transparently with the communities involved. We relocated two villages impacted by our operations during the year. The relocation process met local best practice and followed an engagement and consultation process involving independent authorities. Compensation to those communities relocated was paid at above recommended rates and new, modern villages have been developed to re-house them. Consultation processes are well underway with a further two villages which we expect to relocate during 2012. Environment Our environmental policies are based upon our live Environmental & Social Management Plan, which we began to develop in 2010. Land clearance As we develop our mining and infrastructure operations, we are inevitably having a significant impact upon the local environment through the clearance of land for operations and associated infrastructure. Our primary focus is on ensuring that cleared land is stabilised and re-vegetated ahead of the rainy season to ensure large quantities of sediment do not enter the Tonkolili River. To this end, plans have been developed and work is to be undertaken imminently. In addition, we are undertaking work to mitigate the impact of the construction of the rail line through the Farangbaia Forest Reserve (FFR). A programme has been developed with the Ministry of Agriculture, Forestry and Food Security which will see tree nurseries and wood lots established around 12 villages. The second component of the programme will produce an ongoing Management Plan for the FFR, including removal of the section of FFR affected by rail construction and replacement with a new area with high biodiversity value. Water use The flow of the Tonkolili River has been temporarily impacted by the construction of a dam and weir to serve the wet processing plant, but we believe that the negative effects are minimal. Once the dam is operational, opportunities for environmental and social benefit will be revisited, which we expect will include a combination of habitat replacement and creation of aquaculture.
Annual report 2011
Waste Our operations produce a range of waste streams which require management and either storage or final disposal in facilities that require construction on-site. Construction of environmental facilities at the mine and port is ongoing and therefore mixed waste is being landfilled until facilities, including an incinerator, become operational. Options to dispose of the large quantities of waste oil from the project are being finalised. We continue to develop wastewater treatment plants to deal with waste produced by our facilities and the local communities both at the mine and at Pepel. Biodiversity Development of our Biodiversity Programme (BP), which will compensate for the impacts on biodiversity associated with the Project as a whole and to enhance resources where feasible, is ongoing. The aim of the BP is to ensure:

species composition/diversity; habitat and ecosystem function; and optimisation of human resource uses and cultural values associated with biodiversity, with a move towards sustainable land management.
We have continued to support/sponsor an eco-awareness programme by the Tacugama Chimpanzee Sanctuary to help safeguard the future of wild chimpanzee populations and stem biodiversity loss in Sierra Leone. The programme currently works with communities throughout the Moyamba, Port Loko and Tonkolili districts to promote community-based conservation through awareness raising and sustainable livelihood development to help safeguard the biodiversity of Sierra Leone. Additional modules will be developed for 2012, including a vegetable initiative whereby produce can be sold to the AML camp.
36
Board of Directors
01
02
03
04*
05
06
07
08
09
10
11
* Resigned May 1 2012
Annual report 2011
37
Executive Directors
01 Vasile (Frank) Timis Executive Chairman
Frank Timis, aged 48, has been the Executive Chairman of AML Limited since 19December 2006. He was the founder and was former Executive Chairman, President and Chief Executive Officer of European Goldfields Ltd., a company listed on the TSX Exchange and on AiM. He was also founder and former Executive Chairman of both Regal Petroleum Plc, which is listed on AiM and of Gabriel Resources Ltd., a company listed on the Toronto StockExchange.
Non-Executive Directors
05 William Murray John
Mr. John, aged 53, is the President and Chief Executive Officer of Dundee Resources Limited, a subsidiary of Dundee Corp. Mr. John also holds senior positions at several other publicly-traded companies, including Corona Gold Corporation, Dundee Precious Metals Inc., Breakwater Resources Ltd. and Iberian Minerals Corp. Prior to joining the Dundee group of companies, Mr. John graduated from the Camborne School of Mines in 1980, received a Master of Business Administration degree from the University of Toronto in 1992 and had extensive experience working as a mining engineer.
Derland Holdings Inc, a private investment holding company. Mr Coughlan, a Chartered Certified Accountant, has held positions with Rio Tinto Zinc Corporation PLC and also with Alcan Industries and Indal Limited. From 1984-2000, Mr Coughlan was the founder, Chairman and Chief Executive Officer of Derlan Industries Ltd, a Public Company with multiple operations in Aerospace, Engineering and industrial markets in North America and Europe. Mr Coughlan has also served as Chair of Audit and Human Resources Committees and also served on the Governance Committees of several public companies.
09 Roger Liddell
Roger Liddell, aged 55, joined the Board on 15 November 2010. He recently retired as the Chief Executive of the London Clearing House, the worlds largest clearing house, clearing numerous equity markets, futures and options, commodity markets and over-the-counter derivatives. Prior to joining the London Clearing House in 2006, he worked for Goldman Sachs for approximately 13 years, becoming Managing Director and Head of Global Operations. His career prior to joining Goldman Sachs included a number of years at Citibank and with British Coal, where he held various management positions.
02 Gibril Bangura
Executive Chairman, AML Sierra Leone
Gibril Bangura, aged 53, a founding shareholder, has been a Director of the Company since 30 January 1998 and Executive Chairman of the Companys Sierra Leone subsidiaries since 1996. He is also a Non-Executive Director of African Petroleum Corporation Ltd.
06 Liu Guoping
Mr. Liu Guoping, aged 60, joined the Board on 15 July 2010. He is a Senior Economist and Vice President of China Railway Materials Commercial Corporation (CRM), a large-scale State Owned Enterprise. CRM is one of Chinas largest integrated service providers in the railway industry and the largest steel trader in China. It is a significant shareholder in AML, owning approximately 12.3% of the Company. Mr.Liu has been Vice-President of CRM since 1997.
03 Miguel Perry CFO

Miguel, aged 41, joined the Board on 18October 2010 and was most recently the Chief Financial Officer and a member of the Board of Directors of Eurasian Natural Resources Corporation plc, a leading diversified metals and mining group and a member of the FTSE 100. During his time with ENRC, Miguel managed a successful IPO, raising $3bn in December 2007 and obtaining a listing on the main board of the LSE. He has significant experience of capital markets, M&A, Investor Relations and Risk Management. Prior to joining ENRC Miguel was a partner at PricewaterhouseCoopers.
07 Mr. Jurong Cui

Mr. Jurong Cui, aged 50, was appointed to the Board in April 2012, following the completion of Shandong Iron and Steel Groups (SISG) investment into the Tonkolili Project. Mr. Cui serves as a Vice President of SISG and is on the boards of various SISG subsidiaries. Mr. Cui brings to the Board of African Minerals 30 years of experience in the steel industry, serving in a variety of leadership roles in steel and iron plants in the Gansu Province. He previously served as Deputy Director General of the Gansu Province Geological Mineral Exploration Development Authority, and as the Deputy Mayor of a city in the Gansu Province. Mr. Cui has a Master of Metallurgical Engineering degree from the Xian University of Architecture and Technology.
10 Bernard Pryor
Bernard Pryor, aged 54, was appointed as an Independent Non-Executive Director taking effect from 12 July 2011. Bernard is currently Chief Executive of Q Resources plc. Between 2006 and 2010 he held senior executive positions within Anglo American PLC as Head of Business Development, and CEO of Anglo Ferrous Brazil Inc. From 2000 to 2006, he was Director and Chief Operating Officer of Adastra Minerals Inc, developing the Kolwezi tailings deposit in DRC. Before that, he held several global mineral management positions.
04 Alan Watling (resigned 1 May 2012) CEO

Alan Watling, aged 58, joined the Board on 1February 2009 and resigned on 1 May 2012. Alan has 30 years of experience in the iron ore industry, including over 20 years with Rio Tinto Group managing infrastructure facilities, with a particular focus on port and heavy haul rail for iron ore mining operations. Immediately prior to joining AML, Alan was Chief Operating Officer at Fortescue Metals Group, which took a greenfield port, rail and mine project into large-scale production within a period of five years. Fortescue is now the third largest iron ore producer in Australia and operates one of the heaviest haul railways in the world.
11 Nina Shapiro
Nina Shapiro was appointed as an Independent Non-Executive Director on 12April 2011. Ms. Shapiro, aged 63, recently retired from her last role as VP, Finance and Treasury and member of the Management Group, for the International Finance Corporation of the World Bank Group. She has had a distinguished career serving for more than 30 years in the World Bank, well respected for innovative work in the emerging and developed capital markets, as well as in project and structured finance.
Independent NonExecutive Directors

08 Dermot Coughlan
Dermot Coughlan, aged 76, joined the Board in May 2010. Mr Coughlan is currently Chairman and Chief Executive Officer of
Annual report 2011
38
Directors report
The Directors present their Annual Report on the affairs of African Minerals Limited (the Company) and its subsidiaries (together the Group), together with the financial statements and auditors report, for the year ended 31 December 2011. Principal activities The principal activities of the Group are the development, design, construction and operation of the world class iron ore deposit at Tonkolili, Sierra Leone, and its related rail and port infrastructure, and the marketing and sale of the iron ore produced from this project. The Company is incorporated in Bermuda, and the Groups head office is in London. Business review A review of the business during the year and to date, including comments on future developments, is contained in the Executive Chairmans Statement and Operational Review on pages 14 to 27. Results and dividends The results of the Group are in the financial statements and the Financial Review section of the report. The Directors do not recommend the payment of a dividend and will not make such recommendation until they consider it prudent to do so, having regard to the need to retain sufficient funds to finance the development of the Groups activities. Post-balance sheet events These are disclosed in Note 22. Financial instruments The Groups financial instruments primarily comprise cash, cash equivalents, and other instruments such as trade receivables, payables, and borrowings, which arise directly from its operations. Note 26 to the accounts gives details of the Groups risks and policies regarding financial instruments. Purchase of own shares The Group has not purchased or sold any shares in the Company during the year. Directors and Directors interests The Directors in office during 2011 and up to the date of this report, and (for those in office at 31 December 2011) their beneficial interests in the ordinary share capital of the Company, are shown below:
Date of the report No. of shares 31 December 2011 No. of shares
31 December 2010 No. of shares
(Vasile) Frank Timis Alan Watling (resigned 1 May 2012) Miguel Perry Gibril Bangura Mark Ashurst (resigned 12 July 2011) Dermot Coughlan Murray John Liu Guoping Roger Liddell Nina Shapiro (appointed 12 April 2011) Bernard Pryor (appointed 12 July 2011) Cui Jurong (appointed 2 April 2012)
42,296,960 15,176* 7,792,624
40,810,002 15,176* 7,792,624
40,810,002 7,792,624
37,140 59,560 29,561
37,140 30,268 5,811
* In addition to these shares, Miguel Perry holds 12,500 warrants which are convertible into an equivalent number of shares at a conversion price of 4.25 per share. These rights arise from his participation as a lender in the debt financing raised by the Company in February 2011.
Annual report 2011
39
Directors share-based remuneration Details of the Directors share-based remuneration are provided in the Directors Remuneration Report. Directors liability insurance and indemnity The Group maintains liability insurance for its Directors and officers. The Companys bye-laws, and the bye-laws or articles of some of its subsidiaries, include an indemnity for their respective Directors and officers. Supplier payment policy The Groups policy is to agree terms of payment with its suppliers for each transaction, and to abide by the terms of payment. Substantial shareholdings As at 31 December 2011, shareholdings of 3% or more of the issued share capital notified to the Company were:
Name Number % Holding
BlackRock Investment Management Timis Diamond Corporation* China Railway Materials Commercial Corporation M&G Investment Management Capital Group Cos Inc Goodman & Co Investment Counsel
* Frank Timis is a beneficiary of Timis Diamond Corporation
41,409,957 40,810,002 40,570,924 32,450,000 17,370,880 15,746,332
12.59% 12.41% 12.33% 9.86% 5.28% 4.79%
Annual General Meeting The Companys Annual General Meeting will be held at the London offices of the Company on 2 August 2012 at 11am. The notice convening the Annual General Meeting has been sent to shareholders with the Annual Report. Auditors Ernst & Young LLP has indicated its willingness to remain in office and a resolution to reappoint them as auditors will be proposed at the 2012 Annual General Meeting. By order of the Board Frank Timis Executive Chairman 19 June 2012
Annual report 2011
40
Corporate governance statement

