Full Year Results

10th April 2013

African Minerals Limited

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

Full Year Results to 31 December 2012

African Minerals, the Africa-focussed mining company currently developing the Tonkolili iron ore mine in Sierra Leone, announces its results for the year ended 31 December 2012. AML remains on track to meet its sustainable production target of 20Mtpa during Q2 2013.

Keith Calder, CEO, commented :

"2012 has been an important year for AML, a year which has been characterised by the strengthening of the team, a major investment from SISG, the continued ramp up of production and a significant de-risking of the next phase of the project, now with the brownfield development at Pepel, which will result in a material reduction in capital expenditure.

The progress we have made in 2012 and early 2013, in installing physical production capacity and strengthening our leadership capability, position us well to achieve our sustainable production target of 20Mtpa during Q2 2013."

There will be an analyst and investor tele-conference starting at 9:30 am BST on April 10 2013.

A slide presentation to accompany the call will be available on the Company's website, www.african-minerals.com , prior to the call.

The dial in details are: Tel: +44 20 3139 4830: Passcode: 13617980#

Playback will be available at: Tel: +44 20 3426 2807: Passcode: 638327#

Contacts:

African Minerals Limited

+44 20 3435 7600

Mike Jones

FTI Consulting

+44 20 7831 3113

Ben Brewerton / Billy Clegg / Oliver Winters

Jefferies

44 20 7029 8000

Nick Adams / Thomas Rider

About African Minerals

African Minerals operates the Tonkolili Iron Ore Project (the "Project") in Sierra Leone, with a JORC compliant resource of 12.8Bnt. The Project, which currently has a 60+ year mine-life, is being developed in a number of staged expansions. The current Project operations are expected to produce 20 million tonnes of iron ore per annum at full capacity, with this run-rate of production expected to be achieved in Q2 2013.

The next stage of Project expansion now contemplates the production of up to 35Mtpa of 64% high grade hematite concentrate and the expansion of the current port facilities at Pepel, expected to enter production in 2016.

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

Executive Chairman Review

African Minerals continues to progress towards its ambition of becoming the leading diversified miner in Africa. From the discovery of Tonkolili in 2008, the deposit was explored and delineated in 2009, designs were drawn up for construction in 2010, rapid development followed with first ore on ship in 2011, and the advancement of construction in 2012. 2013 will see Tonkolili further derisked as production stabilises at 20Mtpa, making it the largest producer of iron ore in West Africa.

Tonkolili Project

2012 has been transformational for the Company. We have seen production capacity becoming built out towards the 20Mtpa target rate, an upgrade in leadership across the organisation, normalising of finances with high cost debt replaced by commercial loans and a bond, and the welcome appointment of our new CEO, Keith Calder, into the organisation.

Importantly, 2012 also saw us deliver the anticipated major $1.5Bn investment from our partners SISG, guaranteeing demand for our product and the future growth of the project into its next stage of development to 35Mtpa. This revised Pepel 35 project promises a lower risk, lower capital development strategy.

We look forward confidently to this year establishing Tonkolili as a new, low cost, high volume, scalable and extremely long lived producer.

Competitive Landscape and Market

The end of 2012 saw the beginning of the once in a decade handover of power at the helm of the Communist Party of China. Reassuringly for iron ore suppliers, China continues to focus on urbanisation as its main driver of future economic growth and this is expected to drive additional iron ore demand in the near to medium term.

Iron ore pricing at the start of 2013 has been particularly strong. Weather disruptions across China, Australia and Brazil, together with the policy-induced export declines from India and permit delays in Brazil have assisted the significant tightening of seaborne supply-demand balances this year. We expect pricing to remain relatively buoyant across the year.

Our long life resource and increasing production capacity in combination with our attractive low silica product are establishing the Company as a long term and stable supplier of choice, particularly in the Chinese market.

Sierra Leone

We wish to congratulate the government and the people of Sierra Leone on the recent peaceful election, which provides a continued stable operating environment for our flagship project, and ushers in another 5 year period of growth. Our strong in-country presence, headed by AML (SL) Executive Chairman and co-founder Gibril Bangura, provides us with a unique insight into Sierra Leone in particular and West Africa in general and further reinforces our position as a true Sierra Leonean company with deep roots in the region.

Corporate Governance

As part of the ongoing process to enhance corporate governance within the company we intend to increase the number of independent non-executive directors on the Board, with the aim of having a majority being independent non-executive directors. With the CEO position now filled, the full executive committee established, and a stable financial position, that search has recommenced, and we expect to be able to announce additions to the Board in due course.

Several high level management appointments have already been made and we will continue to enhance management capability across the project, operating and corporate entities as part of the evolution of the Company.

With an aim of providing more frequent market guidance, the Company will institute Interim Management Statement ("IMS") quarterly reporting commencing with a Q2 IMS.

With these important accomplishments behind us, and the ongoing support of all of our stakeholders, including the Government of Sierra Leone and our partners Shandong Iron and Steel Group, we are well positioned to continue our rapid growth.

Thanks

The history of African Minerals to date is one of strong and rapid project execution, balanced risk management and managerial focus and is a testament to the current and past project and operating teams that have made our Company what it is today. We have a strong team going forward and, combined with the vision and support of our shareholders and stakeholders, we stand well positioned to realise our current goals and to define an exciting pathway to future growth. We also have a unique opportunity, and an obligation, to achieve our growth and aspirations through close cooperation with the Government and people of Sierra Leone and to ensure that the outcomes are balanced and sustainable for all.

Frank Timis

Executive Chairman

Chief Executive Officer's Review

At the time of our interims, we emphasised that the safe ramp up of Phase I, the establishment of a stronger operating and executive team and further definition of our Phase II expansion - Pepel 35 - would remain our areas of immediate focus, and I am pleased to report that we have continued to deliver towards all of those promises.

2012 has been a year focused on the delivery of Phase I of the Tonkolili Iron Ore project. While First ore on Ship was achieved in November 2011, from our first semi mobile process plant, 2012 saw us upgrade our rail, significantly improve throughput at the port, and complete the construction of two additional processing facilities. The commissioning of the number 2 Dumper at the Port and the debottlenecking of the processing plants will be completed shortly and will ensure that we have the installed capacity to achieve our goal of a sustainable 20 Mtpa run rate in the second quarter of this year.

Safety

I am saddened to report that one of the Company's contractors suffered a fatality on 30 October, 2012. Mr. Alhaji Sannoh, was fatally injured in an accident involving heavy mobile equipment at Rofaneye quarry. Our thoughts and continuing support go out to his family.

The Lost Time Injury Frequency Rate ("LTIFR") rose from 1.55 per million man hours in 2011 to 1.72 in FY 2012. We believe that this increase is principally the result of implementing a more rigorous process of capturing and categorising incidents and the man hours worked. This is an important step in establishing the baseline from which we intend to improve going forward.

The Company has adopted the international standard for reporting, against an All Injury Frequency Rate per 200,000 man hours, from 1 January 2013. On a comparative basis, but not including minor first aid incidents, the equivalent rate for 2012 was 0.74.

