Directors’ report

for the year ended 30 June 2011

The directors have pleasure in submitting the consolidated annual financial statements of the Group for the year ended 30 June 2011.

Business of the Company

Petmin Limited (“the Company”) is an investment holding company in the General Mining sector of the Johannesburg Securities Exchange Limited. Petmin’s vision is to develop into a multi-commodity, multi-jurisdictional mining company, focusing on commodities in the steel value chain and commodities required for urbanisation and infrastructure development. Petmin looks to invest in quality mining and exploration assets that will provide superior returns (capital growth and dividends) to all stakeholders over a sustained period.

Significant events

The following significant events took place during the year ended 30 June 2011.

Anthracite Division

Somkhele anthracite mine and Petmin Logistics

Management is pleased to report that the Anthracite Division produced 524,006 tonnes (2010: 467,843 tonnes) and sold 579,087 tonnes (2010: 411,630 tonnes) of anthracite in the year to 30 June 2011.

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

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

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

218 exploration and evaluation holes measuring 29,385 metres were drilled in the 12 months to 30 June 2011 in Somkhele’s exploration programme. The programme aims to update Somkhele’s existing reserve and resource statement and to identify additional mining areas within the exploration permit Areas 4 and 5. Exploration for new blocks of anthracite has been aided by an aeromagnetic survey which has been conducted over Areas 4 and 5. Core evaluation drilling of the near-surface Emalahleni and KwaQubuka blocks is almost complete and will enable these previously categorized inferred resources to be upgraded to measured and indicated categories before June 2012.

The construction of the second wash plant at Somkhele is progressing well and is expected to be commissioned during the first quarter of calendar 2012. The original plant design to double the current production capacity (from 530,000 tonnes to 1,060,000 tonnes) has been amended to allow for a 30% increase in the originally designed capacity with a 20% increase in the total project cost. Total capital expenditure on the plant is now expected to increase from R120 million to R144 million, of which R80 million is funded by a loan from the IDC and the balance funded internally by the operation’s cash flows.

During the latter half of the year to 30 June 2011, the domestic ferrochrome market experienced a reduction in demand from the Chinese market. Despite this, Somkhele managed to increase its sales volumes to customers in the domestic market and has signed off-take agreements with major producers. Export sales remained underpinned by the take or pay export contract for 200,000 tonnes per annum until December 2013, with demand from the key Brazilian export market remaining steady.

Silica Division

SamQuarz silica mine

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

Glass-grade sand demand remained steady despite reduced demand from the automotive and construction sectos in the year to 30 June 2011. Silica and chert rock sales remained at similar levels experienced in 2010 and were affected by the reduced demand from the construction sector, but (as experienced by the anthracite division) remained steady from the metallurgical sector.

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

Capital expenditure for the year amounted to R63 million (2010: R22 million), primarily on the development of the open pit and completion of the relocation of the old office block to allow for access to additional, near-surface, glass-grade ore.

Business of Tomorrow Division

In the 12 months to 30 June 2011, Petmin has reviewed numerous expansion opportunities and this focus on the Business of Tomorrow has resulted in three investments:

Pig-iron – Canada

Petmin has invested $1.5 million and acquired a 5% interest in North Atlantic Iron Corporation (“NAIC”), an exploration company in Canada.

In terms of the agreement, NAIC is jointly managed by Petmin and its Canadian partners from inception.

Petmin has the option, solely at its discretion, to acquire up to 40% of NAIC for a total investment of USD25 million. The investment is made on the condition of a properly certified SAMREC Code and CIM Standards compliant resource statement that defines a Measured Resource of magnetite for 20 years, based on the production of 500,000 tonnes of pig-iron per annum.

In the period under review the exploration project drilled 1,376 metres and 1,123 samples were submitted for laboratory analysis. Once the results of the laboratory analysis are received, it is anticipated that there will be sufficient confidence to rapidly progress this project.