The Companys shares are listed on AiM (the Alternative Investment Market of the London Stock Exchange), and the Company is subject to and takes all appropriate steps to comply with the AiM Rules. The Board recognises the importance and value for the Company and its shareholders of good corporate governance. The Board has taken action to improve the Companys credentials in this area during 2011, and aspires to compliance with the UK Corporate Governance Code (the Code). Board overview The Board is responsible for establishing the Companys strategy and goals, and for developing and approving plans to achieve these goals. Authority for the execution of the approved strategies and objectives, and daily running of the business, is delegated to the Executive Directors and management team. The Board maintains full and effective control of the Company by regularly monitoring financial and operational progress and risks, and retaining decision-making on major issues and high value contracts. Composition of the Board and Board Committees At the date of this report the Company had ten Directors, consisting of three executive and seven Non-Executive Directors, of whom four are considered by the Board to be independent. Alan Watling was a Director during 2011 and resigned on 1 May 2012. During 2011, the Company enhanced its Board strength and expertise with the addition of two independent Non-Executive Directors, and is actively seeking to add further independent Non-Executives to achieve compliance with the Code. There are three formally constituted Committees of the Board: the Audit Committee, the Remuneration Committee and the Risk and HSE Committee. The Board and Committee membership at the date of this report is given below:
Board member Role Audit Committee Remuneration Committee Risk and HSE Committee
(Vasile) Frank Timis Miguel Perry Gibril Bangura Dermot Coughlan Roger Liddell Bernard Pryor Nina Shapiro Murray John Liu Guoping Cui Jurong
Executive Chairman Chief Financial Officer Executive Chairman AML Sierra Leone Independent Non-Executive Independent Non-Executive Independent Non-Executive Independent Non-Executive Non-executive Non-executive Non-executive

Chair Chair
Chair
Board balance Page 37 contains further information about each Director. The current Board membership provides a balance of industry and financial expertise which is well suited to the Companys activities. This will be monitored and adjusted to meet the Companys needs, particularly as it progresses from construction and project stage into full operations. The two Independent Non-Executive Directors who joined the Board during 2011 were appointed following an extensive search using an independent international executive search consultancy. The consultancys mandate was to provide a shortlist of potential candidates who met the criteria of having relevant sector and international experience, as well as providing a balance of skills and diversity, in order to promote and support rigorous debate and thereby further enhance Board effectiveness. Information and professional development Induction and professional development of Directors, and evaluation of the Boards performance, are currently performed on an informal basis; however, as the Company progresses the Board will adopt more formal procedures. All Directors have access to the advice and services of the Company Secretary who is responsible for ensuring that Board procedures and applicable rules and regulations are observed. The Board has a procedure allowing Directors to seek independent professional advice in furtherance of their duties, at the Companys expense. Formal agendas and reports are provided before each meeting and the Executive Chairman ensures that all Directors are properly briefed on issues to be discussed. Re-election of Directors The Companys bye-laws require one third of the Directors to retire by rotation at each Annual General Meeting, and they can stand for re-election at that meeting. Directors appointed by the Board to fill a casual vacancy hold office until the next Annual General Meeting, and they can stand for re-election at that meeting.
Annual report 2011
41
Board and Committee meetings The Board held 12 full meetings for regular business during 2011. The Audit Committee held four meetings and the Remuneration Committee held three meetings, and there were two meetings of committees established to approve specific transactions. In addition, there were a number of Board meetings to approve issue of shares following exercise of share options, and this activity has now been delegated to a separate committee. Attendance at the full Board meetings, the Audit Committee and the Remuneration Committee is shown in the table below:
Board Attended Eligible to attend Audit Attended Eligible to attend Remuneration Attended Eligible to attend
(Vasile) Frank Timis Alan Watling Miguel Perry Gibril Bangura Dermot Coughlan Roger Liddell Bernard Pryor Nina Shapiro Murray John Liu Guoping Mark Ashurst
11 11 10 10 11 10 4 7 7 6 6
12 12 12 12 12 12 5 8 12 12 7
4 4 3 1
4 4 4 4
3 3 2
3 3 3
Audit Committee Membership: The Audit Committee consists only of Non-Executive Directors, of whom two are independent. The Chief Financial Officer, and other Executive Directors as required, attend the meetings by invitation, as necessary, to facilitate its business. The external auditors are invited to attend meetings on a regular basis. Main responsibilities: The Audit Committee has formal terms of reference, which include: monitoring the integrity of the financial statements of the Company; reviewing significant financial reporting issues and judgements which they contain; reviewing the adequacy and effectiveness of the Companys internal financial controls and internal control and risk management systems; reviewing the adequacy and security of the Companys arrangements for its employees and contractors to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters; monitoring and reviewing the effectiveness of the Companys internal audit function; considering and making recommendations in relation to the appointment, re-appointment and removal of the Companys external auditors; assessing the independence of the external auditor, taking account of any non-audit services; reviewing and approving the annual audit plan; and reviewing the findings of the annual audit with the external auditor. Activities undertaken during 2011: The Audit Committee met four times in 2011. It reviewed the financial statements and auditors report for 2010, and approved the half year and full year audit scope for 2011, and reviewed and discussed development of an internal audit function, SAP implementation, treasury function and policies, procurement review and actions arising from this, and development of anti-bribery procedures. The Committee reviewed the independence of the external auditor during the year, and no concerns were identified. There were no fees paid or payable to the external auditor for non-audit work in 2011. Remuneration Committee The Remuneration Committee consists only of Non-Executive Directors, of whom two are independent, and has formal terms of reference. It is responsible for determining the remuneration and other benefits, including bonuses and share-based payments, of the Executive Directors, and for reviewing and making recommendations on the Companys framework of executive remuneration. Further details about the Committee and its operation are set out in the Directors remuneration report on pages 43 to 45. Risk and Health, Safety and Environment (HSE) Committee The Risk and HSE Committee was formed, and its terms of reference adopted, in December 2011. Its members are Bernard Pryor (Chair, Independent Non-Executive Director), Nina Shapiro (Independent Non-Executive Director), CEO (to be appointed), and Gibril Bangura (Executive Director). No meetings were held in 2011.
Annual report 2011
42
Corporate governance statement continued

The Committee has formal terms of reference and its responsibilities include: implementing procedures to assess and monitor the Groups approach to: strategic risks, including political, market, reputational and competition issues; operational risks, including health and safety and environmental issues; compliance risks, including local and international laws and regulations; financial risks to the extent these do not fall within the scope of the Audit Committee; advising on the Groups approach to identifying and assessing key business risks, allocating ownership of the risks to senior management and promoting mitigation actions; monitoring the implementation by executive management of action plans to manage the identified key risks; and reviewing the adequacy and effectiveness of the Companys internal control and risk management systems.
The Company manages health and safety requirements through its health and safety policy and procedures, which include regular and timely reporting to executive management of events, risks and risk management strategies. Relations with shareholders The Annual Report contains information on the activities of the Company for the preceding year. It is sent to each shareholder on the share register, and published on the Companys website. The Company uses its website to provide information to shareholders and other interested parties, and in accordance with regulatory requirements issues news releases through the London Stock Exchange Regulatory News Service. The Executive Chairman and/or Chief Financial Officer hold regular meetings with institutional investors to keep them informed of developments and to respond to any questions. Shareholders have the opportunity to raise questions at the Annual General Meeting. Major shareholder agreements China Railway Materials Commercial Corporation, as a condition of its subscription for shares in 2010, has the right to acquire shares in the Company to maintain its shareholding in the Company at 12.5%, and to subscribe for any new issue shares proportionately to its shareholding. It is restricted from holding shares and options together being more than 12.5% of the Companys issued capital without the Boards consent, with some limited exceptions to this restriction. It also has the right to nominate one person to be appointed as a Director of the Company. Shandong Iron and Steel Group Co. Ltd, as a condition of its subscription for a 25% equity investment in the Companys Tonkolili project subsidiaries completed on 30 March 2012, is restricted from holding shares and options together being more than 12.49% of the Companys issued capital. It also has the right to nominate one person to be appointed as a Director of the Company. Statement of Directors responsibilities Bermudan Company law requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Group and the profit or loss for that year. The Directors are required to prepare the financial statements of the Company and Group on the going concern basis unless it is inappropriate to presume the Company and Group will continue in business. The Directors confirm that suitable accounting policies have been used and applied consistently. They also confirm that reasonable and prudent judgements and estimates have been made in preparing the financial statements for the year ended 31 December 2011 and that applicable accounting standards have been followed. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and for ensuring that the financial statements comply with International Financial Reporting Standards. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. By order of the Board Francis ONeill Company Secretary 19 June 2012
Annual report 2011
43
Directors remuneration report

Introduction This report has been approved by the Board and the Remuneration Committee. The Company is committed to compliance with remuneration best practice, including the guidance under the UK Corporate Governance Code. This report exceeds the directors remuneration disclosure requirements that apply to the Company under AiM Rule 19, in that it also substantially complies with the disclosure requirements of Schedule 5 to the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008. Remuneration Committee The Remuneration Committee comprises Dermot Coughlan (Chair, Independent Non-Executive Director), Roger Liddell (Independent Non-Executive Director), and Murray John (Non-Executive Director). Its responsibilities, as set out in its terms of reference, include determining and reviewing compensation arrangements for all Executive Directors, and such other senior managers as it is designated to consider. The Committee met three times in 2011. During 2011 and up to the date of this report, the remuneration and incentive arrangements of the Executive Directors were not changed, and no share-based remuneration was awarded to them. Gibril Banguras right to exercise vested share options was extended, as noted under the table in the share options section below. Changes were made to the terms of previously awarded performance shares, as set out in performance share awards section below. Remuneration policy for Directors The Groups remuneration policy for Executive Directors is to:

pay a competitive salary that attracts and retains high quality management, having regard to their experience and the nature and complexity of their work; link individual remuneration packages to the Groups long-term performance using share-based awards and bonuses; and provide appropriate employment related benefits, including housing allowances for Directors working permanently away from their countries of normal residence.
There are four main elements of the remuneration package for Executive Directors and senior management:

basic annual salary; performance-related bonuses; share-based awards; and benefits.
The Non-Executive Directors receive fees for their services, which are agreed by the Board as a whole, in accordance with the bye-laws and on recommendation of the Executive Directors. The Non-Executive Directors do not participate in any of the Groups benefits or incentive schemes, apart from Dermot Coughlan and Murray John, who hold share options issued in June 2010. No Director plays a part in any decision about his/her own remuneration. Directors contracts The Groups policy is for Executive Directors to have service contracts which can be terminated by the Company on no more than 12 months notice. Liu Guoping is nominated as a Non-Executive Director by China Railway Materials Commercial Corporation, a shareholder in the Company, and is appointed as a Director in accordance with and subject to the subscription agreement. Cui Jurong is nominated as a Non-Executive Director by Shandong Iron and Steel Group Co. Ltd, which holds a 25% equity investment in the Companys Tonkolili project subsidiaries, and is appointed as a Director in accordance with and subject to the subscription agreement. The other Non-Executive Directors have letters of appointment, which can be terminated by the Director giving at least one months notice, and by the Company in accordance with the bye-laws.
Annual report 2011
44
Directors remuneration report continued