The health of all of our employees is a priority for our organisation and the reduction in malaria cases at our industrial sites, camps and in our neighbouring communities is a key focus for us in 2013. We have embarked on a major Group wide initiative with the objectives of eliminating mosquito breeding habitats, improving preventative measures against contagion and a broader education and support program.

Strategic Partner

In March 2012 we completed our strategic transaction with Shandong Iron and Steel Group ("SISG") whereby SISG invested $1.5Bn in return for a 25% stake in the underlying assets of the Tonkolili Project and a discounted offtake agreement ("DOTA") for the life of the mine.

The DOTA covers 4.8Mtpa of sales in Phase I, and rises to 10Mtpa once the 35Mtpa production rate is achieved, with a sliding scale of discounts from zero to 15%, depending on the FOB received price. In the current price environment, SISG receives a discount on the 4.8Mtpa it is entitled to under this DOTA in Phase I.

Under the shareholders agreement, SISG also has the right to elect to take its equity entitlement, on an annual basis and at market pricing, an additional 25% of production, equivalent to a further 5Mtpa in Phase I, which it has exercised for 2013.

This landmark transaction thus provides for offtake by SISG of around 50% of our product in Phase I, funding for further expansion, and procurement support amongst many other benefits.

Funding

Since the discovery of Tonkolili in March 2008, African Minerals has raised approximately $867m in equity funding, and has attracted an aggregate of $1,064m in various forms of debt finance, to fully fund our Phase I development. At the start of the year the Company also issued $400m of 8.5% convertible bonds, due in 2017.

The $1.5Bn subscription funds received in the SISG transaction at the end of March 2012 were used to retire in full the $418m Secured Loan Facility that was put in place in February 2011 (and subsequently refinanced by Standard Bank of South Africa Limited ("Standard Bank") in February 2012), and the balance of the subscription funds are being used to complete Phase I to the 20Mtpa run rate, expected to be achieved during Q2 2013, and to commence the Pepel 35 expansion project.

The Company has also recently revised and extended current credit facilities to include an additional $20m of liquidity at the Group level with the establishment of a $100m facility, and has established a $250m facility to provide additional working capital flexibility at the operating company level. Standard Bank has also provided 2 tranches of equipment finance facilities, which are currently drawn to $171m.

The remainder of the funds received from SISG, the various debt facilities, and anticipated internally generated cashflow provide a solid financial resource to commence our next expansion at the Tonkolili project to 35Mtpa.

Team

Along with the world class Tonkolili deposit and associated infrastructure, the key assets of the Company are its people.

Since mid-2012, the Group has been able to attract considerable experience to our Executive Team including a Chief Operating Officer, a Head of Human Resources and Sustainability, a Head of Health, Safety, Environment and Security and a Head of Business Development. While squarely focused on our core activity in Sierra Leone, this enhanced leadership team will help to ensure timely and effective decision making across the entire organisation.

While the completion of the wet processing plant, second wagon dumper, and other matters provide the physical capacity for achieving our goals, it is this leadership team that will provide the capability to deliver on an ongoing basis.

Phase I

In our last annual review, management at that time did expect to be able to complete the construction and commissioning of the various process plants to achieve the 20Mtpa run rate by 2012 year end, and produce 10Mt during the calendar year.

While significant progress was made in 2012, delays in construction and commissioning of the wet process plant, and the prolonged and severe 2012 wet season, impacted operations resulting in the exporting of 4.3Mt of material, below our revised 5Mt target.

However, finalisation of construction and debottlenecking has continued in line with the revised schedule set out in H2 2012, and we remain on track to achieve the 20Mtpa run rate during Q2 2013, with cash costs expected to fall subsequently to circa $30/t by year end.

After successfully completing our rail upgrade, rolling stock expansion, commissioning of the second port stockyard, receipt of our third trans-shipper, and ramping up of our mine processing facilities, the last key element is the completion of our second wagon dumping facility at Pepel. I am pleased to report that that it is now in the final stages of construction and that commissioning is continuing, with the dumper expected to enter production in mid Q2 2013.

During the current ongoing ramp up, we have run our processing facilities at close to 18Mtpa on a short-term basis, and successfully loaded an Ocean Going Vessel in 3 days, which demonstrates the 20Mtpa port capability.

With the step change in production that we expect once we have removed the wagon dumper bottleneck, and after the modifications made in recent planned shutdowns, we expect that these individual performances will be repeatable on an ongoing basis, capable of achieving our sustainable 20Mtpa run rate during Q2 2013.

As we enter our first full production wet season, we have put in place a strategy of campaigning fines in the dry season, and lumps and blend in the wet season. This strategy requires establishment of stockpiles, and we are now expecting to mine and process 15-18Mt this year, and export 13-15Mt.

With the flexibility afforded by three plants, a short haul rail, and significant stockpile capacity at both mine and port, we are confident that we will be able to consistently achieve 20Mt of exports annually in 2014 and beyond.

With all major elements of the final infrastructure in place, we are confident that the cost at completion of the Phase I project will remain around $2.1Bn, for a capital intensity of around $105/t. With this stage of development virtually complete - from a standing start on a greenfield exploration project to a major producer in just 5 years - we will have created a platform at Tonkolili that, as well as being capable of significantly leveraging our future organic expansion from 20Mtpa to 35Mtpa, should create significant competitive advantage as we review future growth opportunities across West Africa and beyond.

Pepel 35

The completion of the landmark transaction with SISG gave us significant funding to continue our growth plans, to both complete the expanded scope of Phase I and to embark upon Pepel 35. The strong anticipated cashflow from Phase I, together with the funds earmarked for Pepel 35, gives us the confidence to move forward with our next expansion, set to generate higher tonnage, with higher revenue per tonne and a higher EBITDA margin.

At the time of the interims we expected to be in a position to provide more definition on the various elements of the Pepel 35 expansion by the end of the year, which was announced to the market in the middle of December.

Our original strategy for expansion to 35Mtpa had been the construction of saprolite capacity at the mine in a number of smaller concentrator units, enhance the existing railway for most of its route, and to build a new rail spur to a new purpose built large deepwater port at Tagrin Point, in a project that we anticipated would cost circa $3Bn.

Following a value engineering exercise during the second half of 2012, which focused on optimisation of our existing assets and the derisking of our future expansion plans at Tonkolili, we announced our decision to opt for a brown-field expansion of our Pepel Port as opposed to a major green-field project at Tagrin. We determined that the expansion could be achieved with an enhanced value proposition, a lower capital intensity and substantially reduced schedule risk if we leveraged off of our existing facilities rather than further expand our industrial footprint. Management estimates suggest that full project execution would cost circa $2Bn (+/-25%) between 2013 and 2019, saving an estimated $1Bn, with the first saprolite unit entering production in 2016 with a gradual increase to a 35Mtpa capacity over a 4 year period. This strategy provides a lower risk path to establishing the full 35Mtpa capacity, thus cementing our transition to a mid-tier company.

These management estimates will be firmed up during 2013. Early works of engineering, metallurgical, geotechnical studies etc are being undertaken during H1 2013 such that physical works can begin in the dry season of Q4 2013, initially using the $c485m of funds retained from the SISG subscription at the project level (end March 2013).