Iron-ore – Liberia

As announced on 24 January 2011, Petmin entered into an agreement with Hummingbird Resources Plc (Hummingbird: AIM: HUM) and Hummingbird’s wholly owned subsidiary, Iron Bird Resources Inc. (Iron Bird), relating to Hummingbird’s Mount Ginka Licence for the exploration for iron ore in Liberia.

Petmin has invested USD500,000 for a 15% shareholding in Iron Bird and has agreed to invest a further USD1,500,000 to increase its shareholding in Iron Bird to 50%.

On 27 June 2011, Hummingbird and Petmin announced that an aeromagnetic survey over the project had proved the presence of a significant continuous magnetic unit, interpreted as an iron formation extending along strike for approximately 20km. The unit has an at-surface width of between 150-250m and the unit is shown to extend to approximately 1,000m down dip.

The deposit is located only 20km South of the Mount Nimba ridge, an historic major iron ore mine which operated between 1964 and 1989 and has recently been reopened by Arcelor Mittal. Approximately 15km to the West of the Mount Ginka ridge lies the railway built to transport the Mount Nimba iron ore to the deep water port of Buchanan. Iron Bird has commenced a programme of mapping, trenching and drilling to obtain samples for metallurgical test work.

Iron-ore – South Africa (Veremo project)

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

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

Copper – Turkey

On 16 May 2011, Petmin announced that it had entered into a transaction with Red Crescent Resources Limited (“RCR”), a mineral exploration and development company focussed on base metals development in Turkey and listed on the Toronto Stock Exchange in Canada (TSX: RCB), to subscribe for shares in RCR and to subsequently invest directly in RCR’s Sivas Copper Project in central Turkey.

The Sivas Copper Project will be explored and developed by RCR Quantum Mining A.S. (“RCR Quantum”), which is 75% owned by RCR’s Turkey-based subsidiary, Red Crescent Resources Holding A.S. (“RCRH”) and 25% owned by Gensay (a Turkish-controlled entity).

In the year ended 30 June 2011, Petmin invested CAD1,585,000 for an initial 3.45% equity holding in RCR. Petmin will invest a further CAD3,055,000 to increase its equity holding in RCR to 10.1%. Petmin will then invest up to a maximum of CAD17 million in the project, in four conditional tranches over a period of 3.5 years, to earn up to a 37.5% interest in the Sivas Copper Project. Petmin will have joint management control of RCR Quantum.

Review of operations

The review of the Company’s business and operations for the year ended 30 June 2011 is contained in the chairman’s letter on pages 2 to 4 in the integrated report for the year ended 30 June 2011. The Group’s and Company’s annual financial statements have been prepared on a going concern basis and the directors are of the opinion that the assets of the Company and the Group will realise at least the values at which they are stated in the annual financial statements.

The Group reported a net profit after tax attributable to equity holders of Petmin for the year of R101.0 million (2010: R107.7 million), a decrease of 6%.

The directors are not aware of any material breaches of laws and regulations during the year ended 30 June 2011.

Share capital

Share issues 1 July 2010 – 30 June 2011

At 30 June 2011, there were 5,405,250 options with an exercise price of 65 cents per share outstanding (2010: 5,475,000), the Company received notice of the exercise of these options on 30 June 2011 which exercise was effected after 30 June 2011. At 30 June 2011, there were 9,157,412 options with an exercise price of 250 cents per share outstanding (2010: nil) and 576,908,188 shares in issue (2010: 576,908,188), giving a potential fully diluted position of 591,470,850 shares (2010: 582,383,188).

The total authorised number of ordinary shares is 1,000,000,000 (2010: 1,000,000,000) with a par value of 25 cents per share.

As announced on 30 June 2011, the Company was informed that executive directors exercised 5,070,250 options with an exercise price of 65 cents per share. Additionally, 100,000 options with a strike price of 65 cents per share were bought by the Company for 275 cents per share.

Between 1 July 2010 and 30 June 2011, the Company was informed that employees and former employees exercised 44,750 options with an exercise price of 65 cents per share. Additionally, 25,000 options with a strike price of 65 cents per share were bought by the Company for 285 cents per share. The options were awarded in terms of a share incentive scheme approved by shareholders on 19 July 2005.