Directors remuneration Remuneration (cash, bonus and benefits) for the Directors during the year was as follows:
US$ 000s Basic salary/ fees Bonus Benefits Total 2011 Total 2010
Executive Directors V. Timis A. Watling M. Perry G. Bangura Non-Executive Directors D. Coughlan R. Liddell B. Pryor N. Shapiro M. John L. Guoping M. Ashurst Former Directors C. Smith J. Alpen C. Duffy Total The Company did not make any pension contributions for any of the Directors.
803 1,090 803 500 414 148 78 182 47 22
802
119 129 5 104
922 1,219 1,610 604 414 148 78 182 47 22
665 1,068 160 447 95 18 39 39 223 203 39
4,087
802
357
5,246
2,996
Share options The following table shows the Directors interests in share options, changes to those interests during the year and the charge to the Companys 2011 statement of comprehensive income in respect of those share options:
Outstanding and Vested at 31 Dec 2010 Total outstanding at 31 Dec 2010 2011 2010 Charge to Charge to Outstanding Total income income Vested and Vested at outstanding at statement statement during year 31 Dec 2011 31 Dec 2011 US$ 000s US$ 000s
Grant date
Number Option of options price/share
Exercised Lapsed during during year year
V. Timis A. Watling M. Perry G. Bangura D. Coughlan M. John M. Ashurst
19.02.09 19.02.09 15.11.10 22.11.04 22.06.10 22.06.10 19.02.09
5,000,000 1,345,455 *2,250,000 1,000,000 500,000 500,000 400,000
50p 1,666,666 5,000,000 50p 448,485 896,970 423p 0 2,250,000 50p 1,000,000 1,000,000 349p 0 500,000 315p 0 500,000 50p 133,333 400,000 403p 50p 50p 0 0 133,333
0 0 0 0 0 0 0
0 1,666,667 3,333,333 5,000,000 0 448,485 896,970 896,970 0 416,666 416,666 *1,250,000 0 0 **1,000,000 1,000,000 0 166,666 166,666 500,000 0 166,666 166,666 500,000 0 266,667 400,000 400,000 0 0 0 0 0 133,333 0 0 0 0 0 133,333
129 35 3,101 3,416 847 865 10 0 0 6
312 2,237 903 0 625 638 89 484 1,701 25
Former directors C. Smith 22.06.09 400,000 J. Alpen 19.02.09 1,000,000 C. Duffy 19.02.09 400,000
0 0 0 0 400,000 266,666
* In 2011 Miguel Perry waived rights over 1,000,000 options, to be replaced by an award under a long-term incentive plan, details of which have not been finalised. ** The Remuneration Committee approved extension to 21 November 2012 of Gibril Banguras right to exercise these share options.
Subject to the rules of the Option Plan these options vest in three equal tranches upon the first, second and third anniversaries of the date of grant, provided that the option holder remains a Director of the Company. They must be exercised within five years of grant or, if earlier, within 90 days of ceasing to be a Director.
Annual report 2011
45
Performance share awards The service contracts of Alan Watling and Miguel Perry include awards of shares conditional on the Company achieving certain performance criteria. In April 2011, the Remuneration Committee approved an amendment of those awards to make them more stringent and align them solely to production targets. These awards are divided into various tranches, and are conditional on achieving specific iron ore production targets in 2011, 2012 and 2013 and on continued employment when those targets are met. The following table shows the Directors interests in performance share awards, changes to those interests during the year and the charge to the Companys 2011 statement of comprehensive income in respect of those awards:
Vested in prior years Outstanding at 1 Jan 2011 Vested during year Lapsed during year Outstanding at 31 Dec 2011 Charge to income statement US$ 000s
Alan Watling Miguel Perry
500,000 0
*2,000,000 500,000
0 0
500,000 0
*1,500,000 500,000
9,222 1,282
* Excluding an entitlement to receive additional shares dependent upon performance above the specific iron ore production targets in 2012.
Alan Watling resigned as a Director on 1 May 2012 and his outstanding performance shares therefore lapsed on that date. On behalf of the Board Dermot Coughlan Chairman of the Remuneration Committee 19 June 2012
Annual report 2011
46
Financial statements
Financial statements contents

Financial statements 47 Independent auditors report 48 Consolidated statement of comprehensive income 49 Consolidated statement of financial position 50 Consolidated statement of cash flow 51 Consolidated statement of changes in equity 52 Notes to the financial statements 79 Advisers and Company information
Annual report 2011
47
Independent auditors report

to the shareholders of African Minerals Limited
We have audited the Group financial statements (the financial statements) of African Minerals Limited for the year ended 31 December 2011 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and the related notes 1 to 26. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the shareholders, as a body, in accordance with our engagement letter dated 26 November 2010. Our audit work has been undertaken so that we might state to the shareholders 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 Companys members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditor As explained more fully in the Statement of Directors Responsibilities set out on page 42, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with Bermudian Law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Groups circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Groups affairs as at 31 December 2011 and of its loss for the year then ended; and have been properly prepared in accordance with IFRSs as adopted by the European Union. Ernst & Young LLP London 19 June 2012
Annual report 2011
48
Consolidated statement of comprehensive income

For the year ended 31 December 2011
2011 US$ 000s 2010 US$ 000s Notes
Net operating expenses Impairment Operating loss Loss on disposal of available for sale investments Dividend income Interest income Loss for the year from continuing operations Taxation Loss after taxation from continuing operations Discontinued operations Profit for the year Loss for the year Other comprehensive (loss)/profit Fair value movement on available for sale investments Deferred taxation on available for sale investments Other comprehensive (loss)/income for the year Total comprehensive loss for the year Attributable to equity holders of the parent Basic and diluted loss per share cents Basic and diluted loss per share continuing activities cents Basic and diluted earnings per share discontinuing activities cents
3 8 15 15
(41,469) (41,469) 1,061 (40,408) 27,098 (13,310)
(47,432) (4,453) (51,885) (2,277) 7,347 318 (46,497) 10,345 (36,152) 173 173 (35,979) 13,786 (2,113) 11,673 (24,306) (24,306) (13.98) (14.05) 0.07
13
25
(13,310)
17 17
(8,100) 1,261 (6,839) (20,149) (20,149)
6 6 6
(4.06) (4.06)
Annual report 2011
49
Consolidated statement of financial position

At 31 December 2011
31 December 2011 Notes US$ 000s 31 December 2010 US$ 000s
Non-current assets Exploration and evaluation assets Intangible assets Assets under construction and property, plant & equipment Available for sale investments Deposits Deferred tax assets Total non-current assets Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Total assets Equity Share capital Share premium account Equity reserves Fair value reserve Accumulated deficit Total equity Non-current liabilities Interest-bearing loans and borrowings Other non-current liabilities Total non-current liabilities Current liabilities Interest-bearing loans and borrowings Trade and other payables Tax payable Total current liabilities Total liabilities Total equity and liabilities The financial statements were approved by the Board and signed on its behalf by: Frank Timis Miguel Perry Executive Chairman Chief Financial Officer 19 June 2012 19 June 2012
8 7,475 9 2,048 10 1,506,388 15 67,996 12 3,910 13 36,591 1,624,408 14 11 7 16,465 16,456 51,035 83,956 1,708,364
198,115 269,133 76,096 3,910 8,232 555,486 372,364 422 1,277 374,063 929,549
17 3,290 3,176 17 1,033,065 966,931 17 83,877 20,269 17 14,553 21,392 (152,675) (139,365) 982,110 16 144,208 1,898 146,106 16 19 20 416,609 157,034 6,505 580,148 726,254 1,708,364 872,403 736 736 52,331 4,079 56,410 57,146 929,549
Annual report 2011
50
Consolidated statement of cash flow

2011 US$ 000s 2010 US$ 000s Notes
Cash flows from operating activities Loss before tax from continuing operations Profit before tax from discontinued operations Adjustments to add/(deduct) non-cash items: Depreciation of property, plant & equipment Amortisation of intangible assets Impairment of exploration and evaluation assets Loss on disposal of property, plant & equipment Loss on disposal of available for sale investments Unrealised foreign exchange loss Share based payments Dividend income Interest income Operating loss before working capital changes (Increase)/decrease in inventories (Increase) in other receivables Increase in other non-current liabilities Increase in trade, taxation and other payables Net cash flow from operating activities Cash flows from investing activities Dividends received Interest received Proceeds of sales of property, plant & equipment Payments to fund assets under construction and property, plant and equipment Payments to acquire exploration and evaluation assets Payments to acquire software Proceeds of sales of available for sale investments Payments to acquire available for sale investments Net cash outflow from investing activities Cash flows from financing activities Proceeds of ordinary share issue Proceeds of exercise of options and warrants Proceeds from borrowings Interest paid and costs of financing Net cash inflow from financing activities Net (decrease)/increase in cash and cash equivalents Net foreign exchange difference Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
(40,408) (40,408) 10 9 8 3 15 18 15 714 135 66 309 25,683 (1,061) (14,562) (1,071) (4,505) 1,162 3,525 (15,451)
(46,497) 173 (46,324) 95 4,453 2,277 11,191 11,309 (7,347) (318) (24,664) 310 (256) 6 46,210 21,606
15
9 15 15
7,347 222 318 62 (916,644) (264,958) (110,544) (2,183) 1,621 (1,252) (918,605) (367,406)
17
46,345 2,348 589,181 (59,408) 578,466
650,894 1,815 652,709
14 14
(355,590) 306,909 (309) (11,191) 372,364 76,646 16,465 372,364
Annual report 2011
51
Consolidated statement of changes in equity

Attributable to equity holders of the parent Share capital US$ 000s Share premium account US$ 000s Equity reserves US$ 000s Fair value reserves US$ 000s Profit and loss account US$ 000s
Total US$ 000s
As at 1 January 2010 Loss for the year Fair value movements on available for sale investments Deferred taxation on available for sale investments Total comprehensive income Reserves transfer for available for sale investments Allotments during the year Transaction cost equity issues Share-based payments Reserves transfer performance shares Reserves transfer options Reserves transfer warrants As at 31 December 2010 As at 1 January 2011 Loss for the year Fair value movements on available for sale investments Deferred taxation on available for sale investments Total comprehensive income Reserves transfer for available for sale investments Allotments during the year Transaction cost equity issues Share-based payments Reserves transfer options Reserves transfer warrants As at 31 December 2011
2,136 1,040 3,176 3,176 114
310,002 681,818 (30,120) 809 4,368 54 966,931 966,931 65,686 378 70
14,221 11,309 (839) (4,368) (54) 20,269 20,269 38,373 25,683 (378) (70) 83,877
6,960 (103,386) (35,979) 13,786 (2,113) 11,673 2,759 21,392 (35,979) (139,365)
229,933 (35,979) 13,786 (2,113) (24,306) 2,759 682,858 (30,120) 11,309 (30) 872,403 872,403 (13,310) (8,100) 1,261 (20,149) 104,173 25,683 982,110
21,392 (139,365) (13,310) (8,100) 1,261 (6,839) 14,553 (13,310) (152,675)
3,290 1,033,065
Annual report 2011
52
Notes to the financial statements