Community

As the largest private employer and the largest contributor to GDP in a country with extremely high unemployment, one of our main concerns is the management of expectations within the communities of Sierra Leone in which we operate. AML recognizes that we have a significant economic footprint in Sierra Leone, and we are committed to leveraging our position in-country, to be a force of long-term, positive economic and social change within our operating sphere of influence. Our business sustainability depends on strong and enduring relationships with host communities, and government authorities at all levels. Active partnerships with communities is a key aspect of our Sustainability Strategy and alignment with prevailing international standards is central to the execution of our Communities Engagement Programs.

In April 2012, a protest in a neighbouring village to our operations, Bumbuna, by temporary workers recently laid off by our contractors, quickly became inflamed as a platform for general dissent regarding nationally high levels of unemployment. That protest deteriorated into a civil disturbance in Bumbuna to which the police responded, unfortunately resulting in the death of Miss Musa Conteh. We offer our sincere condolences to her family.

AML has engaged ERM, a global corporate social responsibility and sustainable development consultant, to assist us in conducting a baseline study and support us in developing policies and procedures to help guide our activities in the areas affected by our operations

AML also carried out all-party discussion forums with labour leaders, paramount chiefs, the police and the government. As a result of those talks AML negotiated a package of employment benefits that included a wage adjustment, index linked annual pay revisions, union recognition, and the establishment of centres for excellence in teaching technical skills to employees. We are pleased to report that we are making significant strides in attracting and developing skilled Sierra Leoneans across the organisation. At the community level, in the immediate term, AML is currently carrying out several community investment projects along the operational footprint of the business.

The Company remains committed to aligning our operations and strategies towards the ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption as set out in the UN Global Compact.

The potential of the minerals sector to increase economic development and reduce poverty in Sierra Leone, by attracting investment and providing job opportunities is well known. As a complementary part of the initiative to ensure that current legislated fiscal and other obligations are met, Sierra Leone has established the National Minerals Agency ("NMA"), whose role is predominantly to oversee the implementation of the existing agreements, especially regarding social, community, environment and training, and the oversight of the significant proceeds of mining revenues.

This industry regulator will play a critical role in promoting transparency, accountability, and good governance in Sierra Leone's minerals sector. As one of the largest contributors to the country's economy, African Minerals is committed to ensuring that all Sierra Leoneans benefit from the country's mineral wealth. By virtue of the taxation we will pay - income tax, withholding tax, direct royalty, royalty regarding social and environmental projects and payroll taxes, together with income generated to the Government by virtue of the economic interest they retain in the rail and port infrastructure - African Minerals is poised to become one of the largest contributors to Sierra Leone's economy. As such, we welcome any initiative, including the creation of the NMA, which further improves the transparency and regulation of the country's mining industry.

Keith Calder

Chief Executive Officer

Operational Review

Overview

The production of our unscreened, unwashed AI32 product generated significant early revenue for the Company in the first half of 2012, with production rates rising in line with expectations to around 8Mtpa in May 2012.

However the onset of the wet season saw a steady degradation in production capability, as the clay-rich AI32 material started to cause materials handling problems both in the process facility and the port, with the moisture level in the material approaching the shipping transportable moisture limit (TML).

The later than expected completion of the wet process plant meant that no other product was available and in August 2012 shipping of AI32 was temporarily suspended, until sufficient lump material became available from the new wet process plant to allow exports to recommence.

Since October 2012 production levels have continued to grow, achieving a peak export rate of c14Mtpa for the month of February 2013 (prior to a planned shut-down in March), with 6 Ocean Going Vessels shipped in 25 days, and record day peak mine production rate of just under 18Mtpa in January 2013.

The current export capacity remains constrained pending the commissioning of the large 6000tph wagon dumper at Pepel Port. This is expected to be completed at the end of April, after which the full mine / rail / port system will have the capacity to achieve the 20Mtpa sustainable run rate.

Mine

During 2012, construction work focussed on the completion of the wet process plant and the associated tailings and raw water dam facilities. Commissioning was completed at the end of September, and has subsequently been progressively ramped up towards its nameplate capacity, expected mid Q2 2013.

The wet process plant is supplemented by a mobile crushing, washing and screening plant and a semi mobile crushing plant. The semi mobile plant, which produced the AI32 material, is in the final stages of being converted so that it too can have its feed diverted through an additional washing and screening section to produce a screened, washed, lump and fines material. The smaller mobile crushing and screening plant had also been converted during 2012 to produce a washed and screened lumps and fines material.

Together, these three facilities are capable of a sustainable rate of 20Mtpa of saleable product.

To support the feed for these plants, our contract mining fleet has also been increased with the addition of a further 300t excavator and 10 additional Caterpillar 777 100t trucks, which were all commissioned into production in Q1 2013.

Lump material constitutes approximately 45% of our production, with Fines of 55%. The International Maritime Shipping of Bulk Cargoes guidelines classify 3 classes of bulk cargoes as Group A - capable of liquefaction; Group B - constituting a chemical hazard; and Group C - incapable of liquefaction.

Our Lump product and a Lump blend with AI32 are both categorised as Group C materials, and do not have any materials handling restrictions in wet weather, while our Fines are classified as Group A. Thus, in order to address any potential wet season disruption, it is now planned to focus on shipping of Group C cargoes in the wet season, with the Fines material campaigned preferentially through the dry season, maintaining planned throughput rates.

Rail

A total of 4.6Mtwere transported by rail from the mine to the port in 2012.

The further upgrade of the reconstructed narrow gauge rail from 45 to 60 kg per metre to allow wagon loads to be increased with higher rail speeds has been completed.

The original complement of 20 locos and 456 wagons has been expanded to 34 locomotives and 1056 wagons. By the end of 2012, 30 of the 34 locomotives were delivered and all the 1,056 wagons were delivered including 20 flatbed wagons for the container traffic and 10 tank wagons for the diesel traffic. The balance was received by the end of March 2013.

Training of nationals to eventually become train drivers continued during the first quarter of 2013. Good progress is being made and if tests are passed, up to 8 could be promoted as train drivers before the end of 2013.

Rail speed is averaging 50kph including the waiting time of the empty trains in passing loops. Average tonnage per wagon is currently 65t and train cycle time in each direction has improved from 9 hours to 6 hours.

At full production we expect to run a rolling stock fleet of 8 trains, each of 4 locomotives and 100 wagons.

Port

During 2012 the port continued to expand its capacity, with the commissioning of a second, larger stockyard, including a stacker and a stacker / reclaimer, bringing the total laydown capacity to in excess of 1Mt of saleable product.

Various modifications to the transfer towers and chute configurations were made during 2012 and 2013 to mitigate the material handling difficulties that had been encountered with our products, which are now all flowing well.

A second shiploader was installed on the existing jetty, doubling loading capacity, and allowing both stockyards to operate concurrently, or each stockyard to operate independently with direct loading from the wagon dumpers.

A third trans-shipping vessel, the MV Nelvana, was added to the fleet in December 2012, considerably increasing outloading capacity to well in excess of the required 20Mtpa rate.

