Comment

Kumba has high-quality mineral resources and ore reserves at Sishen Mine, Thabazimbi Mine and the Sishen South project.

The reporting of mineral resources in addition to ore reserves in 2008 instead of “inclusive of” ore reserves as before, resulted in a significant “apparent” decrease in reported mineral resources. The mineral resource (in addition to ore reserve) portfolio is, however, still remarkably well-defined if the proportions of measured and indicated to inferred mineral resources are considered (Figure 2).

Figure 2: Kumba’s mineral resource portfolio for 2008 and 2007

Kumba’s total mineral resource base, reported in addition to ore reserves, showed a 14.3% or 279Mt net increase from 2007 to 2008. In more detail, this involves an increase of 322Mt:

• Sishen Mine (+260Mt)
  Mostly the result of incorporating new information into the geological models.
  
  
• Sishen South (+62Mt)
  Revising the optimistic shells to adopt an upward-adjusted forward-looking free-on-rail iron ore price enveloped 36Mt more mineral resources as eventually economically extractable.
  
  A further 26Mt increase in mineral resources reported in addition to ore reserves in 2008 occurred due to mineral resources not included in the life-of-mine plan but within the practical pit layout. These were not reported in 2007 as this ore reserve report was based on 2006 geological models.
  
  
• Thabazimbi Mine (+0.2Mt)
  A minor increase in the mineral resources at Thabazimbi Mine is the result of a reclassification from ore reserves to mineral resources due to the current geotechnical risk associated with mining, which resulted in the Donkerpoort West pit closure in late 2008.

The increase is off-set by a decrease of 43Mt, which is mainly ascribed to solid model updates of Sishen South and Zandrivierspoort that accommodate the new structural models of the project areas.

What cannot be derived from Table 2 is that there were changes to the overall mineral resource classification process for Sishen South. The 2007 approach of classification, which was purely based on borehole spacing, was replaced in 2008 by a two-stage process. Initially site-specific geostatistical parameters, which describe how well the existing sample spacing caters for the established variability and continuity, are used to derive a preliminary confidence in geological characteristics such as grade, specific gravity, etc. This preliminary confidence is then refined (downgrading only) by considering the structural and dimensional complexity of the ore body geology in relation to the host rock using quantitative parameters.

The geological model for Zandrivierspoort was completely revised in 2008 to accommodate not only the incorporation of the new structural model for the deposit, but also an update of the geostatistical parameters used for estimation and a revision in the classification process (similar to the Sishen South process described above).

Despite the change in tonnage and grade between previous estimates and those of 2008 not being materially different, the change in mineral resource category, from indicated to inferred, was significant, and accounts for the majority of the change shown in the proportions of indicated and inferred mineral resources in Figure 2. The changes to Kumba’s classification procedures are the result of a continued effort to refine the confidence assigned to its mineral resources.

The proportion of proved to probable ore reserves for 2008 compared to that for 2007 is shown in Figure 3.

Figure 3: Kumba’s ore reserve portfolio for 2008 and 2007

Kumba’s ore reserves, reported as iron ore scheduled as run-of-mine in the respective life-of-mine plans at Sishen, Thabazimbi and Sishen South, showed a net decrease of 3%, or 41.7Mt in 2008. This is mainly due to depletion resulting from mining activities at Sishen and Thabazimbi Mines. In more detail:

• Sishen Mine (-75.6Mt)
  Annual depletion of 45.2Mt. Besides depletion, there are three main reasons for this decrease. Firstly, although the incorporation of in-fill drilling information accounted for an increase in the mineral resources in addition to ore reserves, it resulted in a decrease of 15.2Mt ore reserves within the practical pit layouts at Sishen Mine. Secondly, a reduction of 4.9Mt was made to account for the difference between predicted and actual pit boundaries as at 31 December 2007. The final decrease of 10.3Mt can mainly be assigned to 14.9Mt of material remaining unutilised after scheduling at Sishen Mine and a net increase in buffer stockpile and floor stock of 4.6Mt.
• Sishen South (-2.2Mt)
  Material remaining unutilised after scheduling in the life-of-mine plan.
• Thabazimbi Mine (-4.9Mt)
  Annual depletion of 3.5Mt and a further 1.4Mt decrease the result of a combination of new information adjustments made to geological models and the conversion of ore reserves to mineral resources as a result of pit closure based on geotechnical risk.

The decrease is off-set by an increase of 41.0Mt:

• Sishen South (+40.4Mt)
  The increase in the forward-looking free-on-rail iron ore price that accounted for increases in mineral resource led to a 24.2Mt increase in ore reserves at Sishen South. A further increase of 16.2Mt ore reserves at Sishen South is the result of the incorporation of the structural model for the deposits.
• Thabazimbi Mine (+0.6Mt)
  Revision of the Buffelshoek West mining pit layout encompassing 0.6Mt more ore reserves.

Kumba has high-quality mineral resources and ore reserves at Sishen Mine, considered a world-class operation. It has furthermore replaced its dwindling mineral resources and ore reserves at Thabazimbi Mine with the opening of the Sishen South Project, which should produce its first ore in 2012. By employing sound mineral resource management practices at its mining operations and exploration projects, Kumba Iron Ore can ensure optimal resource utilisation from preliminary exploration through to the delivery of the final product to its clients.