1. Accounting policies 1.1 Corporate information The consolidated financial statements of African Minerals Limited for the year ended 31 December 2011 were authorised for issue in accordance with a resolution of the Directors on 19 June 2012. The registered office of African Minerals Limited, the ultimate parent of the Group is Victoria Place, 31 Victoria Street Hamilton, HM10, Bermuda. The principal activities of the Group are the production and sale of iron ore and development of mining and infrastructure assets in Sierra Leone. 1.2 Basis of preparation The consolidated financial statements of African Minerals Limited and all its subsidiaries (the Group) have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted by the European Union (EU) as they apply to the financial statements of the Group for the year ended 31December 2011. The consolidated financial statements have been prepared on a historical cost basis, except for certain available-for-sale investments that have been measured at fair value. The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand except when otherwise indicated. 1.3 Basis of consolidation The consolidated financial statements comprise the financial statements of the Group as at 31 December 2011. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. 1.4 Significant accounting judgements, estimates and assumptions The preparation of the Groups consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on managements experience and other factors, including expectations of future events, that are believed to be reasonable under the circumstances. However, actual outcomes would differ from these estimates if different assumptions were used and different conditions existed. In particular, the Group has identified the following areas where significant judgements, estimates and assumptions are required, and where actual results were to differ, may materially affect the financial position or financial results reported in future periods. Further information on each of these and how they impact the various accounting policies is located in the relevant notes to the financial statements. Going concern Management has prepared these financial statements on the assumption that the Group is able to continue as a going concern. Refer to note 2.
Annual report 2011
53
1. Accounting policies continued Commissioning of assets and production start date Management assesses the stage of each asset under construction to determine when it moves into the production stage; this being when the asset is substantially complete and ready for its intended use. The criteria used to assess the start date are determined based on the unique nature of each mine construction project, such as the complexity of the project and its location. Management considers various relevant criteria to assess when the production phase is considered to commence. Some of the criteria used to identify the production start date will include, but are not limited to:

level of capital expenditure incurred compared to the original construction cost estimates; completion of a reasonable period of testing of the asset; ability to produce saleable iron ore; and ability to sustain ongoing production.
When a mine development/construction project moves into the production stage, the capitalisation of certain mine development/ construction costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to asset additions or improvements, mine development or mineable reserve development. It is also at this point that depreciation/amortisation commences. By the end of 2011, the Groups iron ore infrastructure and mining assets in Sierra Leone were still undergoing commissioning. The mine was processing iron ore, and as a result certain sales occurred and samples were shipped in the last quarter. The ore stockpile was held as inventory at the end of the year. Commissioning costs are capitalised into assets under the construction after deducting the net proceeds from selling iron ore and will be depreciated when the infrastructure and mine assets are fully operational. Trade receivables have been recognised for amounts receivable at the end of the year for iron ore sales. Ore resource estimates Ore resource estimates relate to the amount of ore that can be economically and legally extracted from the Groups mining assets. The Group estimates its ore resource based on information compiled by appropriately qualified persons relating to the geological data on the size, depth and shape of the ore body, and requires complex geological judgements to interpret the data. The estimation of recoverable resource is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs, along with geological assumptions and judgements made in estimating the size and grade of the ore body. Changes in the resource estimates may impact upon the carrying value of exploration and evaluation assets, mining assets, property, plant and equipment, recognition of deferred tax assets, and depreciation and amortisation charges. Exploration and evaluation expenditure The application of the Groups accounting policy for exploration and evaluation expenditure requires judgement in determining whether future economic benefits will arise either from future exploitation or sale or where activities have not reached a stage which permits a reasonable assessment of the existence of reserves. The determination of a Joint Ore Reserves Committee (JORC) resource is itself an estimation process that requires varying degrees of estimation depending on sub-classification and these estimates directly impact the point of deferral of exploration and evaluation expenditure. The deferral policy requires management to make certain estimates and assumptions about future events or circumstances, in particular whether an economically viable extraction operation can be established. Estimates and assumptions made may change if new information becomes available. If, after expenditure is capitalised, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the consolidated statement of comprehensive income in the period when the new information becomes available. Exploration and evaluation assets are carried at historical cost less any impairment losses recognised. Recovery of deferred income tax assets Judgement is also required in determining whether deferred income tax assets are recognised in the statement of financial position. Deferred income tax assets, including those arising from unutilised tax losses, require management to assess the likelihood that the Group will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred income tax assets. Assumptions about the generation of future taxable profits depend on managements estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, dividends and other capital management transactions) and judgement about the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred income tax assets recorded at the reporting date could be impacted. In addition, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future periods.
Annual report 2011
54
Notes to the financial statements continued

1. Accounting policies continued 1.5 New and amended standards and standards issued but not effective New and amended standards The accounting policies adopted are consistent with those of the previous financial year. The following new and amended IFRS and Interpretations effective as of 1 January 2011 did not have a financial impact on the Group:

IAS 32 Financial Instruments: Presentation (Amendment) classification of rights issues IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 13 Customer Loyalty Programmes (determining the fair value of award credits) IAS 24 Related Party Disclosures (amendment) effective 1 January 2011 IFRIC 14 Prepayments of a Minimum Funding Requirement (amendment) effective 1 January 2011 Improvements to IFRSs (May 2010) IFRS 3 Business Combinations measurement options available for non-controlling interest (NCI) effective 1 July 2010 IFRS 7 Financial Instruments: Disclosures collateral and qualitative disclosures IAS 1 Presentation of Financial Statements analysis of other comprehensive income
Standards issued but not yet effective Standards issued but not yet effective up to the date of issuance of the Groups financial statements are listed below. The Group intends to adopt these standards when they become effective; however, these are not expected to have any significant impact on disclosures, financial position or performance when applied at a future date, except for IFRIC 20 as below.

IAS 1 Financial Statement Presentation Presentation of Items of Other Comprehensive Income IAS 12 Income Taxes Recovery of Underlying Assets IAS 19 Employee Benefits (Amendment) IAS 27 Separate Financial Statements (as revised in 2011) IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) IFRS 7 Financial Instruments: Disclosures Enhanced Derecognition Disclosure Requirements IFRS 9 Financial Instruments: Classification and Measurement IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Involvement with Other Entities IFRS 13 Fair Value Measurement IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine is effective for periods on or following 1 January 2013.
The Interpretation only applies to stripping costs incurred during the production phase of a surface mine (production stripping costs). Costs incurred in undertaking stripping activities are considered to create two possible benefits the production of inventory in the current period, and/or improved access to ore to be mined in a future period. Production stripping costs are to be capitalised as part of an asset, if an entity can demonstrate that it is probable future economic benefits will be realised, the costs can be reliably measured and the entity can identify the component of an ore body for which access has been improved. This asset is to be called the stripping activity asset. Where costs cannot be specifically allocated between the inventory produced during the period and the stripping activity asset, the Interpretation requires an entity to use an allocation basis that is based on a relevant production measure. 1.6 Summary of significant accounting policies Exploration and evaluation assets Exploration costs are capitalised as exploration and evaluation assets until a decision is made to proceed to development. Related costs are then transferred to assets under construction. Before reclassification, exploration costs are assessed for impairment and any impairment loss recognised in the statement of comprehensive income. Subsequent development costs are capitalised under assets under construction, together with any amounts transferred from exploration and evaluation assets. Mining assets are amortised over the estimated life of the commercial mineral reserves on a unit of production basis. Mineral exploration licences Pre-licence costs are expensed in the period in which they are incurred. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised over the term of the permit.
Annual report 2011
55
1. Accounting policies continued Software Software is shown at historical cost less accumulated amortisation and impairment losses. The initial cost of an asset comprises its purchase price and any consultancy costs directly attributable to bringing the asset into operation, together with any incidental cost of purchase. Software amortisation is charged to the statement of comprehensive income on a 20% straight-line basis. Assets under construction and property, plant & equipment Plant and equipment are shown at cost less accumulated depreciation and impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, any incidental cost of purchase and borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Directly attributable costs include employee benefits, professional fees and costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling iron ore produced while bringing the asset to the condition intended by management. Capitalised borrowing costs include those that are directly attributable to the construction of mining and infrastructure assets. Property, plant and equipment relate to land, buildings, plant, machinery, fixtures and fittings and are shown at historical cost less accumulated depreciation and impairment losses. Assets under construction relate to mining and infrastructure assets and are not depreciated. After production starts, all assets included in Assets under construction are transferred to Property, plant and equipment or Mine assets: this is signified by the formal commissioning of the mine for production. Mining assets will be amortised over the estimated life of the commercial mineral reserves on a unit of production basis. Infrastructure assets and any other assets are depreciated on a straight-line basis over the expected useful lives of the assets concerned. The depreciation rates are as follows: Plant and machinery Fixtures and fittings Buildings Freehold land 20-30% 20-30% 2-5% 0%
Subsequent expenditure is capitalised when it is probable that future economic benefits from the use of the asset will be increased. All other subsequent expenditure is recognised as an expense in the period in which it is incurred. Repairs and maintenance which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income. Gains/(losses) on the disposal of fixed assets are credited/(charged) to income. The gain or loss is the difference between the net disposal proceeds and the carrying amount of the asset. The assets residual values, useful lives and methods of depreciation are reviewed at each reporting period, and adjusted prospectively, if appropriate. Financial instruments: initial recognition and measurement a) Financial assets The Groups financial assets include available-for-sale investments, trade and other receivables, and cash and cash equivalents. Available-for-sale investments Available-for-sale financial assets include investments in listed equities, that are neither classified as held for trading nor designated at fair value through profit or loss, and are initially measured at fair value. Changes in fair values of investments available-for-sale are recorded through fair value reserves, whilst dividend income is recorded to the statement of comprehensive income for the period. Trade and other receivables Trade and other receivables are stated at amortised cost less provision for doubtful debts. Trade and other receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market.
Annual report 2011
56

1. Accounting policies continued Cash and cash equivalents Cash and cash equivalents are measured at fair value, based on the relevant exchange rates at balance sheet date. Cash and cash equivalents comprise cash, cash at hand and short-term deposit amounts with original maturity of less than three months. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Impairment The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. A financial asset is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (a loss event) and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. b) Financial liabilities The Groups financial liabilities include trade and other payables, bank overdrafts and borrowings. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, less directly attributable transaction costs. Interest-bearing loans and borrowings Interest-bearing loans and borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost using the effective interest (EIR) method. The fair value implies the rate of return on the debt component of the facility. This rate of return reflects the significant risks attaching to the facility from the lenders perspective. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in profit or loss. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds e.g. arrangement fees. The Group capitalises borrowing costs for all eligible assets. Where funds are borrowed specifically to finance the project, the amount capitalised represents the actual borrowing costs incurred. Trade and other payables Trade and other payables are non-derivative financial liabilities that are not quoted in an active market. Bank overdrafts Bank overdrafts are measured at fair value, based on the relevant exchange rates at balance sheet date. c) Fair value of financial instruments The following methods and assumptions were used to estimate the fair values:

cash and short-term deposits, trade and other receivables, trade and other payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments; fair value of available-for-sale investments is derived from quoted market prices in active markets; fair value of interest-bearing borrowings is normally the transaction price, i.e. the fair value of the consideration received. When part of the consideration is for something other than the loan, the fair value is estimated using a valuation technique, as described in note 16; the difference between the transaction price and the fair value is immediately recognised in profit or loss, only if there is a current market for the same instrument; and the fair value of loans and other current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities; as at 31 December 2011, the carrying amounts of such liabilities are not materially different from their calculated fair values.
Impairment of non-financial assets The carrying amounts of the Groups assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. An assets carrying value is written down to its estimated recoverable amount, being the higher of its fair value less costs to sell and value in use, if that is less than the assets carrying amount.
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1. Accounting policies continued Impairment reviews for deferred exploration and evaluation costs are carried out on a project-by-project basis, as each project has the potential to be an economically viable cash-generating unit. An impairment review is undertaken when indicators of impairment arise but normally when one of the following conditions apply:

unexpected geological occurrences render a deposit uneconomic; title to an asset is compromised; variations in commodity prices render the project uneconomic; variations in the currency of operation; and variations to the fiscal and tax legislation in the country of operation.
Operating leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date. Operating lease payments are recognised as an operating expense in the income statement on a straight-line basis over the lease term. Finance income Interest income is made up of interest received on cash and cash equivalents. Deferred taxation Deferred income tax is provided using the balance sheet method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:
in respect of deductible temporary differences associated with investments in subsidiaries, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Foreign currencies The consolidated financial statements are presented in US dollars, which is the parent companys functional currency and the Groups presentation currency. The Group does not have any foreign operations. Transactions in foreign currencies are initially recorded in the functional currency at the respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rate of exchange ruling at the reporting date. All differences are taken to the statement of comprehensive income or other comprehensive income, should specific criteria be met. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Annual report 2011
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1. Accounting policies continued Inventories Inventories are valued at the lower of cost of production and net realisable value. Work in progress stockpiles represent ore that has been extracted and is available for further processing. Inventories are valued at the lower of cost of production and net realisable value. The cost of producing iron ore is accounted for on a weighted average basis and includes labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore, and production overheads. Quantities of ore stockpiles are assessed through surveys and assays. Other inventories are made up of fuel and spare parts for maintenance equipment. Share-based payments Options The Group awards equity-settled share-based payments to certain Directors, officers, employees and suppliers. The grant date fair value of the share plans is recognised as an expense over the expected vesting period with a corresponding entry to retained earnings. The estimate of the number of awards likely to vest is reviewed at each statement of financial position date up to the vesting date, at which point the estimate is adjusted to reflect the actual awards issued. No adjustment is made after the vesting date even if the awards are forfeited or not exercised. Fair value of the options is measured by use of the Black-Scholes pricing model. The estimated life of the instrument used in the model has been adjusted, based on managements best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Performance shares The Group issues performance shares on the completion of certain conditions being met. The Company has also entered into agreements to award senior executives with shares in the Company based on certain performance conditions being met. Conditions include the completion of certain feasibility studies and the achievement of various iron ore production targets. The grant-date fair value of performance shares is charged to the statement of comprehensive income over the period between the date of grant and the date the performance conditions are expected to be met. Warrants Non-market based vesting conditions are taken into account in estimating the number of awards likely to vest. Fully-paid shares are valued at market value at the date of issue. The grant date fair value of warrants granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the warrants. The amount recognised as an expense is adjusted to reflect the actual number of warrants for which the related service and non-market vesting conditions are met. To calculate the fair value of the warrants, the Black-Scholes pricing model has been used. Segment reporting The Group is managed as a single operating segment which is developing a mine and related infrastructure in order to meet commercial production in 2012. In accordance with IFRS 8 Operating Segments, the Group presents its results in a single segment which are disclosed in the statement of comprehensive income for the Group. The Group does not have any significant non-current assets that are located in the country of domicile of the Group. The vast majority of the non-current assets are located in Sierra Leone. 2. Going concern Following completion of the acquisition by Shandong Iron & Steel Group of a 25% shareholding in the Tonkolili project companies on 30 March 2012 (refer to note 22), the Group has received cash of $1.5bn. The Group paid $417.7m of the $1.5bn consideration received, to Standard Bank, in settlement of the Secured Loan Facility and a further $65.2m in interest and other charges to AML Bermuda, its parent company. The $1,017.1m remainder of the consideration will be available for use by the project companies for capital expenditure purposes. Having considered: the estimated cost to complete Phase I of the project; detailed cash flow forecasts; assumptions underpinning those forecasts; and the risks and uncertainties associated with the ramp up of production to a forecast level of 20Mtpa by the end of this year, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.
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59
3. Net operating expenses

Notes
2011 US$ 000s
2010 US$ 000s
From continuing operations Depreciation of property, plant and equipment Amortisation of intangible assets Loss on disposal of property, plant and equipment Employee costs Foreign exchange differences Travel Advertising and public relations Consulting and other professional fees Insurance IT and communications Security Other operating charges
10 9 5
714 135 66 23,657 (1,793) 4,796 1,022 5,894 1,759 2,478 999 1,742 41,469
95 23,713 11,191 7,425 543 2,026 570 1,161 501 207 47,432
Net operating expenses include: Auditors remuneration: Audit of the financial statements Half year review Other fees all other services Total other fees 4. Key management personnel Directors emoluments Amounts receivable under performance share awards Share options Social security
2011 US$ 000s
2010 US$ 000s
400 96 496
140 60 25 225
2011 US$ 000s
2010 US$ 000s
5,183 10,504 8,403 63 24,153
2,989 1,566 7,014 7 11,576
Key management personnel comprise the Directors. Detailed disclosures of the Directors remuneration and interests in shares and options over the Companys shares are shown in the Directors remuneration report. The aggregate gain made by Directors on the exercise of options is nil in 2011 (2010: $3,781,000). No Director has retirement benefits accruing to them as a result of their services to the Group.
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60

5. Employee costs
Notes 2011 US$ 000s 2010 US$ 000s
Wages and salaries Share-based payments Social security costs Less: Capitalised costs Employee costs included within net operating expenses (note 3)
18
39,932 25,683 1,682 67,297 (43,640) 23,657
25,822 11,309 531 37,662 (13,949) 23,713
The number of employees at the various mining and exploration operations (excluding the Non-Executive Directors of the Group) at the end of the year was 1,707 (2010: 950). $25,196,000 wages and salaries costs and $9,222,000 share-based payment costs relating to the project were capitalised. 6. Loss per share Loss for the year Continuing operations Discontinued operations
2011 US$ 000s 2010 US$ 000s
(13,310) (13,310)
(35,979) (36,152) 173
Basic earnings/loss per share is calculated by dividing the profit/loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year of all dilutive potential ordinary shares. Although the Company has outstanding share options, warrants and performance share awards that could result in further common shares being issued, these are not taken into account in computing diluted loss per share as they are antidilutive.
2011 Shares
2010 Shares
Basic and diluted weighted average number of common shares in issue Basic and diluted loss per share cents Basic and diluted loss per share continuing activities cents Basic and diluted earnings per share discontinuing activities cents
327,395,866 (4.06) (4.06)
257,185,914 (13.98) (14.05) 0.07
Convertible bonds were issued after the reporting period and can be convertible into fully paid ordinary shares of the Group. Refer to subsequent events note 22. In the event of conversion this will significantly increase the number of common shares. 7. Inventories Work in progress stockpiles Finished goods stockpiles Other inventories
2011 US$ 000s 2010 US$ 000s
20,408 28,279 2,348 51,035
1,277 1,277
There were no inventory write downs in the year. Other inventories relate to fuel and spare parts used at the mine and rail and port.
Annual report 2011
61
8. Exploration and evaluation assets

Exploration expenditure US$ 000s
Mineral exploration licences US$ 000s
Total US$ 000s
Cost At 1 January 2010 Additions As at 31 December 2010 At 1 January 2011 Transfer to assets under construction As at 31 December 2011 Provision for amortisation and impairment At 1 January 2010 Impairment charge for the year As at 31 December 2010 At 1 January 2011 Amortisation charge for the year As at 31 December 2011 Net book value At 1 January 2010 At 31 December 2010 At 31 December 2011
123,232 112,102 235,334 235,334 (189,720) 45,614 34,281 3,858 38,139 38,139 38,139 88,951 197,195 7,475
920 920
124,152 112,102 236,254
920 236,254 (920) (190,640) 920 920 45,614 34,281 3,858 38,139 38,139 38,139 89,871 198,115 7,475
Exploration and evaluation assets comprise the cost of purchasing mineral exploration licences and certain deferred exploration and evaluation expenditure on the Companys mineral licences. The transfer to assets under construction relate to the Groups flagship project in Tonkolili, Sierra Leone. The remaining balance relates to a gold exploration project in Sierra Leone. The Board of Directors regularly assesses the potential of each mineral licence and writes off any deferred exploration expenditure that it believes to be irrecoverable. The Board of Directors undertook an impairment review of the Groups exploration and evaluation assets as at 31 December 2011 and the impairment charge for the year was nil (2010: $3,859,000). The impairment charge in 2010 relates to the write-down of our investments in White River Resources, a nickel exploration project in Canada and Pinnacle Coal, a Sierra Leone coal exploration project, neither of which forms an ongoing part of the Groups core activities.
2010 Impairment charge US$ 000s
Project Canada nickel exploration Sierra Leone coal exploration Software (refer to note 9)
2,576 1,282 3,858 595 4,453
Annual report 2011
62

9. Intangible assets Cost At 1 January 2010 Additions As at 31 December 2010 At 1 January 2011 Additions Transfer to assets under construction As at 31 December 2011 Provision for amortisation and impairment At 1 January 2010 Impairment charge for the year As at 31 December 2010 At 1 January 2011 Amortisation charge for the year As at 31 December 2011 Net book value At 1 January 2010 At 31 December 2010 At 31 December 2011 There was no software impairment during the year (2010: $595,000). 10. Assets under construction and property, plant and equipment
Assets under construction US$ 000s Plant & machinery US$ 000s Land & buildings US$ 000s Fixtures & fittings US$ 000s Software US$ 000s
595 595 595 2,183 2,778 595 595 595 135 730 2,048
Total US$ 000s
Cost At 1 January 2010 Additions Disposals As at 31 December 2010 At 1 January 2011 Additions Disposals Transfer from exploration and evaluation assets As at 31 December 2011 Depreciation At 1 January 2010 Charge for the year Disposals As at 31 December 2010 At 1 January 2011 Charge for the year Disposals As at 31 December 2011 Net book value At 1 January 2010 At 31 December 2010 At 31 December 2011
3,002 250,994 253,996 253,996 1,035,759 190,640 1,480,395 3,002 253,996 1,480,395
5,991 9,271 15,262 15,262 11,156 (214) 26,204 2,530 1,368 3,898 3,898 5,121 (214) 8,805 3,461 11,364 17,399
4,584 4,584 4,584 4,235 8,819 816 816 816 776 1,592 3,768 7,227
560 109 (62) 607
9,553 264,958 (62) 274,449
607 274,449 1,569 1,052,719 (224) (438) 190,640 1,952 1,517,370 538 90 (26) 602 602 207 (224) 585 22 5 3,068 2,274 (26) 5,316 5,316 6,104 (438) 10,982 6,485 269,133
1,367 1,506,388
Annual report 2011
63
10. Assets under construction and property, plant and equipment continued Depreciation Less: Capitalised costs Depreciation charge
2011 US$ 000s
2010 US$ 000s
6,104 (5,390) 714
2,274 (2,179) 95
Capitalised borrowing costs There were borrowing costs capitalised during the year of $86,363,000 (2010: nil). Borrowing costs are comprised of placement fees and interest. The effective interest rates of the specific borrowing are used to determine the amount of borrowing costs eligible for capitalisation. These are detailed in note 16. 11. Trade and other receivables Current Trade receivables Other receivables
2011 US$ 000s 2010 US$ 000s
10,690 5,766 16,456
422 422
Trade receivables relate to amounts receivable as at 31 December 2011 for the sales of iron ore during December 2011. December sales have been credited to assets under construction, as the project was in a phase of commissioning at year end. 12. Deposits Non-current Deposits
2011 US$ 000s 2010 US$ 000s
3,910
3,910
$3,000,000 in 2010 and 2011 relates to deposits paid to the Government of Sierra Leone in relation to the rail and port licences. These amounts are recoverable and will be netted against future Sierra Leone tax payables. 13. Taxation Analysis of credit for the year:
Notes
2011 US$ 000s
2010 US$ 000s
Deferred tax Current year Tax adjustments in respect of prior years Effect of changes in tax rates Deferred tax credit
15,126 12,896 (924) 27,098
10,345 10,345
The effective corporate income tax for the year is lower than the statutory rate of corporation tax in the UK of 26.5% (2010: 28%).
Annual report 2011
64