The best performance achieved so far, even with the current wagon dumper constraint, has been to load an Ocean Going Vessel in a little under 66 hours, or under 3 days, which is a rate which can demonstrably achieve 20Mtpa.

The deep Pepel channel is only navigable by one vessel at a time, and current practice has been to anchor the waiting trans-shipping vessels near Freetown, bringing them to the Pepel jetty once the outgoing trans-shipper has exited the channel. In order to reduce this waiting time, AML has modified the new fuel jetty to also serve as a lay-by berth for the waiting trans-shipper, reducing cycle times by around 3 hours.

Capacity and Capability to achieve 20Mtpa - on track for Q2 2013

As scheduled, the operations were shut down for maintenance on 26th February for 10 days in order to complete the final steps of construction and modification at the mine, rail and port, which - together with the completion of the second dumper installation - are expected to provide the final step change required to achieve the 20Mtpa run rate.

At the large wet process plant, the drive motor on the apron feeder above the mineral sizer was replaced with a higher power, higher torque motor, which has considerably increased input feed rates; the cyclones were modified from a bottom size of 150 microns to 75 microns and the screen decks were changed from 2mm to 0.8mm, which together will increase recovery and saleable product yield; and the scrubber was relined as part of standard maintenance.

On the railway, work included the installation of 5 turnouts and various track modification in anticipation of tying in Car Dumper 2 and the Pepel Rail loop, as well as connecting the north side of the locomotive workshop.

At the port, various modifications were made to transfer tower and chute configurations to further increase throughput and reduce blockages.

However, subsequent to this shut down, we experienced a belt tear in our major overland conveyor, which prevented the wet process plant from operating for the remainder of March and early April 2013. Exports, though, continued satisfactorily from our significant port and mine stockpiles. With these final modifications now complete, we are well positioned to achieve the target sustainable 20Mtpa run rate across the entire operating system in unison during the current quarter.

Stephan Weber

Chief Operating Officer

Financial Review

Financial result FY 2012

In 2012, iron ore sales and operating costs have continued to be capitalised to assets under construction, since the Group's infrastructure and mining assets were still undergoing commissioning at year end. We expect to start recognising revenue, operating costs and depreciation through the income statement during H1 2013.

However we note that the IFRS treatment of the SISG Investment as well as a number of non-recurring items, has a material impact on the Group Income Statement which has no bearing on operational performance.

Operating Loss of $225.6m (2011: $41.5m)

The Group incurred a loss from its ongoing operations of $27.9m, and an additional loss of $197.7m from non-recurring events, resulting in a Group operating loss for the year of $225.6m. The principal non-recurring events comprise:

·; SISG associated costs of $133.3m (including penalty for SISG warranty breaches ($51.1m), transaction costs and other professional fees ($32.2m) and onerous offtake contracts ($50.0m),

·; Impairment relating to impairment of rail ($41.5m), and

·; fuel misappropriation ($18.0m).

The remainder of the operating loss from continuing operations of $27.9m includes employee costs ($12.2m) and other operating costs including travel, communications and security.

Further detail on these individual elements is provided below:

·; The transaction agreement with SISG stipulates that the Group produces and sells at least 10mt in 2012 and delivers a minimum 2mt offtake contract to SISG. Penalties for SISG warranty breaches ($51.1m) include a $47.4m charge for production and sales in 2012 being 5.7mt less than 10mtpa committed to SISG and a $3.7m charge for non-fulfilment of 2mt SISG offtake contract guarantee resulting from delivery of 1.2mt to SISG in 2012.

·; Prior to the completion of the SISG transaction, the Group put in place several offtake contracts to maintain optionality in the event that SISG did not close. The successful completion of the SISG transaction, and associated offtakes, has meant that certain contracts have had to be cancelled to accommodate the tonnages to SISG; as a result there is a payable of $50.0m.

·; Rail refurbishment expenditure of $41.5m was derecognised as a result of increased project scoping. Initial refurbishment work of the 45kg/m existing rail was recognised in 2012, but the costs associated with the refurbishment was reversed when the decision was taken to completely replace the refurbished section with new 60kg/m rail, which was completed in 2012.

·; $18m fuel misappropriation represents management's best estimate for fuel theft which was previously capitalised within assets under construction. Management is continuing with efforts to recover losses incurred and to identify more accurately the exact amount of fuel theft. Management has also strengthened controls around the delivery and issue of fuel supplies to prevent the recurrence of fuel loss.

Profit Before Taxation $4.3m (2011: $40.4m Loss)

The Group's profit before taxation for the year of $4.3m principally results from a fair value gain on SISG put option ($288.4m), offset by operating expenses referred to above, other finance costs ($39.5m) and loss on de-recognition of borrowings ($21.1m).

·; The fair value gain on financial instruments of $288.4m recognised by the Group is the movement recorded through the Income Statement on revaluation of the SISG non-controlling interest put option.

A put option exists in the SISG agreement whereby SISG can sell back its 25% interest in the project companies at fair value, in the unlikely event Frank Timis (Executive Chairman) voluntarily chooses to resign from the Board. Under IFRS the shares held by SISG are not recognised as non-controlling interest within equity and instead the put option is accounted for as a financial liability.

·; The Group recognised a finance cost of $39.5m, being the imputed interest charge associated with unwinding of the discount from the SISG discounted offtake agreement for the purchase of iron ore, recorded as deferred income.

The amount initially recognised represents the net present value of the iron ore offtake discount that SISG will receive under the agreement. Volume and iron ore prices are based on management's best estimate. This amount will be released to the Statement of Comprehensive Income as SISG takes delivery of its off-take volumes. In 2012, the $7.8m revenue discount was capitalised to assets under construction.

·; In addition, the Group has recorded a loss on derecognition of borrowings ($21.1m) due to early repayment of the secured loan facility when refinanced on 9 February 2012.

Profit After Taxation $32.1m (2011: $13.3m loss)

The Group's profit after tax for the year was $32.1m compared to a loss of $13.3m in 2011. Iron ore sales of $286.6m have been credited and commissioning-associated costs of $416.8m have been capitalised to assets under construction since the Group's infrastructure and mining assets were still undergoing commissioning at the year end. A taxation credit of $27.8m was generated relating to recognition of deferred tax assets on qualifying capital expenditure in Sierra Leone that is in excess of deferred tax liabilities.

Other Comprehensive Expense $25.7m (2011 : $6.8m)

Other comprehensive expense of $25.7m resulted from fair value reductions in the Group's listed investments, the main components of which were in respect of Cape Lambert Resources ($22.9m) and Obtala Resources Plc ($3.6m), offset by a $0.8m deferred tax credit.

Total comprehensive income for the year amounted to $6.4m.

Balance sheet

Assets under construction and property, plant and equipment increased by $884.4m since December 2011 to $2,390.8m resulting from expenditure on the project.

The increase in 2012 was made up of $685.4m of capital equipment, and a net amount of $199.0m of production costs, financing costs, offset by sales proceeds in the period. At the end of 2012, the capitalised assets under construction comprised $1,946.2m of capital equipment, with the balance represented by accrued working capital deficits, interest, pre-production and exploration costs, offset by sales.