During the year ended 30 June 2011, the Company bought 5,121,920 (2010: 7,217,035) treasury shares at an average price of 297 (2010: 195) cents per share.

All un-issued shares are placed under the control of the directors until the next annual general meeting in terms of Section 46 of the Companies Act 71 of 2008.

Options issued/exercised from 1 July 2010 – 30 June 2011

Subsidiary companies

Details of the subsidiary companies at 30 June 2011.

* All group loans are interest free and have no fixed terms of repayment.

Directorate

The following persons were directors of the Company up to the date of this report:

In terms of the Company’s articles of association, A Martin, J Strijdom and J Taylor will retire at the forthcoming annual general meeting and, Messrs. Martin and Taylor being eligible, offer themselves for re-election. As previously announced, Mr Strijdom has not made himself available for re-election.

Directors’ emoluments

In compliance with the disclosure requirements of the listing requirements of the JSE, the aggregate remuneration paid to the directors of Petmin for the year ended 30 June 2011 is set out in the Report of the Remuneration Committee on page 60 of the integrated report for the year ended 30 June 2011.

Directors’ interests

The interests of the directors in the shares of the Company at 30 June 2011 and at the date of this report are as follows:

The directors held the following share options:

Management options with an exercise price of 65 cents per share.

The options as outlined in the table have all vested and notice of exercise of these options was received on 30 June 2011, which exercise was effected after 30 June 2011.

Management options with an exercise price of 250 cents per share.

The options as outlined in the table are issued in terms of the share option scheme approved at the Petmin AGM held on 13 December 2010.

Directors’ interest in contracts

The directors do not have any direct or indirect interest in any of the transactions entered into by the Group during the current or immediately preceding financial year.

Dividends

On 8 September 2010, Petmin declared a cash dividend of 6 cents per share (2009: no dividends were declared). The dividend was subject to secondary tax on companies of 10% of the dividend paid or 0.6 cents per share. The record date for payment of the cash dividend was 1 October 2010.

The Company further announced that it had adopted a dividend policy whereby a dividend of 20% of headline earnings per share will be paid annually after year-end, with consideration being given to the underlying growth in earnings, working capital and capital expenditure requirements.

The dividend of 6 cents per share comprised 4 cents per share which is in line with the approved dividend policy and a special dividend of 2 cents per share which was based on the proceeds received on the sale of Springlake.

Subsequent to 30 June 2011, Petmin declared a cash dividend of 4 cents per share. The record date for the payment of the cash dividend is Friday, 7 October, 2011.

Auditors

KPMG Incorporated was appointed auditor to the Company at the AGM held on 13 December 2010 and will continue in office in accordance with Section 90(2) of the Companies Act 71 of 2008.

Events after the reporting date

Investment in Iron Bird Resources Inc. (“Iron Bird”)

On 11 July 2011, Petmin announced that it has invested a further US$1.5 million in Iron Bird.

The investment takes Petmin’s total investment in Iron Bird to US$2 million and, under the terms of the joint venture agreement, Hummingbird and Petmin now each hold 50% in Iron Bird.

Investment in Red Crescent Resources Limited (“RCR”)

On 11 August 2011, Petmin announced that RCR had fulfilled all Conditions Precedent of the initial memorandum of understanding with Petmin and that Petmin’s farm-in agreement had been triggered.

Under the terms of the investment agreement, which were first disclosed on May 16, 2011, Petmin would make an equity investment in RCR totalling CAD4.64 million. Petmin subscribed for and was issued 3,170,000 common shares on May 24, 2011 as part of the Initial Subscription. The balance was subscribed for and issued under a separate Subscription Agreement after which, Petmin holds approximately 9.3 million shares in RCR, for a 10.1% ownership interest in RCR. Petmin will also invest up to a maximum of CAD17 million in four conditional tranches over a period of 3.5 years, to earn up to a 37.5% interest in the RCR-controlled controlled joint venture, RCR Quantum AS, which is responsible for the management and development of the Sivas Copper Project.