13. Taxation continued A reconciliation between the tax credit reflected in the statement of comprehensive income and the expected tax credit based on the statutory rate of corporation tax for the year is shown below:
Notes 2011 US$ 000s
2010 US$ 000s
Loss for the year from continuing operations Discontinued operations Profit/(loss) for the year Loss on ordinary activities before tax Groups domestic tax rate is as follows: Loss before tax multiplied by the standard rate of UK Corporation tax 26.5% (2010: 28%) Effects of: Expenses deductible/(not deductible) for tax purposes Effect of changes in tax rates Recognition of previously unrecognised deferred tax assets Losses not recognised Effect of overseas tax rates Total taxation credit
(40,408) 25 (40,408) (40,408) 10,708 10,150 (924) 14,689 (7,610) 85 27,098
(46,497) 173 173 (46,324) 12,971 (4,705) 3,708 (1,629) 10,345
Deferred income tax asset With the Tonkolili Mine in a commissioning phase and with production starting in Q1 2012, the Group has increased confidence of its ability to generate taxable profits against brought-forward tax losses. This has resulted in an increase to the recognised net deferred tax asset during 2011. The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Property, plant & equipment US$ 000s Tax losses US$ 000s Other temporary differences US$ 000s Total US$ 000s
Deferred income tax assets At 1 January 2010 Credited/(charged) to the statement of comprehensive income Amounts previously unrecognised Effects of changes in tax rates As at 31 December 2010 At 1 January 2011 Credited/(charged) to the statement of comprehensive income Amounts previously unrecognised Effects of changes in tax rates As at 31 December 2011
5,123 5,123 5,123 (5,037) 86
63,283 12,915 (75) 76,123 76,123 135,009 211,132
817 (604) 213 213 9,416 9,629
64,100 17,434 (75) 81,459 81,459 139,388 220,847
Annual report 2011
65
13. Taxation continued

Property, plant & equipment US$ 000s Tax losses US$ 000s
Other temporary differences US$ 000s
Total US$ 000s
Deferred income tax liabilities At 1 January 2010 Charged/(credited) to the statement of comprehensive income (Credited) to Other Comprehensive Income Amounts previously unrecognised Effects of changes in tax rates As at 31 December 2010 At 1 January 2011 Charged/(credited) to the statement of comprehensive income (Credited) to Other Comprehensive Income As at 31 December 2011 Net deferred tax asset As at 1 January 2011 Tax credit recognised in statement of comprehensive income Tax credit recognised in Other Comprehensive Income Total taxation credit As at 31 December 2011
11,389 67,506 67,506 115,979 183,485
56,117 2,113 (6) (75) 2,032 2,032 (1,261) 771
2,622 1,067 3,689 3,689 (3,689)
58,739 2,113 12,450 (75) 73,227 73,227 112,290 (1,261) 184,256 8,232 27,098 1,261 28,359 36,591
Unrecognised tax losses Where the realisation of deferred tax assets is dependent on future profits, losses carried forward are recognised only to the extent that business forecasts predict that such profits will be available to the companies in which the losses arose. The Group has unrecognised deferred tax assets of approximately $7,072,000 (2010: $2,120,000) in respect of tax losses that are available indefinitely for offset against future taxable profits. Furthermore, the Group has an unrecognised deferred tax asset of $9,800,000 in relation to future deductions which may be available in relation to employee share schemes. Change in corporation tax rate United Kingdom The Finance Act 2011, which was substantively enacted in July 2011, included provisions to reduce the rate of corporation tax to 26% with effect from 1 April 2011 and 25% with effect from 1 April 2012. The Government has announced that it intends to further reduce the rate of corporation tax to 23% with effect from 1 April 2013 and 22% from 1 April 2014. As this legislation was not substantively enacted by 31 December 2011, the impact of the anticipated rate change is not reflected in the tax provisions reported in these accounts. Sierra Leone The rate of corporation tax has is 25% and has not changed in the year.
Annual report 2011
66

14. Financial instruments Set out below is a comparison by class of the fair value of the Groups financial instruments that are carried in the financial statements.
Carrying Value Carrying Value 2011 2010 US$ 000s US$ 000s Fair Value 2011 US$ 000s Fair Value 2010 US$ 000s
Notes
Financial assets Trade and other receivables Deposit Available for sale investments Cash and cash equivalents Financial liabilities Trade and other payables Interest-bearing borrowings
11 12 15
10,690 3,910 67,996 16,465 99,061 157,034 560,817 717,851
3,910 76,096 372,364 452,370 52,331 52,331
10,690 3,910 67,996 16,465 99,061 157,034 560,817 717,851
3,910 76,096 372,364 452,370 52,331 52,331
16
The Groups principal financial liabilities comprise interest-bearing borrowings and trade and other payables. The main purpose of the interest-bearing borrowings is to raise finance for the Groups capital expenditure programme. Trade and other payables are used to manage short-term cash flow and working capital requirements. The Group has various financial assets such as available-for-sale investments, as well as other receivables and cash and cash equivalents, which arise directly from its operations. In respect of monetary assets and liabilities held in currencies other than US Dollars, the Group ensures that net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances. Foreign exchange differences on retranslation of such assets and liabilities are taken to the statement of comprehensive income. Cash and cash equivalents consist of short-term deposits in US Dollars and Sterling which earn market interest rates. The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The fair value of loans and other current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities; as at 31 December 2011, the carrying amounts of such liabilities are not materially different from their calculated fair values. 15. Available-for-sale investments Listed securities: Equity securities Australia Equity securities UK
2010 US$ 000s Share disposals Share acquisitions Share price movement Exchange movement Fair value movement 2011 US$ 000s
62,668 13,428 76,096

2009 US$ 000s

Share disposals

Share acquisitions
(4,382) (3,770) (8,152)

Share price movement
63 (11) 52
Exchange movement
(4,319) (3,781) (8,100)

Fair value movement
58,349 9,647 67,996

2010 US$ 000s
Listed securities: Equity securities Australia Equity securities UK
40,504 1,703 42,207
(3,100) (3,100)
16,338 6,865 23,203
6,486 504 6,990
(660) 7,456 6,796
5,826 7,960 13,786
62,668 13,428 76,096
Australia Australian equity securities include Cape Lambert Resources Limited. 15,086,615 Cape Lambert Resources shares at consideration of $1 per share were acquired during 2010 in respect of the disposal of Marampa Iron Ore Limited. A further 3,860,277 additional Cape Lambert Resources shares were purchased in 2010 for $1,252,385. There were no additional shares acquired in 2011. As at 31 December 2011 the percentage holding of Cape Lambert Resources Limited was 17.73% (2010: 19.64%). There were no dividends received from Cape Lambert Resource Limited in 2011 (2010: $7,347,134).
Annual report 2011
67
15. Available-for-sale investments continued United Kingdom As at 31 December 2011, the percentage holding of Stellar Diamonds plc (formerly West African Diamonds plc) was 0.80% (2010: 1.25%) and the percentage holding of Obtala Resources plc was 8.97% (2010: 9.45%). There were no shares acquired in UK entities during 2011. 21,170,422 shares in Obtala Resources were received during 2010 in respect of the disposal of Sierra Leone Hard Rock (SL). 11,425,000 shares in Baobab Resources plc with cost of $3,898,781 were disposed of in 2010 for proceeds of $1,621,371 and loss on disposal of $2,277,410. No shares were disposed in 2011. 16. Interest-bearing loans and borrowings Non-current interest-bearing loans and borrowings $417.7m Secured Loan facility $100m Standby facility $92.5m Asset financing facility Other Asset financing Current interest-bearing loans and borrowings $417.7m Secured Loan facility $100m Standby facility $92.5m Asset financing facility Other Asset financing Total interest-bearing loans and borrowings
Effective Interest Rate % 2011 US$ 000s
Maturity
28.18% LIBOR + 8.5% LIBOR + 5.59% 21.38%
31 January 2013 30 September 2013 31 March 2017 31 October 2015
32,171 53,795 57,927 315 144,208
28.18% LIBOR + 8.5% LIBOR + 5.59% 21.38%
31 January 2013 30 September 2013 31 March 2017 31 October 2015
360,343 44,583 11,491 192 416,609 560,817
Secured loan facility The debt facility was established on 4 February 2011 for an amount of $417.7m denominated in US Dollars. As at 31 December 2011, full funds had been drawn down. The principal terms of the facility are as follows:

two-year term (capital repayments commencing from 30 April 2012); an interest rate of 11.5% per annum, and a commitment fee (details of the commitment fee below); repayment by the Company at any time (repayments during the first year incur a prepayment fee being 6% of the amount repaid). If the facility remains outstanding on the first anniversary of drawing, the Company shall pay a bonus equal to 3% of the outstanding balance of the facility either in cash or common shares at the Companys election; and secured over the principal assets of the Group.
The commitment fee paid to lenders comprised 2,356,832 new common shares and 11,730,000 warrants which were issued on 4February 2011. The fair value of the common shares was based on the agreed price of 450 pence and the warrants were valued at 227 pence using a Black-Scholes pricing model. Key assumptions and variables used in the valuation included:

the spot share price used was 5.13, being the last available closing price prior to the valuation date (4 February 2011); the strike share price used was 4.24; the risk free rate used was a yield of a five-year UK Government Bond as at the valuation date over the life of the warrants; a nil% dividend yield; volatility of 40% (sensitivity analysis performed on volatilities of 40%, 45% and 50%, independent valuers conclusion deemed volatility of 40% appropriate); american type option; options can be exercised at any point up until expiry; warrants are freely transferable (with the exception of Restricted Purchasers) prior to the exercise of the subscription rights; and an exercise life of five years.
The fair value of the warrants issued in relation to the secured loan facility was $38,373,000.
Annual report 2011
68

16. Interest-bearing loans and borrowings continued Borrowing costs of $84,814,000 have been capitalised and transferred to assets under construction based on an effective interest rate of 28.18%. After the reporting period, the Group closed a $518m refinancing package with the Standard Bank of South Africa which redeemed the $417.7m Secured Loan Facility on more improved and less restrictive terms and continued the $100m standby facility. Refer to subsequent events note 22 for further detail. Standby facility On 3 November 2011, the Group signed a $100m Subordinated Facility Agreement with Standard Bank. The principal terms of the facility are:

repayable in five equal quarterly instalments beginning 30 September 2012. There are no penalties for early repayment; and the effective interest rate of this facility, including all commitment and arrangement fees, is under 11% and the interest rate reduces by a further 1% post completion.
As at 31 December 2011, the facility is fully drawn down. Borrowing costs of $765,000 have been capitalised and transferred to assets under construction based on an effective interest rate of 10.7% (incorporating transaction fees). Asset financing facility On 29 September 2011, the Group signed a $92.5m Asset Financing Facility Agreement with Standard Bank Ltd. The principal terms of the facility are:

term of five years from drawdown, with quarterly repayment; secured on $99.1m mine and infrastructure assets, specifically carved out of the existing Secured Loan Facility for the purpose of equipment financing; fully amortising asset-secured loan for mining equipment and rolling stock; political Risk Insurance to cover general political risk in Sierra Leone; and first repayment is after a six month deferment period.
$89m of the facility has been drawn down. As at 31 December 2011, $70.9m was drawn down, the remaining $18.1m was received in January 2012. Borrowing costs of $784,000 have been capitalised and transferred to assets under construction based on an effective interest rate of 7% (incorporating transaction fees). 17. Share capital and reserves Authorised Common shares of US$ 0.01 each Preference shares of US$ 0.001 each Issued and fully paid common shares of US$ 0.01 each At 1 January Allotments during the period At 31 December Preference shares are authorised but not issued.
2011 Number of shares 2011 US$ 000s 2010 Number of shares 2010 US$ 000s
500,000,000 100,000,000 317,575,943 11,369,613 328,945,556
5,000 100 3,176 114 3,290
500,000,000 100,000,000 213,639,654 103,936,289 317,575,943
5,000 100 2,136 1,039 3,176
Annual report 2011
69
17. Share capital and reserves continued Share premium At 1 January 2010 Share allotments during the year Transaction cost equity issues Reserves transfer performance shares Reserves transfer options Reserves transfer warrants At 31 December 2010 Share allotments during the year Reserves transfer options Reserves transfer warrants At 31 December 2011 Allotments during the period were as follows:
Notes
US$ 000s
18
310,002 681,818 (30,120) 809 4,368 54 966,931 65,686 378 70 1,033,065
New shares 9,348,282 (2010: 98,579,474) new common shares were issued for consideration of $63,452,000 (2010: $677,948,832) with no related expenses paid (2010: $26,418,702). 6,991,450 new common shares were issued to China Railway Materials Commercial Corporation for consideration of $46,345,000. 2,356,832 new common shares valued at $17,107,000 were issued as part of the commitment fee paid to lenders for the secured non-revolving credit facility (refer to Note 16). No shares were repurchased during the period. Share options 1,887,997 (2010: 2,223,482) new common shares were issued for consideration of $2,184,336 (2010: $1,679,050) on the exercise of share options. Warrants 133,334 (2010: 133,333) new common shares were issued for consideration of $163,693 (2010: $53,880) on the exercise of share warrants. Share scheme No new common shares were issued in 2011 on the achievement of corporate objectives under the Employee Share Scheme. In 2010 there were 3,000,000 shares issued, with a value at grant date of $839,973 under this Scheme. Total 11,369,613 (2010: 103,936,289) shares were issued for consideration of $65,800,000 (2010: $652,738,000). Total proceeds of options and warrants in the year totalled $2,348,000 (2010: $1,815,000). Consideration for the shares issued as commitment fee of $17,107,000 (as above) are included within the proceeds from borrowings of $417,700,000 as per the statement of cash flows, resulting in net consideration of ordinary shares issued of $48,693,000.
Annual report 2011
70

