Chairman’s letter to shareholders

Dear shareholders This was my first full year as chairman of Petmin, though I have followed the progress of this dynamic company for many years as an observer and non-executive director. Petmin made very significant progress during the last year. We have delivered against our strategy to provide value to investors by focusing on commodities which support global infrastructure development and the steel value chain.

Petmin seeks exposure to metallurgical coal, iron ore, copper, and related steel-making commodities such as manganese. We look for cost-effective operations and prospects with a proven orebody, long potential life of mine, and which can generate cash in the medium term.

Our investments this year are a demonstration of Petmin executing its strategy. We now have a meaningful stake in a Turkish copper project, half of a Liberian iron ore project, and a phased investment in a Canadian iron sands project.

Financial performance to 30 June 2011

We are reporting a strong operational performance in the year under review, despite the negative effects of a strong rand. We made a profit of R101 million after tax with headline earnings per share at 17.50 cents. Net cash flow from operations increased 12% to R361 million and we have R269 million cash on hand before taking account of the proceeds of the sale of SamQuarz. Petmin has declared a dividend of four cents a share for the financial year.

Coal

Our current operations at the Somkhele anthracite mine in South Africa’s KwaZulu-Natal Province are expanding, with a new wash plant expected to at a minimum double capacity and the accompanying sales to over a million tonnes a year in early 2012. Extensive exploration at Somkhele has identified large coal deposits, adding to the mine’s already impressive reserve base and may extend the life of mine to 40 years.

Iron ore

A significant amount of our energy this year has been focused on our growing exposure to iron ore. We concluded agreements with Hummingbird Resources, the owners of the Mt Ginka magnetite prospect in north-eastern Liberia, to acquire 50% ownership in this well-located project for $2 million. The project is now fully funded for further exploration, and results to date are very positive. The aeromagnetic survey shows a 20km continuous magnetic unit interpreted as iron formation. Importantly, the project is just 15km from a railway line which runs to the deepwater port of Buchanan, and 20km from a major mine which from 1964 to 1989 produced up to 24 million tonnes of high-grade iron ore per annum.

In Canada we have signed an earn-in agreement with the owners of a large magnetite project on the Churchill River in Labrador. Our investment of $3.5 million has given us a 10.7% stake, with options to increase our holding up to 49.9% of the project. The 144km² project area is estimated to contain 130 million tonnes of magnetite with potential for 50 years of mining operations. It is suitable for production of low-cost, high-quality pig iron. Apart from the quality orebody and low-risk investment, what is particularly attractive about this project is its location just 3km from a deep-water port and 40km from a hydro power station. We expect the results of second phase exploration, and some preliminary metallurgical test work, by the end of 2011.

Closer to home, we are at pre-feasibility stage on the Veremo project on the Eastern Highveld. This is being carried out by our JV partners Kermas.

Copper

Petmin made its first investment into copper during 2011. For an investment of CDN$4.64 million we have taken a 10% stake in Toronto-listed Red Crescent Resources (RCR), and the right to buy up to 37.5% stake of its Sivas copper project located in central Turkey. As with all mineral exploration, there are no guarantees, but the geology is very favourable and site visits have given us confidence to pursue this opportunity.

RCR is targeting historically inaccessible areas where no modern exploration techniques have been applied. It has exposure to other commodities in Turkey, including zinc, and we see substantial potential for the discovery of significant base metal deposits.

Maiden dividend

Apart from the expansion of existing operations and our investment in new international ventures, the payment of a maiden dividend this year was perhaps the most important sign of our growing maturity as a company. Declaring a dividend is most unusual for a junior mining company and we hope it sends a clear message to the markets that our operations and exploration activities are based on the assumption that they will turn a profit.

We don’t just want to increase production. We want profitable growth that creates sufficient margin to reinvest in the business and provide a surplus which enables shareholders to earn returns today and in the future. This imposes excellent discipline on Petmin’s management and encourages the pursuit of only the highest quality projects.

Rights and licences

All of our existing operations have received their new order mining rights and all our exploration licences are up to date. Petmin’s compliance with the requirements of the Mining Charter is well in hand for full compliance by 2014, please see page 39 of this report for a detailed analysis of our progress in this regard.

Nationalisation

One of the issues exercising the minds of the mining sector is the debate about nationalisation of mines in South Africa. We are concerned that much of the discussion has obscured the real issue, which is that not enough people have seen the economic and social benefits of the positive change that South Africa is experiencing. Quite simply, there has been insufficient transfer of economic prosperity. We need to find a solution to address this economic inequality – and nationalisation is not the solution. We need industry to demonstrate that a vibrant privatised industry is the optimal solution.

The answer lies in the Mining Charter, which is a credible template for responsible mining citizens. The basis of any stable society is good education, healthcare, safety and security, and a sound, predictable, macro-economic environment that encourages long-term investment. Government is clearly responsible for the provision of these services, but mining companies like Petmin can play a significant supporting role. We take very seriously our responsibilities towards the safety, welfare, health, education and skills development of our workforce. In the areas where we operate, we hope our initiatives in basic healthcare, infrastructure development and non-mining job creation are demonstrating the benefit of mining beyond the provision of a wage.

We hope they will stimulate communities to encourage the creation of new projects, and to recognise that the private sector is best suited to the development of these projects, with the state playing an enabling and monitoring role.

What is very obvious to me is that the mining sector needs to be more articulate in the whole nationalisation debate because there hasn’t been sufficient discussion of the alternatives to nationalisation, which is the wrong answer to the right question.

We need to take a leadership role in both the discussions and actions which lead to the creation of opportunities, and investment in education, skills, healthcare, infrastructure and opportunity. Mining produces significant tax revenue and royalties and we can play a role in ensuring they are diverted to the right places.

Looking forward

What can be expected of Petmin in the year ahead? We intend to grow our production and performance in a safe, responsible and profitable manner. We look forward to the commissioning of the second wash plant at Somkhele, and the positive conclusion of the Veremo pre-feasibility project. We expect to see progress in our international exploration projects, and we will continue our search for new value-adding growth projects through acquisition, merger or further phased investments. These will all be based on our investment strategy of seeking low-risk, high-value projects in commodities which support infrastructure development and the steel value chain.

We are living with global volatility and seeing a decline in commodity prices. But whilst economic activity is subdued, we still expect growth in demand for the commodities that Petmin is invested in. We have a portfolio of exploration projects which is diversified geographically and by commodity, and that provides a healthy degree of cover in a troubled world. We have also carefully chosen projects which will produce in the lowest cost quartile with a minimum 15% return.

It is companies with deposits in the highest cost quartile which are going to struggle. But we have deliberately positioned Petmin to be a strong cash-generative business irrespective of fluctuating commodity prices, and without significant levels of debt.

Petmin will continue to be distinguished as a junior player through its ability to generate cash and create value, and through the regular payment of a dividend. This sends a very strong message to shareholders that Petmin invests in assets and projects which deliver value today, which is very important in a low-yield world.

Finally, I must offer a huge vote of thanks and appreciation to my fellow board directors for their support in the past year. Their wisdom and wise counsel are much appreciated. We also owe a huge debt of gratitude to the executive team of Jan, Bradley, Lebo, Bruce and Martin for their untiring efforts in driving Petmin forward. Together with the outstanding operational teams at Somkhele and SamQuarz, led respectively by Johan and Andre, we are fortunate to have such a dedicated, innovative and professional crew.

With these people on board, I have every confidence that 2012 will be even more successful than the past year.

Ian Cockerill
Executive Chairman