Investment in Joint Venture

During the year ended 30 June 2011, Petmin invested US$1.5 million and acquired a 5% interest in North Atlantic Iron Corporation (“NAIC”) an exploration company in Canada.

In accordance with the terms of the investment and subsequent to the initial evaluation phase, on 26 August 2011, Petmin made an additional investment in NAIC of US$2 million for a further 5.714% interest therein.

Disposal of SamQuarz (Pty) Limited (“SamQuarz”)

On 12 September Petmin announced that it has concluded an agreement to dispose of 100% of its interest in SamQuarz (Pty) Limited to Thaba Chueu Mining (Pty) Limited for a cash consideration of R259 million adjusted for any move in the net asset value of SamQuarz from 30 June 2011 until conclusion of all outstanding regulatory approvals. The sale is subject to normal warranties applicable to a transaction of this nature. At 30 June 2011, SamQuarz has been accounted for as a non-current asset held for sale in terms of IFRS 5 and the comparatives have been re-stated since the disposal group meets the definition of a discontinued operation.

Petmin acquired the shares and loans in SamQuarz for R85 million in September 2004, since that date Petmin has received payments of R114 million from SamQuarz for repayment of loans and redemption of preference shares. Net cash returns to Petmin, after taking into account the sale proceeds, have yielded an annual, after-tax, average return to Petmin in excess of 30% per annum.

Rationale for the Sale:

Petmin has a history of delivering superior returns to shareholders by cost-effectively purchasing and developing assets and disposing of them for superior returns, returning value to shareholders and reinvesting the gains in new assets. Petmin acquired SamQuarz as an underperforming asset and restructured the business into a long-term, sustainable, reliable cash producing asset. The cash flows from SamQuarz provided Petmin with a stable base from which to build on its growth strategy. The disposal will provide Petmin with significant cash resources to be deployed in accelerating the Business of Tomorrow strategy and funding the various project development requirements in Petmin’s pipeline of projects.

The Sale is subject to the following key conditions:

	By 9 December 2011, the Sale being unconditionally or conditionally approved by the Competition Authorities in terms of the South African Competition Act (the filing was submitted on 5 October 2011)
	By 31 March 2012, the Sale and all agreements and transactions contemplated having been unconditionally or conditionally approved by the South African Minister of Minerals and Energy in terms of section 11 of the Mineral and Petroleum Resources Development Act (MPRDA) (the application was submitted on 29 September 2011)

Appointment of Director

Petmin announced on 23 September 2011 that, at a meeting held on 12 September 2011, Petmin approved the appointment of Mr Trevor Petersen as an independent non-executive director of Petmin and as a member of the audit and risk committee. Mr Petersen is a Chartered Accountant and is a former Managing Partner of the Cape Town office of audit firm PricewaterhouseCoopers (“PwC”). He also held the position of Chairman of PwC Western Cape and is the past Chairman of the South African Institute of Chartered Accountants. Mr Petersen has also been a member of the University of Cape Town Council since 2002.

Declaration of dividend

On 14 September 2011, the Company announced that it had declared a dividend of 4 cents per share which is in line with the approved dividend policy. The dividend will be subject to secondary tax on companies of 10% of the dividend paid or 0.4 cents per share.

The record date for payment of the cash dividend is 7 October 2011. Please refer to the separate notice of the declaration of dividend dated 14 September 2011 for more details. There have been no other events that have occurred subsequent to 30 June 2011 which require adjustment of, or disclosure in the financial statements or notes thereto in accordance with IAS 10 – Events After the Reporting Date.

Appointment and resignation of Company Secretary

On 10 October 2011, Petmin announced that, in terms of Section 3.59 of the Listings Requirements, shareholders are advised that River Sponsor Services (Pty) Ltd have resigned as Company Secretary and Mondial Consultants (Pty) Ltd have been appointed as Company Secretary.