Directors’ review of operations – Exploration projects

Pig-iron – North Atlantic Iron Corporation (NAIC), Canada

Petmin invested US$3.5 million to acquire a 10.7% interest in North Atlantic Iron Corporation (NAIC) – a Canadian iron sands exploration project. In addition, this transaction gives Petmin the option to invest up to US$25 million for 40% of NAIC. A further 9.9% of NAIC may be acquired at Petmin’s discretion, at a price to be negotiated. The project is supported by good infrastructure, being close to clean low-cost hydro-electric power and a deep water port which is less than seven days sailing time from most of the US steel industry.

The directors of Petmin believe NAIC potentially has a lifespan of more than 50 years. It aims to produce 500,000 tonnes of pig iron per year during its first production phase.

In line with our investment philosophy, NAIC is jointly managed by Petmin and its partner. The transaction was structured by way of series of earn in options exercisable at the discretion of Petmin as follows:

	Phase 1: US$1.5 million for 5% – Completed prior to 30 June 2011
	Phase 2a: US$2 million for 5.714% – Completed post 30 June 2011
	Phase 2b: US$1.5 million for 4.3% – At Petmin’s option
	Phase 3a: US$6 million for 7.5% – At Petmin’s option
	Phase 3b: US$6 million for 7.5% – At Petmin’s option
	Phase 3c: US$8 million for 10% – At Petmin’s option

In each phase there are clear determinable milestones which have been agreed to as part of the investment, the results of which will determine whether Petmin invests in the next phase.

North Atlantic Iron Corporation JV – exploration project highlights

Location	Labrador, Canada
Ownership	10.7% Petmin with options to acquire up to 40% of NAIC on an earn-in basis
Date of acquisition	Initial investment in September 2010
Rationale	Pig iron fits Petmin’s stated strategy to invest in commodities required for urbanisation development Deal structure minimises risk to Petmin The project is large and potentially scaleable The project has the potential to produce pig iron at the bottom end of the cost curve Canada, and in particularly the province of Labrador, is a mining-friendly jurisdiction
Project plan	Under the phase 1 drilling programme >3,500m have been drilled to date The comprehensive analysis and results from this drilling programme are expected in Q1 2012 A bulk sample will be taken and used to determine the optimum mineral dressing process to produce a concentrate that will be used in a demonstration level melt test
Mineral rights	1,814 claims covering 450km2
Infrastructure and logistics	Project is well served by infrastructure The project has access a port that is less than five days shipping to both the major USA steel mills and Europe The project is close to an existing 6,000MW hydro-electric power station The project is close to a community which is well serviced by infrastructure
Project timeline and deliverables	The current phase 1 drilling campaign and results should be concluded during Q1 2012 The mineral dressing process, concentrate and melt test should be concluded by Q2 2012 Production targeted for late 2014
Type of project	Iron sands/pig iron exploration project

Petmin value curve – NAIC

Note 1
Phase 1 – US$1.5 million invested. Committed to a drilling programme to drill up to 1,300m.
Phase 2a – US$2 million invested. Committed to a drilling programme to drill a further 2,000m, Aeromags/LYDAR, Lab analysis, ore dressing studies, melt test
studies, environmental scoping, appointment of Project Manager, agreement with technical partners on melt test work.
Phase 2b – US$1.5 miilion to be invested. Exploration programme includes bulk sample, melt test, initiate PFS, on-going drilling, environmental permitting, communications.
Outcome of phases 1, 2a and 2b, is a 20 years Measured and Indicated Resource and satisfactory conclusion of the concentrate test work and production and melt test, initiation of environmental permitting and initiation of PFS
Note 2
Phase 3 (a, b, c) – US$20 million to be invested (3a: $6 million, 3b: $6 million and 3c: $8 million) is the Bankable Feasibility Study (BFS) phase and Petmin will only proceed with the investment of the US$20 million on satisfactory outcome of phases 1, 2a and 2b.

NAIC – exploration activity update

In the period under review the exploration project drilled 1,376m 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 progress this project rapidly.

The NAIC claims span approximately 450km². Exploration to date has been positive, with results expected by Q1 2012. During this exploration phase NAIC is targeting a minimum of 250 million tonnes of iron sands, on 14km², with a heavy mineral content of about 10%. This represents drilling on less than 3% of current claims.

The iron sands will require no blasting or crushing. They will be separated via gravity spirals and magnetic separators into a concentrate suitable for the production of high-quality pig iron.

NAIC has an agreement with a technology partner to produce pig iron from iron sands using a patented electricity-based technology. The technology has already been demonstrated at a pilot scale to produce pig iron from NAIC’s iron sands concentrate. Mineral dressing studies are underway for the design of a bulk sample plant to produce enough concentrate for a continuous, demonstration-level melt test.

Iron ore – Mount Ginka, Liberia

In January 2011, Petmin entered into an agreement with Hummingbird and Hummingbird’s wholly-owned subsidiary, Iron Bird, relating to Hummingbird’s Mount Ginka licence for the exploration of iron ore in Liberia.

The initial investment was USD500,000 for a 15% shareholding in Iron Bird. In July 2011, Petmin invested a further USD1.5 million to increase its shareholding in Iron Bird to 50%.

Petmin has joint management control with JV partner, Hummingbird, and further investment will solely be determined by the outcome of the current programme. Petmin has no further capital commitments at this point.