As at 31 December 2012 the Group had total cash and cash equivalents of $601.9m, of which $560.9m is earmarked for the Pepel 35 expansion. $1,500m was received from SISG on 2nd April 2012. From these funds the $417.7m Secured Loan Facility was repaid. The remainder of these funds were used to fund expansion capital costs, resulting in $560.9m project cash available at 31 December 2012. $25m of the remaining cash relates to funds under dispute with lenders regarding a fee for the early repayment of the secured loan facility, and are currently restricted.

Borrowings are held at amortised cost on the Balance Sheet of $581.2m. The borrowings $20.4m decrease in the year is principally due to repayment of the secured loan facility ($417.7m), derecognition ($21.1m) and $100m Standby facility repayment ($20m) offset by convertible bond issue ($358.7m) and project-level asset financing ($83.1m). The amortised cost of the $400m bond at the Balance Sheet date has been recorded as: liability $358.7m, equity $52.9m.

A summary of the Group's cash, and nominal value of loan facilities, is set out below:

Total equity increased by $69.4m during the year to $1,051.5m. This movement comprises increases of non-controlling interest ($135.8m), accumulated deficit ($36.0m) equity reserves ($54.1m) and offset by decreases in share premium ($130.8m) and fair value reserves ($25.7m).

As at 31 December 2012, the Group recognised a non-controlling equity interest for $135.8m in the Balance Sheet. This interest relates to the 10% holding that the Government of Sierra Leone has in the subsidiary African Rail and Port Services (SL) Limited ("ARPS"). This amount is based on the net assets of ARPS as at the balance sheet date.

Equity reserves increased by $54.1m, principally due to $52.9m from the convertible bond issue as detailed above, $10.2m from warrants issued for the secured facility refinancing, offset by $7.8m decrease from a share based payment equity transfer to share premium.

Share premium decreased by $130.8m due to reclassification of $139.6m for non-controlling interest as detailed above and transaction allotments costs of $2.5m, offset by $7.8m share based payment and warrants transfer from equity reserves and $3.5m allotments.

The fair value reserves decreased due to the increase in comprehensive expense of listed investments, as previously noted.

The non-controlling interest put option liability of $706.1m recognised, as detailed above, is management's best estimate of the amount of the fair value that would be payable to SISG in the unlikely event Frank Timis voluntarily leaves the Board and SISG exercises its option to sell back its interest.

A summary of the key accounting treatment for SISG is set out below:

The deferred income of $537.2m recognised as at 31 December 2012, as outlined above is the present value of the iron ore offtake discount that SISG will receive under the agreement. As at 30 June 2012 the offtake was initially recognised as $505.6m. The increase of $31.6m relates to the adjustment to present value of the discount of $39.4m, offset by sales discount of $7.8m as detailed above.

Trade and other payables have risen by $187.4m since December 2011 to $344.4m predominantly as a result of project-related ramp up and due to increased operating expenses including non-recurring items referred to above. Also included in this balance is $30m compensation payable for an inability to fulfil off-take contracts and $22.5m SISG transaction costs as discussed above.

Provisions of $63.8m principally comprise SISG warranty breach penalties as discussed above ($51.1m).

Taxes paid to Government $34.1m (2011: $10.0m)

In February 2012, the Group volunteered to prepay $20m (2011: $10m) of Sierra Leone employee withholding tax which will be offset against future tax liabilities, in order to support infrastructure development in the country. In 2012 the Group paid $25.7m (2011: $6.9m) in employee taxes to the Government.

In 2012 the Group paid $8.4m (2011: $0.6m) in royalties to the Government of Sierra Leone, based on 3% of sales.

Post balance sheet events

$250m borrowings and $100m refinancing of standby

The Company has also recently revised and extended current credit facilities to include an additional $20m of liquidity at the Group level with the establishment of a $100m facility, and has established a $250m facility to provide additional working capital flexibility at the operating company level. Standard Bank has also provided 2 tranches of equipment finance facilities, which are currently drawn to $171m.

Standby and Asset Financing facility covenant waivers

As at 31 December 2012, the Standby and Asset Financing facilities were in breach of financial covenants. Subsequent to year end, waivers of these have been received.

Miguel Perry

Chief Financial Officer

The financial statements were approved by the Board on 9 April 2013 and were signed on its behalf by:

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

For the year ended 31 December 2012

1. ACCOUNTING POLICIES

1.1 Corporate information

This preliminary announcement for the year ended 31 December 2012 contains extracted financial information from the Group's unaudited non-statutory consolidated financial statements. This announcement does not contain audited information for the year ended 31 December 2012.

The unaudited consolidated financial statements of African Minerals Limited for the year ended 31 December 2012 were authorised for issue in accordance with a resolution of the directors on 9 April 2013.

The registered office of African Minerals Limited, the ultimate parent of the Group, is Victoria Place, 31 Victoria Street, Hamilton HM10, Bermuda.

The principal activities of the Group are the production and sale of iron ore and development of mining and infrastructure assets in Sierra Leone.

1.2 Basis of preparation

The unaudited consolidated financial statements of African Minerals Limited and all its subsidiaries (the 'Group') have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted by the European Union (EU) as they apply to the financial statements of the Group for the year ended 31 December 2012.

The unaudited consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The unaudited consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand except when otherwise indicated.

1.3 Basis of consolidation

The unaudited consolidated financial statements comprise the financial statements of the Group as at 31 December 2012.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.

Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

1.4 Significant accounting judgements, estimates and assumptions

The preparation of the Group's consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events, that are believed to be reasonable under the circumstances. However, actual outcomes would differ from these estimates if different assumptions were used and different conditions existed.

In particular, the Group has identified the following areas where significant judgements, estimates and assumptions are required, and where actual results were to differ, may materially affect the financial position or financial results reported in future periods. Further information on each of these and how they impact the various accounting policies is located in the relevant notes to the consolidated financial statements.

1.4.1 Key judgements

In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:

Going concern

Management has prepared these consolidated financial statements on the assumption that the Group is able to continue as a going concern. Refer to note 2.

Commissioning of assets and production start date

Management assesses the stage of each asset under construction to determine when it moves into the production stage, this being when the asset is substantially complete and ready for its intended use. Management considers various relevant criteria to assess when the production phase is considered to commence. Some of the criteria used to identify the production start date will include, but are not limited to:

- Level of capital expenditure incurred compared to the original construction cost estimates

- Completion of a reasonable period of testing of the asset

- Ability to produce saleable iron ore

- Ability to sustain on-going production

When a mine development/construction project moves into the production stage, the capitalisation of certain mine development/construction costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to asset additions or improvements, mine development or mineable reserve development. It is also at this point that depreciation/amortisation commences.

Please refer note 9 for further details.

By the end of 2012, the Group's iron ore infrastructure and mining assets in Sierra Leone were still undergoing commissioning. The mine was processing iron ore, and sales have occurred during this commissioning period. The ore stockpile was held as inventory at the end of the year. Commissioning costs are capitalised into assets under construction after deducting the net proceeds from selling iron ore and will be depreciated when the infrastructure and mine assets are fully operational. Trade receivables have been recognised for amounts receivable at the end of the year for iron ore sales.

