AMI African Min.

TIDMAMI

RNS Number : 2948L

African Minerals Ltd

03 July 2014

03 July 2014

African Minerals Limited

("African Minerals", "AML", or "the Company")

Results of Phase 2 Friable Hematite Concentrator Engineering Study

African Minerals Limited is a mineral exploration, development and mining company, and is the developer and operator of the Tonkolili iron ore mine in Sierra Leone.

The first Phase of operations at Tonkolili has been the establishment of a sustainable production level of 20Mtpa from the direct shipping ore ("DSO") portion of the ore body, recently re-estimated as having a remaining resource of 140Mt, and representing only 1% of the total Tonkolili resource.

The first part of Phase 2 is the expansion of DSO processing and infrastructure operations to a capability of 25Mtpa, which is currently underway. The next stage of Phase 2 is the establishment of concentrator facilities to treat the large underlying ore resource, which requires processing to a concentrate. Over time, the concentrator capacity will increase to fully replace the depleting DSO resource.

Following receipt of Engineering Studies from Ausenco, the Company today provides an update regarding this Phase 2 strategy.

Highlights

-- The first friable hematite concentrator will involve a low capital intensity conversion of the current large Wet Process Plant 1B, including raw water supply, tailings storage, infrastructure and ancillary services. Commissioning of the first units is expected to commence within 12 months of project start

-- The estimated capital costs for this brownfield conversion and associated additional works have been reduced by over $1 billion, to $311 million (+/-25%), prior to final value engineering

-- The concentrator will target production of c11 million tonnes per annum ("Mtpa") of a +63% Fe concentrate product, with an average mass yield of 56%, from head feed sourced from the medium grade portion of the 1.1 billion tonne ("Bt") friable hematite resource

-- Based on current reference prices, gross revenue per tonne is expected to increase by c$30/t for this concentrate tonnage, with an expected increase in EBITDA margin of $20-25/t as operating costs for the concentrate product are expected to be slightly higher in C1 cash cost than for the DSO

-- The Tonkolili Mine will be able to produce 11Mtpa of high quality concentrate, and over 14Mtpa of DSO product concurrently, maintaining a +25Mtpa production profile with all-year-round shippable products

Chief Executive Officer, Bernie Pryor, commented

"I am pleased to confirm that, after six months of intensive engineering, testwork, analysis and process design, our Phase 2 project could commence production as early as next year.

Our metallurgical expectations have also been surpassed. We had targeted 35-40% yield to a 62% concentrate, and we are delighted that the work to date has shown that we can achieve 56% yield to a 63% concentrate, and a lower moisture level of c9%, with associated significant positive impacts on both cost and revenue.

We have looked at the project with a firm focus on reducing the capital requirement. Over the course of the design process we have shaved over $1Bn off our original estimates, and have accelerated implementation by a year. The innovative brownfield conversion of our 1B processing plant means that our total capital cost is now only expected to be $311M (+/-25%), including all ancillary works.

The commencement of production of a high quality concentrate will improve our revenue per tonne considerably, thereby expanding our margin, while maintaining our +25Mtpa production profile.

The replacement of over 45% of our current DSO tonnage by this high grade high value concentrate product, and the concurrent running of concentrate alongside DSO, would allow us to defer further capital expenditure for additional concentrators, which would now only be required to be in production in 2020 or later, thus allowing more of the project's near term cash flow to be returned to the project's shareholders."

Results of Engineering Design for Friable Hematite Concentrator

AML engaged Ausenco to undertake a study of the various options of development for the initiation of concentrate production, which envisaged the construction of a c10Mtpa output of concentrate from the friable hematite portion of the Tonkolili ore body. Ausenco is a leading engineering and project management services company servicing the global resources and energy sectors.

Following the detailed engineering studies and the assessment of multiple flowsheet options, supporting laboratory and pilot scale testwork and front end engineering design work, as well as the receipt of results following the completion of a large (1,000t) industrial scale bulk sample process test of all proposed headfeed types through London Mining's Marampa concentrator facilities, the Company has now frozen its flow sheet for the establishment of its first friable hematite concentrator.

Quality

The flow sheet incorporates crushing and screening, ball milling in closed circuit with cyclones to <0.710mm, followed by low intensity and wet high intensity magnetic separation, and finally rejection of gangue material including quartz from the iron minerals using reverse flotation, followed by belt filtration. Results of laboratory and pilot scale testing indicate production of a 63% Fe concentrate with indicated silica content of less than 5%, alumina of below 2.5%, and a moisture content of 9%.

Production

The initial output from this concentrator, for at least the first four years, will be c11Mtpa of high grade concentrate. The designed head feed for the concentrator will be c8Mtpa from the friable hematite resource, together with c10Mtpa from the -2mm fines from plants 1D and 1G (as discussed in our press release of 26 June 2014) and c2Mtpa from tailings recovery, giving a mass yield of 56% from headfeed to concentrate. 1D and 1G plants will together continue to produce c14Mtpa of intermediate and lump product, and generate c10Mtpa of fines feed into the concentrator.