Iron Bird is fully funded for the next stage of work, which includes geological mapping, trenching, and drilling and metallurgical test work. This work program is focused on obtaining representative samples of the ore body to confirm earlier grab samples which ranged from 33%-54% Mag Fe and to demonstrate the ore body is both extractable and economic.

Exploration activity update

An aeromagnetic survey over the Mount Ginka licence has shown a continuous magnetic unit, interpreted as an iron formation, extended 20km along strike with widths of up to 250m and a down dip of approximately 1,000m. We are currently awaiting the results from samples taken from the trenching programme, once these results are analysed Petmin will agree the next phase with Hummingbird.

Mt Ginka exploration project highlights

Location	North-central Liberia
Ownership	50% Petmin, 50% Hummingbird Resources Limited
Date of acquisition	January 2011
Rationale	Opportunity to invest cost-effectively in very prospective region The project is large and scaleable Deal structure minimises risk to Petmin Iron ore fits with Petmin’s stated strategy of investing in commodities required for urbanisation development The Liberian Government has implemented minerals policies/procedures/governance to give companies security of tenure It is situated in Nimba County in North Central Liberia supported by good infrastructure
Mineral rights	Mineral Exploration Licence which covers approximately 155km2
Project plan	Initial Aeromagnetic Surveys have been completed showing a large magnetic anomaly Trenching and sampling is underway to further delineate the magnetic anomaly before some additional scout drilling. Initial metallurgical testwork will be finalised once the sampling and analysis has been concluded and the results are known. The development programme for the next phase will then be developed
Infrastructure and logistics	It is located approximately 15km south of Yekepa, a major iron ore deposit located at Mt Nimba, which is currently being developed by Arcelor Mittal. In addition BHP Billiton are undertaking iron ore exploration approximately 30km northwest of Mt Ginka at the Mt Kitoma licence area. 8km from an existing railway line built to service the newly reopened Arcelor Mittal Tokadeh Mine The railway line is designed to carry 15Mtpa, but is expandable The railway covers 240km to the port of Buchanan, also recently refurbished
Project timeline and deliverables	The current phase will be completed by the end of Q1 2012 and a decision on next steps will be made at this point
Type of project	Iron ore exploration

Petmin value curve – Mount Ginka

Note 1
Phase 1 – US$500,000 invested. The investment was utilised to fund a detailed aeromagnetic survey.
Phase 2 – additional US$1,500,00 invested on successful completion of phase 1. The investment is being utilised to demonstrate the potential scale and whether a commercially saleable magnetite can be produced.

Red Crescent Resources (RCR) and Sivas Copper Project, Turkey

RCR Sivas Copper exploration project highlights

Location	Sivas – Turkey
Ownership	Petmin – 10% in RCR Limited, options for up to 37.5% at Sivas Copper Project level
Date of acquisition	Initial investment in May 2011
Rationale	Copper fits Petmin’s stated strategy of investing in commodities required for urbanisation development Cost-effective investment opportunity in prospective region Deal structure minimises risk to Petmin Turkey is an attractive destination for mining and the fastest growing economy in Europe (almost 9%) Mining industry dominated by small players so potential for larger scale miners to find economic orebodies Good mining regulations and security of tenure Potential for a scaleable copper mine Copper has excellent future fundamentals
Mineral rights	Three mining licences covering 30km2
Project plan	Drilling targets have been identified from geophysical induced polarisation surveys and geochemistry work Drilling began in September 2011 with initial results expected at the end of Q1 2012
Infrastructure and logistics	Turkey is well served with infrastructure
Project timeline and deliverables	Exploration and metallurgical testwork to complete the pre-feasibility stage (PFS) Identify at least 100Mt of indicated resource @ 1% copper Completion of a positive PFS triggers a further payment to initate BFS Positive outcome of the BFS triggers additional payment Petmin will have an option to convert its interest in Sivas into RCR share post completion of the BFS
Type of project	Early stage copper exploration

Petmin has invested CDN$4.64 million for a 10.1% interest in Red Crescent Resources Limited (RCR), a mineral exploration and development company focused on base metals development in Turkey and listed on the Toronto Stock Exchange in Canada (TSX: RCB). RCR is targeting historically inaccessible areas where no modern exploration techniques or technology have been applied, with high potential for discovery of significant base metal deposits.

Petmin will invest up to CDN$17 million in four conditional tranches over a period of 3.5 years, to earn up to a 37.5% interest in a RCR controlled joint venture, RCR Quantum AS, which is responsible for the management and development of the Sivas Copper Project. The terms of the “earn-in” arrangement are unchanged and as previously announced.

Petmin has joint management control of the Sivas Project from inception and the four conditional tranches are linked to clear determinable milestones which have been agreed to as part of the investment, the results of which will determine whether Petmin invests the next tranche.

Exploration activity update

RCR has announced positive results from exploration activity which confirmed extensive oxide and sulphide copper mineralisation on the project in the Sivas region of north-east central Turkey.

Detailed surface mapping of the Main Zone (MZ) is well advanced, with mineralisation occurring intermittently over a continuous strike length of at least 2.4km and with an average width of approximately 100m. Detailed mapping geochemistry, trenching of the South East Zone (SEZ) has been completed and the phase 1 drill programme to drill up to 3,000 metres has commenced.

Value curve – RCR and Sivas Copper Project

Note 1
Phase 1 – Measured Resource of 20Mt of copper grading of 1%.

Note 2
Phase 2 and 3 – deliver a Measured Resource of 100Mt of copper grading of 1%.