Mine rehabilitation provision

The Group is required to decommission and rehabilitate the mine site at the end of its producing life to a condition acceptable to the Environment Protection Agency (EPA) of the Government of Sierra Leone (GoSL). This is consistent with the environmental policies outlined in the 2009 Mining Licence agreement with the GoSL. As at 31 December 2012 the Group has not provided for rehabilitation as no legal or constructive obligation exists at year-end. Management is currently engaging environmental experts to assess the estimated valuation of the mine rehabilitation provision, and in accordance with the mining licence, will recognise a rehabilitation provision when Phase 2 commences. The Group works and closely cooperates with the GoSL regarding all environmental matters, which is evidenced by the Group's annual renewal of Environmental Impact Assessment from the EPA in August 2012.

Put option over non-controlling interest

The Group has entered into a put option over a non-controlling interest (please refer Note 22 for further details). Under IFRS, equity is defined as where the Group has the unconditional right to avoid cash payments, regardless of probability of the condition. Management assessed the terms of the put option and determined that IAS 32 takes precedence over IAS 27: on this basis, the shares held by the non-controlling party are not recognised as a non-controlling interest within equity. The put option is initially measured at the present value of the redemption amount and subsequently accounted for as a financial liability under IAS 39. As a result, the put option is subsequently re-measured at each reporting period. This valuation requires the Group to estimate the fair value of the amount that would be payable to Shandong Iron and Steel Group ('SISG') in the unlikely event that Frank Timis voluntarily resigns from the Board, and SISG exercises its option to sell back its interest, and therefore, is subject to uncertainty. Refer to Note 1.6 for further details.

Deferred Income

The Group has entered into a discounted offtake agreement (please refer Note 22 for further details). The amount initially recognised represents the present value of the iron ore offtake discount that SISG will receive under the agreement: the estimate required determination of the most appropriate inputs including volume, iron ore prices and discount rate. The assumptions and models used for estimating the present value of the offtake discount are disclosed in Note 22. The nominal amount (i.e. the undiscounted estimate) is treated as a revenue deduction; the difference between the present value and the nominal amount of the consideration is treated as interest expense.

Fuel Misappropriation

As disclosed in note 3, management's best estimate for misappropriated fuel of $18m has been recorded in the statement of comprehensive income. This estimate has been based on extrapolation procedures and has therefore involved significant judgement. Management has taken a number of measures to mitigate the risk of further such losses occurring, such as employing a specialised in-house fuel consumption control team. The investigation into the misappropriation is on-going. Management anticipate that the offenders will be identified and are also in contact with suppliers in relation to potential compensation for the claim.

Recovery of deferred income tax assetsJudgement is also required in determining whether deferred income tax assets are recognised in the statement of financial position. Deferred income tax assets, including those arising from un-utilised tax losses, require management to assess the likelihood that the Group will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred income tax assets. Assumptions about the generation of future taxable profits depend on management's estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, dividends and other capital management transactions) and judgement about the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred income tax assets recorded at the reporting date could be impacted. In addition, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future periods. Please refer note 14 for further details.

Accruals

Management have used judgement and prudence when estimating certain accruals for contractor claims. The accruals recognised are based on work performed but are before settlement. As Phase 1 approaches completion through Q2 2013, these claims will be settled, resulting in a likely revision to the accruals balance.

Contingencies

By their nature, contingencies will only be resolved when one or more uncertain future events occur or fail to occur. The assessment of the existence, and potential quantum, of contingencies inherently involves the exercise of significant judgement and the use of estimates regarding the outcome of future events. Please refer note 24 for further details.

Impairment of assets

The Group assesses each asset or cash generating unit (CGU) every reporting period to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as long-term commodity prices (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, closure and rehabilitation costs, exploration potential, reserves (see 'Ore resource estimates' above) and operating performance (which includes production and sales volumes). These estimates and assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or CGUs. Please refer note 9 for further details.

1.4.2 Key estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Ore resource estimates

Ore resource estimates relate to the amount of ore that can be economically and legally extracted from the Group's mining assets. The Group estimates its ore resource based on information compiled by appropriately qualified persons relating to the geological data on the size, depth and shape of the ore body, and requires complex geological judgements to interpret the data. The estimation of recoverable resource is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements, and production costs along with geological assumptions and judgments made in estimating the size and grade of the ore body. Changes in the resource estimates may impact upon the carrying value of exploration and evaluation assets, mine assets, property, plant and equipment, recognition of deferred tax assets, and depreciation and amortisation charges.

Exploration and evaluation expenditure

The application of the Group's accounting policy for exploration and evaluation expenditure requires judgement in determining whether future economic benefits will arise either from future exploitation or sale or where activities have not reached a stage which permits a reasonable assessment of the existence of reserves. The determination of a Joint Ore Reserves Committee (JORC) resource is itself an estimation process that requires varying degrees of estimation depending on sub-classification and these estimates directly impact the point of deferral of exploration and evaluation expenditure. The deferral policy requires management to make certain estimates and assumptions about future events or circumstances, in particular whether an economically viable extraction operation can be established. Estimates and assumptions made may change if new information becomes available. If, after expenditure is capitalised, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the consolidated Statement of Comprehensive Income in the period when the new information becomes available. Exploration and evaluation assets are carried at historical cost less any impairment losses recognised. Please refer note 7 for further details.

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 18.

1.5 New and amended standards and standards issued but not effective

New and amended standards and interpretationsThe accounting policies adopted are consistent with those of the previous financial year. The following new and amended IFRS and Interpretations effective as of 1 January 2012 have been adopted, but did not have a financial impact on the Group:

 IAS 12 Income Taxes (Amendment) - Deferred Taxes: Recovery of Underlying Assets

 IFRS 1 First-Time Adoption of International Financial Reporting Standards (Amendment) - Severe Hyperinflation and Removal of Fixed Dates for First-Time Adopters IFRS 7 Financial Instruments: Disclosures (Amendments)

 IFRS 7 Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements

Standards issued but not yet effective

Standards issued but not yet effective up to the date of issuance of the Group's financial statements are listed below. The Group intends to adopt these standards when they become effective, however these are not expected to have any significant impact on disclosures, financial position or performance when applied at a future date, except for IFRIC 20 as below.

§ IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 (effective 1/7/2012)

§ IAS 19 Employee Benefits (Revised) (effective 1/1/2013)

§ IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) (effective 1/1/2014)

§ IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (effective 1/1/2014)

§ IFRS 1 Government Loans - Amendments to IFRS 1 (effective 1/3/2012)

§ IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 (effective 1/1/2013)

§ IFRS 9 Financial Instruments: Classification and Measurement (effective 1/1/2015)

§ IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements, IFRS 11Joint Arrangements, IFRS 12Disclosure of Interests in Other Entities (effective 1/1/2014)

§ IFRS 13 Fair Value Measurement (effective 1/1/2013)

§ IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective 1/1/2014) 

The Interpretation only applies to stripping costs incurred during the production phase of a surface mine (production stripping costs). Costs incurred in undertaking stripping activities are considered to create two possible benefits - the production of inventory in the current period, and / or improved access to ore to be mined in a future period. Production stripping costs are to be capitalised as part of an asset, if an entity can demonstrate that it is probable future economic benefits will be realised, the costs can be reliably measured and the entity can identify the component of an ore body for which access has been improved. This asset is to be called the "stripping activity asset". Where costs cannot be specifically allocated between the inventory produced during the period and the stripping activity asset, the Interpretation requires an entity to use an allocation basis that is based on a relevant production measure.