Mining

Total head feed required from mining across all of the process plants will be c32Mtpa, generating c11Mtpa of concentrate product and c14Mtpa of DSO products, with an overall yield of 78%, compared to the designed DSO only yield of 84%. As such, direct mining and process volumes will increase marginally by around 8%. The additional process steps and power requirement will also increase the unit cost of processing. Friable hematite volumes will initially be sourced from stockpiles developed from DSO mining (previously capitalized).

Operating Costs

The total increase in mine and process operating costs across the full tonnage suite is expected to be in the region of c$4/t, equivalent to c$10/t for the concentrate tonnage alone. Power will be provided by a third party on an operating cost only basis. The current power production capability of the mobile diesel generators at Tonkolili is 20MW, and the requirement post this conversion is expected to rise to 42MW. We intend to award a BOOT contract (build, own, operate, transfer) for the construction of a new c50MW power station consisting of high efficiency, medium speed reciprocating engines operating on medium or heavy fuel oil.

Revenue

Revenue per tonne will increase significantly. The current TSI 62% price is $95/t whereas that for the Platts 58% price, off which the current DSO product is priced, is $73/t. Furthermore, current deleterious element and physical property discounts that the DSO attracts are c$8/t. The clean, low silica, low alumina 63% product is expected to attract a $-3-4 premium over the 62% index, and have minimal penalties, estimated at $2/t. As a result we expect improvement in our reference pricing of over $30/t in revenue per dry tonne for this concentrate tonnage (under current pricing conditions).The reduction in moisture content from the current c10.5% to a planned 9% after belt filtration, will reduce equivalent dry freight rates marginally, and will capture the price benefit of more dry material delivered at the full CFR China price, resulting in an additional moisture benefit equivalent to a further $2/t.

Capital Costs

The capital cost of the conversion of the 1B Wet Process Plant to produce a concentrate, is estimated at $202M. Tailings storage facility ($26M), indirect construction costs ($15M), and on site infrastructure ($7M) bring the total engineered cost to $250M. Owner's costs ($5M) and Engineering, Procurement and Construction Management ("EPCM") costs ($32M) bring the total to $288M. With a contingency of 10% of the direct costs for the conversion of this existing plant, we estimate that the full capital cost to the commencement of concentrate processing, including all ancillary work, will be $311M. The amounts quoted are estimated with a +/-25% confidence range. We will complete value engineering during detailed design to reduce this further.

The boards and shareholders of the operating companies, which include Shandong and Government representation, will now review the engineering studies prior to approval and implementation. Funds required to commence this project are available and are held at the operating companies.

The information in this announcement that relates to the design, capital and operating cost estimates for the mineral processing and associated infrastructure is based on information compiled by Ausenco under the study management of Mr L. Paul Staples, P.Eng. He is a Member of the Australasian Institute of Mining and Metallurgy and has sufficient experience, which is relevant to the activity he is undertaking, to qualify as a Competent Person as defined in the JORC Code. Mr Staples consents to the inclusion of such information in this Report in the form and context in which it appears.

The information in this announcement that relates to Metallurgical Test Results is based on information compiled by Dr John Clout who is a Fellow of the Australasian Institute of Mining and Metallurgy. Dr Clout was a consultant to African Minerals Limited during the study. Dr Clout has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration and to the activity, which he is undertaking to qualify as a Competent Person as defined in the JORC Code. Dr Clout consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Contacts:

African Minerals Limited

+44 20 3435 7600

Mike Jones

Tavistock Communications

+44 20 7920 3150

John West / Jos Simson / Nuala Gallagher

Jefferies

+44 20 7029 8000

Nick Adams / Alex Collins

About African Minerals

African Minerals operates the Tonkolili Iron Ore Project (the "Project") in Sierra Leone, with a JORC compliant resource of 12.8 Bt. The Project, which currently has a 60+ year mine-life, is being developed in a number of staged expansions. In 2013, African Minerals completed sales of 12.1 Mt to its customers. The current year sales guidance is for 16-18 Mt of exports as the operations focus on operating at the 20 Mtpa run rate design capacity.

Phase II expansion will see exports increase to 25 Mtpa, and will incorporate production of a high grade concentrate product. Concentrate production will begin in 2015 and will eventually displace current DSO production as concentrate volumes increase and the DSO resource depletes over time.

The Company has also developed significant port and rail infrastructure to support the operation of the Project, via its subsidiary African Rail and Port Services (SL) Limited ("ARPS"), in which the Government of Sierra Leone ("GoSL") has a 10% free carried interest.

The Project companies are currently owned 75% by AML, and 25% by Shandong Iron and Steel Group ("SISG"), except for ARPS, which is currently owned 75% by AML and 25% by SISG, with the GoSL having the right to a 10% free carried interest from AML.

www.african-minerals.com

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