17. Share capital and reserves continued Fair value reserves Balances held in fair value reserves relate to fair value movements in the year on available for sale investments. As at 1 January 2010 Reserves transfer for available-for-sale investments Fair value movement on available-for-sale investments Deferred taxation on available-for-sale investments 2010 fair value movement As at 31 December 2010 Fair value movement on available-for-sale investments Deferred taxation on available-for-sale investments 2011 fair value movement As at 31 December 2011 Equity reserves The balance held in equity reserves relates to share based payments, options and warrants. As at 1 January 2010 Share-based payments Reserves transfer performance shares Reserves transfer options Reserves transfer warrants As at 31 December 2010 Issue of warrants Share-based payments Reserves transfer options Reserves transfer warrants As at 31 December 2011 16 18 15 13
Notes
US$ 000s
6,960 2,759 13,786 (2,113) 11,673 21,392 (8,100) 1,261 (6,839) 14,553
Notes
US$ 000s
18 18
14,221 11,309 (839) (4,368) (54) 20,269 38,373 25,683 (378) (70) 83,877
18. Share-based payments Equity-settled transactions The cost of equity-settled transactions is recognised, together with a corresponding increase in equity reserves, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Groups best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in employee benefits expense (see note 5). No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, no further expense is recognised for that award. This includes any award where nonvesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.
Annual report 2011
71
18. Share-based payments continued The stock-based compensation recognised as an expense in the year to 31 December 2011 was $25,683,000 (2010:$11,309,000). This charge is comprised of $14,663,000 (2010: $9,271,000) share options charge and $11,020,000 (2010: $2,037,000) performance share charge. A transfer of $378,000 (2010: $4,368,000) was made from the share premium account to the equity reserve during the year. a) Options The Group has issued equity-settled share options under a share option scheme adopted by the Group on 5 November 2004. Movements in share options over US$ 0.01 common shares in the Company were as follows:
2011 Number of Options Weighted Average Price 2010 Number of Options Weighted Average Price
As at 1 January Options granted in the year Options exercised in the year Options lapsed in the year Options forfeited in the year As at 31 December 10,628,343 (2010: 7,294,795) options were exercisable at year end.
20,274,973 6,875,000 (1,887,997) (1,238,327) (5,383,336) 18,640,313
203.4p 478.5p 51.7p 468.5p 422.4p
16,648,455 6,550,000 (2,223,482) (50,000) (650,000) 20,274,973
99.5p 410.3p 136.4p 16.8p 458.5p
Volatility was determined using the historic fluctuations in the Companys share price. The fair value of options granted during the year was estimated using the Black-Scholes pricing model with the following significant assumptions:
2011
2010
Expected life (years) Risk-free interest rate Volatility Weighted average fair value per option Weighted average exercise price Key statistics regarding the options for the year were as follows: Weighted average fair value per option Weighted average exercise price Weighted average share price at exercise date during the year Weighted average remaining life (days) at end of period Range of exercise price at end of period
0.254.50 0.571.96% 4077.35% $2.48 $4.16 $2.48 $4.16 $7.41 978 $0.80$8.67
5.00 1.83.0 % 7791% $4.10 $1.23 $4.10 $1.23 $5.73 1,240 $0.80$7.62
Subject to the rules of the Share Option Plan and the requirements noted below, each of the outstanding options is exercisable based on various targets in relation to performance of the Group or is exercisable based on the following:

one-third of the shares under option following the first anniversary of the date of grant; a further one-third of the shares under option following the second anniversary of the date of grant; and the final one-third of the shares under option following the third anniversary of the date of grant;
provided that the option holder remains a Director or employee of the Group, or if the option holders employment is terminated, within 90 days of the termination. Subject to the rules of the Share Option Plan each of the outstanding options is exercisable when the Companys share price has traded at or above the Exercise Price for 14 consecutive trading days.
Annual report 2011
72

18. Share-based payments continued b) Warrants Movements in equity-settled warrants over US$ 0.01 common shares in the Company in the year were as follows: Number of options As at 1 January Warrants granted in the year Warrants lapsed in the year Warrants exercised in the year As at 31 December
2011 2010
133,334 266,667 11,730,000 (133,334) (133,333) 11,730,000 133,334
All warrants outstanding at year end relate to those granted in relation to the Secured Loan Facility. Refer to note 16 for details and key statistics regarding these warrants. No stock-based compensation in relation to warrants was recognised as an expense in the year to 31 December 2011 (2010: nil). Warrants are valued using the Black-Scholes pricing model. The value is then capitalised as a borrowing cost into assets under construction. These warrants were issued as part of the consideration paid to advisors who have acted for the Company in the raising of equity through private placements. During the year there were no lapses of warrants (2010: nil) and therefore no transfer out of equity reserves for warrants. c) Performance shares Movements in performance equity-settled shares in the Company in the year were as follows: Number of options
2011 Weighted Average Price Weighted Average Price
2010
As at 1 January Options granted in the year Shares issued in the year Options forfeited in the year Options lapsed in the year Options cancelled in the year As at 31 December
3,250,000 1,650,000 (1,000,000) (150,000) (500,000) 3,250,000
226.2p 523.6p 285.5p 521.0p 26.0p
4,500,000 1,750,000 (3,000,000) 3,250,000
21.1p 397.8p 21.1p
There were no issues in 2011. For the shares issued in 2010, the following performance conditions were met:

the award of the Mining Lease for the Tonkolili iron ore project; and the completion of the China Railway Materials Commercial Corporations (CRM) equity subscription completed in June 2010.
In 2011, the Group entered into agreements to award senior executives with shares in the Company based on certain performance conditions being met. These conditions include the following:

the completion of Phase Two construction targets; and the achievement of various iron ore production targets.
2011 US$ 000s 2010 US$ 000s
19. Trade and other payables Trade payables Accruals
79,161 77,873 157,034
41,229 11,102 52,331
Trade payables are non-interest bearing. Trade payables and accruals increased principally due to an increase in capital spend in 2011.
Annual report 2011
73
20. Tax payable Penalties Other taxes and social security
2011 US$ 000s
2010 US$ 000s
2,790 3,715 6,505
4,079 4,079
Penalties have been capitalised and incurred for under-provision of withholding tax on payments made prior to the Mining Lease Agreement being approved. Other taxes include employee tax and withholding tax payable. 21. Commitments and contingencies Operating leases The Group has entered into two mining licences with the Sierra Leone Government and a lease for the port and rail operations. The lives of the mining licences are 25 years and the port and rail licence is 99 years. There are no restrictions placed upon the Group by entering into these leases. The Group also has a five-year operating lease contract for a locomotive fleet for the port and rail operations. A call option exists for the lessee to transfer ownership of the assets to the lessor at fair value of the assets at the end of the lease term. Future minimum payments under the operating leases as at 31 December are as follows: Within one year After one year but not more than five years More than five years
2011 US$ 000s 2010 US$ 000s
10,332 38,708 40,750 89,790
1,250 5,000 43,250 49,500
Capital commitments At 31 December 2011, the Group had commitments of $48,700,000 (2010: $329,300,000) including $25,650,000 (2010: $202,600,000) infrastructure and $23,050,000 (2010: $126,700,000) in relation to the mine. 22. Subsequent events 1. Convertible Bond On 31 January 2012, the Group announced the pricing of US$350m of Convertible Bonds (due 2017). The Bonds were issued at par and were priced with a coupon of 8.5% payable semi-annually in arrears and will be convertible into fully paid ordinary shares of the Group. The conversion price was set at a price of US$10.98 equivalent to GBP 7.00 converted into US$ at the GBP:USD exchange rate as of 30 January 2012. Based on the issue size of US$350m, the ordinary shares to be issued upon conversion of the Bonds would represent 31,876,138 ordinary shares and at the time of pricing this corresponded to 9.7% of the current total number of issued and outstanding ordinary shares of the Group. In addition, the Group offered CRM the right to subscribe to bonds in accordance with their right to preserve their 12.5% shareholding. The Board of CRM has confirmed acceptance of this offer and following receipt of relevant regulatory approvals, CRM has completed its subscription for $50m of the Bonds. The cash was received on 15 May 2012 to bring total Bond proceeds to $400m. The Bonds were settled and closed on 9 February 2012. If not converted or previously redeemed, the Bonds will be redeemed at par at maturity five years from the closing date (9 February 2017). The Group will have the option to call the Bonds at 110% of par at three years after the Closing Date (9 February 2015). In addition, the Group has the right to redeem the Bonds if at any time the aggregate principal amount of the Bonds outstanding is equal to or less than 15% of the aggregate principal amount of the Bonds initially issued.
Annual report 2011
74

22. Subsequent events continued 2. Refinancing On 31 January 2012, the Group announced that the Standard Bank of South Africa Limited (Standard Bank) approved a refinancing package for $518m in order to redeem the existing $417.7m Secured Loan Facility prior to its anniversary date and continue the existing $100m Standard Bank Standby Facility. The refinancing has been concluded on improved and less restrictive terms than the facilities that it has replaced. On 9 February 2012, the Group announced that it has closed the $417.7m financing package provided by Standard Bank. The $417.7m available under the new facility agreement has been completely drawn down to redeem the previous secured loan facility in full, at par. Principal terms of the agreement are as follows:

nine-month term (full repayment at end of term); an interest rate of Libor plus 7.5% per annum and a commitment fee; and secured over the principal assets of the Group.
Under the agreement, commitment fees are payable in warrants convertible into new common shares in the Company at 515 pence per share. 1,985,000 warrants were issued to Standard Bank with a three-year tenure. On 2 April 2012, this facility was repaid following the investment of $1.5bn from Shandong Iron and Steel Group refer to point 3below. 3. Shandong Iron and Steel Group On 30 March 2012, following receipt of all PRC approvals, Shandong Iron and Steel Group (SISG) completed its $1.5bn acquisition of a 25% shareholding in the mine, rail and port and power subsidiaries comprising the Tonkolili iron ore project, for a cash consideration of $1.5bn. The funds were received on 2 April 2012. The principal terms are:
SISG will purchase iron ore under an off-take arrangement, with an additional equity ore option and dividend ore option. The discounted off-take arrangements include 2Mtpa of Phase I production, increasing to 10Mtpa, with discounts ranging from 0% to 15%, depending on the benchmark iron ore price. Furthermore, SISG will have the right to elect, on an annual basis, to receive 25% of standard production at benchmark prices, and to also receive iron ore in settlement of any declared dividends from the project. The Group will use the funds received to accelerate development of Tonkolilis Phase II expansion. The existing $417.7m secured loan facility was repaid from the proceeds on 2 April 2012 (refer to point 2 above). Mr Cui Jurong, Vice President of SISG, has been nominated to the Board of Directors of the Group. A put option exists whereby SISG can sell back their interest at fair value, in the event Frank Timis (Executive Chairman) is no longer a Director of the Group.
On 2 April 2012, the Group paid $417.7m of the $1.5bn consideration received, to Standard Bank, in settlement of the Secured Loan Facility and a further $65.2m in interest and other charges to AML Bermuda, its parent company. The $1,017.1m remainder of the consideration will be available for use by the project companies for capital expenditure purposes.
Annual report 2011
75
23. Related party transactions