·; Annual Improvements May 2012: these improvements are effective for annual periods beginning on or after 1 January 2013, but will not have any significant impact on the Group:

§ IFRS 1 First-time Adoption of International Financial Reporting Standards

§ IAS 1 Presentation of Financial Statements

§ IAS 16 Property Plant and Equipment

§ IAS 32 Financial Instruments, Presentation

§ IAS 34 Interim Financial Reporting.

1.6 Summary of significant accounting policies

Exploration and evaluation assets

Exploration costs are capitalised as exploration and evaluation assets until a decision is made to proceed to development. Related costs are then transferred to assets under construction. Before reclassification, exploration costs are assessed for impairment and any impairment loss recognised in the statement of comprehensive income. Subsequent development costs are capitalised under assets under construction, together with any amounts transferred from exploration and evaluation assets.

Software

Software is shown at historical cost less accumulated amortisation and impairment losses. The initial cost of an asset comprises its purchase price and any consultancy costs directly attributable to bringing the asset into operation together with any incidental cost of purchase.

Software amortisation is charged to the Statement of Comprehensive Income on a 20% straight-line basis.

Assets under construction and property, plant & equipment

Plant and equipment are shown at cost less accumulated depreciation and impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, any incidental cost of purchase and borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Directly attributable costs include employee benefits, professional fees and costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling iron ore produced while bringing the asset to the condition intended by management. Capitalised borrowing costs include those that are directly attributable to the construction of mining and infrastructure assets.

Property, plant & equipment relate to land, buildings, plant, machinery, fixtures and fittings and are shown at historical cost less accumulated depreciation and impairment losses.

Assets under construction relate to mining and infrastructure assets and are not depreciated. After production starts, all assets included in "Assets under construction" are transferred to "Property, plant and equipment" or "Mine assets": this is signified by the formal commissioning of the mine for production.

Mining assets will be amortised over the estimated life of the commercial mineral reserves on a unit of production basis. Infrastructure assets and any other assets are depreciated on a straight-line basis over the expected useful lives of the assets concerned.

The depreciation rates are as follows:

Subsequent expenditure is capitalised when it is probable that future economic benefits from the use of the asset will be increased. All other subsequent expenditure is recognised as an expense in the period in which it is incurred. Assets that are replaced and have no future economic benefit are derecognised and expensed through profit or loss. Repairs and maintenance which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income. Gains/(losses) on the disposal of fixed assets are credited/(charged) to income. The gain or loss is the difference between the net disposal proceeds and the carrying amount of the asset.

The asset's residual values, useful lives and methods of depreciation are reviewed at each reporting period, and adjusted prospectively if appropriate.

Financial instruments: initial recognition and measurement

a) Financial assets

The Group's financial assets include available for sale investments, trade and other receivables, and cash and cash equivalents.

Available for sale Investments

Available for sale financial assets include investments in listed equities, that are neither classified as held for trading nor designated at fair value through profit or loss, and are initially measured at fair value.

Changes in fair values of investments available for sale are recorded through fair value reserves, whilst dividend income is recorded in the Statement of Comprehensive Income for the period. When the fair value declines, management makes assumptions about the decline in value to determine whether it is an impairment that should be recognised in profit or loss. Management assesses impairment based on significant or prolonged fair value declines in comparison to the original cost, where management considers significant to be a fair value decline of approximately 30% and prolonged to be a sustained decline of greater than one year. During 2012, no impairment losses have been recognised on available for sale assets (2011: $nil)

Trade and other receivables

Trade and other receivables are stated at amortised cost less provision for doubtful debts. Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Cash and cash equivalents

Cash and cash equivalents are measured at fair value, based on the relevant exchange rates at balance sheet date. Cash and cash equivalents comprise cash, cash at hand and short term deposit amounts with original maturity of less than three months. For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

Impairment

The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. A financial asset is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (a loss event) and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

b) Financial liabilities

c) The Group's financial liabilities include trade and other payables, a put option over non-controlling interest-bearing loans and borrowings. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, less directly attributable transaction costs.

Trade and other payables

Trade and other payables are non-derivative financial liabilities that are not quoted in an active market.

Put option over non-controlling interest

The put option is initially measured at the present value of the redemption amount and subsequently measured at fair value. The put option has been valued using an enterprise value model, which reflects management's interpretation of the shareholders' agreements with SISG. This valuation requires the Group to make assumptions related to the amount that would be payable to SISG in the unlikely event that Frank Timis voluntarily resigns from the Board, and SISG exercises its option to sell back its interest. The fair value calculation has key assumptions that include the utilisation of the quoted African Minerals Limited share price in estimating the market capitalisation of the mine, rail and port and power subsidiaries and an estimated significant influence premium component to reflect SISG's 25% shareholding in the mine, rail and port and power subsidiaries. As a result there is estimation uncertainty related to subsequent re-measurements. Any movement is recorded through the Statement of Comprehensive Income. Refer to note 22 for further details.

Interest-bearing loans and borrowings

Interest-bearing loans and borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost using the effective interest (EIR) method. The fair value implies the rate of return on the debt component of the facility. This rate of return reflects the significant risks attaching to the facility from the lenders' perspective.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in profit or loss.

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds e.g. arrangement fees.

Convertible bonds are calculated in two components, a liability, which is valued at the present value of future interest payments and principal using the effective interest rate, and an equity component, which is the residual amount of funds received.

The Group capitalises borrowing costs for all eligible assets. Where funds are borrowed specifically to finance the project, the amount capitalised represents the actual borrowing costs incurred. Early repayment of borrowings, specifically for reasons of refinancing do not qualify for capitalising as borrowing costs under IAS 23 and are recognised as a loss on derecognition in the statement of comprehensive income.

d) Fair value of financial instruments

The following methods and assumptions are used to estimate the fair values:

- Cash and short-term deposits, trade and other receivables, trade and other payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

- Fair value of available-for-sale investments is derived from quoted market prices in active markets.

- Initial fair value of interest-bearing borrowings is normally the transaction price, i.e. the fair value of the consideration received. When part of the consideration is for something other than the loan, the fair value is estimated using a valuation technique, as described in note 19;

- Methods and assumptions used to estimate the fair value of the put option over non-controlling interests is disclosed in note 1.4 and note 1.6b.