Sales US$ 000s
Accounts receivable US$ 000s
Purchases US$ 000s
Accounts payable US$ 000s
Borrowings US$ 000s
African Petroleum Corporation Limited 2011 2010 International Petroleum Limited 2011 2010 CRM Commercial Corporation 2011 2010 Dundee Resources Limited 2011 2010 Dundee Corporation 2011 2010 Corona Gold Corporation 2011 2010 Pan African Limited 2011 2010 Clyde & Co LLP 2011 2010 Global Iron Ore Corporation 2011 2010
475 130 66,688 668 2,254
475 130 5,065 668
326 17,428 8 397 168
233 13,341 1 50
26,000 5,000
1. African Petroleum Corporation Limited (formally Eastern Petroleum Corporation) is a company of which Frank Timis is a Director and has an ownership interest. Transactions relate to jet rental expenses from African Petroleum and office rental expenses charged to African Petroleum. Frank Timis is the Executive Chairman of African Minerals Limited. International Petroleum Limited is a company of which Frank Timis is a Director and in which he has an ownership interest. Transactions relate to recharge of office rental. China Railway Materials Commercial Corporation is a Group shareholder. Transactions relate to materials purchased for railways and ore cars. Dundee Resources Limited is a firm of which Murray John is a Director. Transactions relate to fees incurred under the $417.7m secured non-revolving credit facility, which was provided by Dundee Resources Limited and Sprott Secured Lending Limited (refer to Note 16). Murray John is a Director of African Minerals Limited. Dundee Corporation and Corona Gold Corporation are firms of which Murray John is a Director. Transactions relate to debt raised as part of the $417.7m credit facility (refer to Note 16). Interest shall accrue on the principal amount of the Term Facility from the date of advance of the principal amount of the Term Facility into the Escrow Account at the rate of 11.50% per annum, compounded monthly (effective annual rate of 12.13%). Pan African is a company of which Frank Timis is a Majority shareholder. Transactions relate to employee services provided. Clyde & Co LLP is a firm of which Christopher Duffy is a partner. Transactions relate to legal fees. Christopher Duffy was a Director of African Minerals Limited during 2010. Global Iron Ore Corporation is a Company in which Dermot Coughlans son holds a senior management position. Transactions relate to agency commission costs associated with iron ore sales and arrangement of 2012 iron ore off-take contracts. All the above transactions have been approved by the Board and have been carried out on an arms length basis.
Annual report 2011 African Minerals Limited
76

23. Related party transactions continued 2. Miguel Perry provided $500,000 as part of the 2011 $417.7m Secured Loan Facility and received 12,500 warrants and 2,811shares. Miguel Perry is the Chief Financial Officer and Director of African Minerals Limited. 24. Reporting jurisdictions The Company is a reporting issuer in certain Canadian jurisdictions. However, the Company is a designated foreign issuer as defined in Canadian National Instrument 71-102 and is subject to foreign regulatory requirements, including those of the AiM market of the London Stock Exchange. As such, the Company is exempt from certain requirements otherwise imposed on reporting issuers in Canada. In particular, financial statements of the Company may be prepared under International Financial Reporting Standards or accounting principles that meet the non-Canadian disclosure requirements to which the Company is subject. 25. Assets of disposal group classified as held for sale and discontinued operations Analysis of the result of discontinued operations, all of which were 2010 and the result recognised on the remeasurement of assets of disposal group, is as follows: Revenue Expenses Profit for the year Revenue of discontinued operations in 2010 comprises gold sales. Gain on disposal of subsidiary Proceeds Shares in Obtala Resources received during the year Total proceeds Net assets disposed Gain on disposal of subsidiary 2010 On 12 January 2010, the Group disposed of its diamond operation, which comprised Sierra Leone Hard Rock Limited and its subsidiary, Sierra Leone Hard Rock (SL) Limited. The assets and liabilities were transferred to Obtala Resources plc in a share transaction valued at US$6,866,724 and amounted to nil profit on disposal. 26. Financial risk management objectives and policies The Groups activities expose it to a variety of financial risks. The Groups Board provides certain specific guidance in managing such risks, particularly as relates to credit and liquidity risk. Any form of borrowings requires approval from the Board and the Group does not currently use any derivative financial instruments to manage its financial risks. The key financial risks and the Groups major exposures are as follows: Credit risk The maximum exposure to credit risk is represented by the carrying amount of the financial assets. In relation to cash and cash equivalents, the Group limits its credit risk with regards to bank deposits by only dealing with reputable banks. In relation to sales receivables, the Groups credit risk is managed by credit checks for credit customers and approval of letter of credit by the Groups advising bank for off-take customers. Foreign currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The table below indicate the currencies to which the Group had significant exposure at 31 December 2011 on its monetary assets and liabilities. The analysis calculates the effect of a reasonably possible movement of the currency rate against the USD, with all other variables held constant on the consolidated statement of comprehensive income (due to the fair value of currency sensitive non-trading monetary assets and liabilities). A positive amount in the table reflects a potential net increase in the consolidated statement of comprehensive income.
2010 US$ 000s
2010 US$ 000s
626 (453) 173
6,867 6,867 6,867
Annual report 2011
77
26. Financial risk management objectives and policies continued Non-trading currency cash & cash equivalents:
Change in Currency rate in %
2011
Effect on Statement of Comprehensive Income
2010
Effect on Statement of Comprehensive Income
British Pounds Canadian Dollars Chinese Yen Euros South African Rand Sierra Leone Leones
3,934 131 98 0 0 709 4,872
+10 +10 +10 +10 +10 +10
393 13 10 0 0 71 487
22,888 390 48 0 0 (104) 23,223
+10 +10 +10 +10 +10 +10
2,289 39 5 0 0 (10) 2,322
Available for sale investments:

2011 US$ 000s
Equity Movement
2010 US$ 000s
Equity Movement
Listed securities: Equity securities Australia Equity securities UK Total
58,349 9,647 67,996
+10 +10
5,835 965 6,800
62,668 13,428 76,096
+10 +10
6,267 1,343 7,610
Equity price risk Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity indices and the value of individual stocks. Management of the Group monitors equity securities in its investment portfolio based on market indices. The effect on equity (as a result of a change in the fair value of quoted equity shares held at 31 December 2011) due to a reasonably possible change in equity indices, with all other variables held constant, is as follows:
2011 Change in equity price % Effect on equity US$ 000s 2010 Change in equity price % Effect on equity US$ 000s
Quoted investments
+15
10,199
+10
7,610
Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Numbers in the table below represent the gross, contractual, undiscounted amount payable in relation to the financial liabilities. The Group monitors its risk to a shortage of funds using a combination of cash flow forecasts, budgeting and monitoring of operational performance. The Groups objective is to maintain a balance between continuity of funding and flexibility through the use of various interest-bearing loans and borrowings (refer to note 16), operating leases (refer to note 21) and share issues.
Annual report 2011
78

26. Financial risk management objectives and policies continued After the reporting period, the Group issued a convertible bond (refer to note 22) and a refinancing package for key borrowings was agreed (refer to note 22).
On demand US$ 000s Less than three months US$ 000s Three to twelve months US$ 000s One to five years US$ 000s Total months US$ 000s
As at 31 December 2011: Accruals Trade payables Interest-bearing loans and borrowings (note 16) Trade payables and accruals As at 31 December 2010: Accruals Trade payables Trade payables and accruals
68,446 71,154 4,311 143,911 1,813 24,876 26,689
9,427 8,007 25,085 42,519 9,289 16,353 25,642
452,322 452,322
198,572 198,572
77,873 79,161 680,290 837,324 11,102 41,229 52,331
In 2010, accruals and trade payables of $26,689,000 were repayable on demand. Capital management Capital includes equity attributable to the equity holders of the parent. Refer to the statement of changes in equity for quantitative information regarding equity. The Groups primary objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders. Capital managed by the Group as at 31 December 2011 consisted of: Cash and cash equivalents Interest-bearing loans and borrowings (note 16) Equity attributable to equity holders of the parent
2011 US$ 000s 2010 US$ 000s
16,465 560,817 982,110
372,364 872,403
The capital structure is reviewed by management through regular forecasting and monthly reporting. The Group is not subject to any externally imposed capital requirements. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. A sensitivity analysis is not presented, as all borrowing costs have been capitalised as at 31 December 2011; therefore profit or loss and equity would not have been affected by changes in the interest rate.
Annual report 2011
79
Advisors and Company information

Auditors Ernst & Young LLP 1 More London Place London SE1 2AF United Kingdom Nominated Advisor Deutsche Bank Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom PR Advisor Aura Financial LLP The Economist Plaza 7th Floor 27 St Jamess Street London SW1A 1HA United Kingdom UK Solicitors Cleary Gottlieb Steen & Hamilton LLP City Place House, 55 Basinghall Street London EC2V 5EH United Kingdom Canadian Solicitors Blake Cassels and Graydon LLP 199 Bay Street Suite 2800, Commerce Court West Toronto ON M5L 1A9 Canada Registrars Computershare Trust Company of Canada 600, 530 8th Ave SW Calgary, AB T2P 3S8 Canada Company Secretary Marlies Smith M Q Services Ltd. Victoria Place, 31 Victoria Street, Hamilton HM 10 Bermuda Registered Office Victoria Place, 31 Victoria Street, Hamilton HM 10 Bermuda Company Number 34816
Annual report 2011
80
Notes
Annual report 2011
African Minerals Limited London Office Stratton House 5 Stratton Street London W1J 8LA Tel: +44 (0)203 435 7600 Registered Office Victoria Place 31 Victoria Street Hamilton HM10 Bermuda www.african-minerals.com
African Minerals Limited Annual Report 2011

AML 2011 Annual Report Highlights 20Mtpa Phase I Capacity

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Annual Report 2011

Mining and processing

expected production in 2012

maiden shipment in November 2011

Distance from mine to ocean

Annual report 2011

African Minerals Limited

lowest decile capital intensity

Annual report 2011

African Minerals Limited

 One of Africas fastest developed mines.

Port Loko airstrip

Port operation camp

Port construction camp

Rail stockyard Ferry terminal

Tagrin lease area

Infrastructure lease boundary

African Minerals Limited

Annual report 2011

Europe Sierra Leone

Sierra Leone Liberia

Mine operation camp

Mine construction camp

Pit fly rock zone

Hematite process plant

Mining and processing

Annual report 2011 African Minerals Limited

African Minerals Limited

Annual report 2011

Annual report 2011

African Minerals Limited

African Minerals Limited

Annual report 2011

Annual report 2011

African Minerals Limited

African Minerals Limited

Annual report 2011

Annual report 2011

African Minerals Limited

African Minerals Limited

Annual report 2011

Annual report 2011

African Minerals Limited

Executive Chairmans statement

SISG $1.5bn investment

Frank Timis with Mr. Zhongchen Zou, Chairman of SISG.

SISG steel manufacturing plant in Jinan, Shandong Province, China.

African Minerals Limited

Annual report 2011

Annual report 2011

African Minerals Limited

African Minerals Limited

Annual report 2011

Annual report 2011

African Minerals Limited

African Minerals Limited

Annual report 2011

Annual report 2011

African Minerals Limited

Pepel Port + 1.7 Transhipment NarrowGauge Rail c.3

<$30/t 6+ years c.$21 15+ years 60+ years

3036 months Tagrin Port from funding Tagrin Port

One of Africas fastest developed mines.

Employee diversity (Localisation)/turnover

Risk Non-financial risks