- For disclosure purpose only, fair value of convertible bonds is based on price quotations at the reporting date. The fair value of unquoted instruments, such as loans and other financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

Deferred Income

Deferred income relates to the discounted offtake agreement with SISG, which was executed on 30 March 2012, as described in note 22. The Group measures deferred income at its present value when the time value of money is significant. Therefore the following two components are treated separately: the initial estimate of the nominal amount is released to profit or loss for deliveries that qualify for discounts up to 15%, depending on the benchmark FOB iron ore price in accordance with the offtake agreement; and the difference between the nominal amount and present value is unwound to the Statement of Comprehensive Income as an interest expense.

The valuation of the deferred income requires the Group to make estimates about the expected future benchmark FOB iron ore price and future deliveries, which may differ from actual quantities and discounts given in any particular year.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Impairment of non-financial assets

The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. An asset's carrying value is written down to its estimated recoverable amount, being the higher of its fair value less costs to sell and value in use, if that is less than the asset's carrying amount.

Impairment reviews for exploration and evaluation costs are carried out on a project by project basis, as each project has the potential to be an economically viable cash generating unit. An impairment review is undertaken when indicators of impairment arise but normally when one of the following conditions apply;

- unexpected geological occurrences render a deposit uneconomic

- title to an asset is compromised

- variations in commodity prices render the project uneconomic

- variations in the currency of operation

- variations to the fiscal and tax legislation in the country of operation

Operating Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date. Operating lease payments are recognised as an operating expense in the income statement on a straight-line basis over the lease term.

Finance income

Interest income is made up of interest received on cash and cash equivalents.

Deferred taxation

Deferred income tax is provided using the balance sheet method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences.

Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

- In respect of deductible temporary differences associated with investments in subsidiaries, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

Foreign currencies

The consolidated financial statements are presented in US dollars, which is the parent company's functional currency and the Group's presentation currency. Transactions in foreign currencies are initially recorded in the functional currency at the respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rate of exchange ruling at the reporting date. All differences are taken to the profit or loss, should specific criteria be met. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Inventories

Inventories are valued at the lower of cost of production and net realisable value. Work in progress stockpiles represent ore that has been extracted and is available for further processing. The cost of producing iron ore is accounted for on a weighted average basis and includes labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore, and production overheads. Quantities of ore stockpiles are assessed through surveys and assays.

Other inventories are made up of fuel and spare parts for maintenance equipment.

Share-based payments

Options

The Group awards equity-settled share-based payments to certain Directors, officers, employees and suppliers. The grant date fair value of the share plans is recognised as an expense over the expected vesting period with a corresponding entry to retained earnings. The estimate of the number of awards likely to vest is reviewed at each statement of financial position date up to the vesting date, at which point the estimate is adjusted to reflect the actual awards issued. No adjustment is made after the vesting date even if the awards are forfeited or not exercised.

Fair value of the options is measured by use of the Black-Scholes pricing model. The estimated life of the instrument used in the model is adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Performance shares

The Group issues performance shares on the completion of certain conditions being met.

The Company has also entered into agreements to award senior executives with shares in the Company based on certain performance conditions being met. Conditions include the completion of certain feasibility studies and the achievement of various iron ore production targets. The grant-date fair value of performance shares is charged to the statement of comprehensive income over the period between the date of grant and the date the performance conditions are expected to be met.

Warrants

Non-market based vesting conditions are taken into account in estimating the number of awards likely to vest. Fully-paid shares are valued at market value at the date of issue.

The grant date fair value of warrants granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the warrants. The amount recognised as an expense is adjusted to reflect the actual number of warrants for which the related service and non-market vesting conditions are met. To calculate the fair value of the warrants, the Black & Scholes pricing model has been used.

Segment reporting

The Group is managed as a single operating segment which is developing a mine and related infrastructure. In accordance with IFRS 8 Operating Segments, the Group presents its results in a single segment which are disclosed in the Statement of Comprehensive Income for the Group.

The Group does not have any significant non-current assets that are located in the country of domicile of the Group. The vast majority of the non-current assets are located in Sierra Leone.

2. GOING CONCERN

Whilst the Group has a significant cash balance on hand as at 31 December 2012, a large portion of those funds are earmarked for project expansion from 20 to 35mtpa (Pepel 35) expenditure.

On 5 April 2013, the Group extended the pre-existing $100m Standby Facility ($80m drawn) from Standard Bank and completed a new $250m project-level working capital facility (refer to note 26). These facilities together with revenue from sales will provide the Group flexibility to fund the ramp up of operations towards the targeted 20mtpa production rate.

In the event the Group is unable to ramp up production to a sustainable level of 20 Mtpa by Q2 2013 it may have to seek additional sources of financing.

The Directors having reviewed the cash flow forecast for the period ending 30 June 2014 have concluded that the matter discussed above represents a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern. Nevertheless, the Directors after making enquiries and considering the material uncertainty are confident that the Group will continue to have adequate resources to continue in operation for the foreseeable future. For this reason, the consolidated financial statements of the Group have been prepared on a going concern basis.

Accordingly, these consolidated financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group was unable to continue as a going concern.

3. NET OPERATING EXPENSES

Onerous offtake contracts and contractor claims include compensation charges for an inability to fulfil several off-take contracts and contractor claims relating to final settlement of construction contracts.

Transaction costs and other professional fees include amounts in relation to the Shandong Iron and Steel Group investment.

The misappropriated fuel amount of $18,000,000, which is management's best estimate, recorded in the period was previously capitalised within assets under construction and property, plant and equipment. A certain portion of this amount relates to prior periods but it is impractical to apply retrospective restatement.

This estimate has been based on extrapolation of the results of tests performed and has therefore involved significant judgement. Management has taken a number of measures to mitigate the risk of further such losses occurring, such as employing a specialised in-fuel management team. The investigation into the misappropriation is on-going. Management are continuing with efforts to identify the exact causes and, where possible, to recover losses incurred.

Rail refurbishment expenditure of $41,490,000 was derecognised as a result of increased project scoping. Initial refurbishment work of the 45kg/km existing 1930s rail was derecognised when replacement upgrade work to 60kg/km was completed in 2012 to support project capacity of 20mtpa.

4. KEY MANAGEMENT PERSONNEL

Key management personnel comprise the directors.

The aggregate gain made by Directors on the exercise of options is $1,044,000 in 2012 (2011: $nil).

No Director has retirement benefits accruing to them as a result of their services to the Group.

5. EMPLOYEE COSTS

The number of employees at the various mining and exploration operations (excluding the non-executive Directors of the Group) at the end of the year was 3,832 (2011: 1,707).

$94,907,000 (2011: $27,369,000) wages and salaries costs were capitalised in the year.

$6,260,000 (2011: $16,271,000 capitalised) is the net deduction for share based payment credited to assets under construction. This comprises $5,778,000 (2011: $16,540,000) capitalised share based payment expense less a credit $12,038,000 (2011: $269,000) for project-related share based payment forfeitures and lapses. Refer to note 18 for details.

6. EARNINGS PER SHARE

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For share options, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. Terms and conditions of share options are disclosed in note 16 and 18.

Where there is a basic loss per share, the dilution effect is ignored.

7. EXPLORATION AND EVALUATION ASSETS