Interim Results

11 September 2012

African Minerals Limited

Interim Results for the six months ended 30 June 2012

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

Highlights H1 2012

·; Lost Time Injury Frequency Rate ("LTIFR") of 0.92 per million man hours (FY 2011 : 1.55)

·; Completion of $400m convertible bond

·; Completion of $1.5Bn transaction with SISG

·; Exports of 2.6Mt Direct Shipping Ore from Tonkolili achieved in H1

·; All export tonnage to end of 2016 already committed under long term contracts, subject to SISG exercising 5Mtpa equity ore option

·; Group cash $1,165m at end June 2012

Subsequent Events and Project Update

Corporate

·; Keith Calder appointed CEO

·; Recommencement of process to identify further independent non-executive directors

·; Graham Foyle-Twining appointed as corporate Global Head of Human Resources and Sustainable Development

·; M. Guy Laliberte, formerly the SNC Project Director for Phase I completion, appointed AML Project Director for Tonkolili

Project Update

·; Upgrade of rail, commissioning of Wet Process Plant and commissioning of second stockyard nearing completion, with expected transfer from construction and commissioning to operations imminent

·; Subsequent conversion of All-in-32 ("A32") dry crushing plant to wet screening plant

·; Operations to achieve sustainable run rate of 20Mtpa in Q2 2013 with cash costs thereafter under $30/t

·; SISG increases discounted offtake to 4.8Mtpa, in line with growth of project capacity beyond the originally contemplated 12Mtpa

Chief Executive Officer, Keith Calder, stated

"What this team has achieved over the last 20 months - attracting over $3Bn of investment for Sierra Leone, building the new rail and mine, refurbishing the port, and progressively increasing the target production capacity from the originally scoped 5Mtpa to 20Mtpa while at the same time creating employment for over 11,000 people - has been a remarkable achievement. I am confident that Phase I of the project will be able to sustainably deliver 20Mtpa at under $30 per tonne, and become the second largest iron ore exporter in Africa.

Tonkolili is a world class asset. Phase I is about to start its production ramp up, and we intend to build on the momentum already gained as we embark on Phase II development. The confirmation of Guy Laliberte as project director is a key appointment in that regard.

As the Company continues to mature and evolve, the recent appointment of Graham Foyle-Twining represents another important step in establishing a stronger, more experienced team.

The safe ramp up of Phase I, the definition of Phase II and the establishment of a world class team remain our areas of immediate focus."

There will be an analyst and investor tele-conference presented by Keith Calder, Chief Executive Officer and Miguel Perry, Chief Financial Officer, starting at 9:00am BST on 11th September 2012.

Dial in details are: Tel: +44 (0)20 3140 0668 Passcode: 696796#

Playback: Tel: +44 (0)20 3140 0698 Passcode: 386452#

In addition, the Company will hold a second tele-conference, starting at 5:00pm BST on 11th September 2012.

Dial in details are: Tel: +44 (0)20 3140 0668 Passcode: 995827#

Playback: Tel: +44 (0)20 3140 0698 Passcode: 386450#

A slide presentation to accompany the calls will be available on the Company's website prior to the 9:00am BST tele-conference call.

Contacts:

African Minerals Limited

+44 20 3435 7600

Mike Jones

FTI Consulting

+44 20 7831 3113

Billy Clegg / Ben Brewerton

Deutsche Bank

+44 207 545 8000

Charles Wilkinson

African Minerals is developing its Tonkolili iron ore 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 3 phases. Phase I is expected to produce 20 million tonnes of iron ore per annum at full capacity.

Phase II now contemplates an expanded production facility at the mine to produce circa 30Mtpa of 64% high grade hematite concentrate and the establishment of an expanded port facility at Tagrin Point.

African Minerals and its contractors currently employ approximately 11,400 people in Sierra Leone, 83% of who are Sierra Leonean nationals.

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 Tonkolili project companies are currently owned 75% by AML, and 25% by Shandong Iron and Steel Group ("SISG"), except for ARPS, which is owned 65% by AML, 25% by SISG and 10% by GoSL.

www.african-minerals.com 

Chief Executive Officer's Review

The Company and its contractors have continued to show improvements in the area of safety, with a LTIFR of 0.92 per million man hours worked in the first six months of the year (2011: LTIFR 1.55).

Effective January 2013, AML will report its safety performance as an All Injury Frequency Rate ("AIFR") per 200,000 man hours, more in line with industry best practice.

Strategic Partner

The first half of 2012 has indeed been transformational for the Company. In March 2012 we completed our strategic transaction with Shandong Iron and Steel Group ("SISG") whereby they 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 original agreement was reached based on a 12Mtpa production rate for Phase I and an expansion to 35Mtpa in Phase II. Under that agreement, SISG would receive 2Mtpa in Phase I under the DOTA increasing to 10Mtpa once Phase II becomes operational. In recognition of the expansion of Phase I capacity from 12Mtpa to 20Mtpa, the tonnage to be sold at a discount to SISG under the DOTA has been increased pro rata to 4.8Mtpa.

SISG also has the right to elect to take, on an annual basis and at market pricing, an additional 25% of production, equivalent to a further 5Mtpa in Phase I.

Funding

The funds received in that transaction have been used to retire our $417.7m Secured Loan Facility, and will be used predominantly to complete Phase I and commence Phase II of the Tonkolili project.

At the start of the year the Company also issued $400m of 8.5% convertible bonds due in 2017. With the funds received from SISG and the proceeds from the bonds, the Company can demonstrate a strong balance sheet, with consolidated net cash at end of June 2012 of $1,165m. Furthermore, as the project continues to develop, we have commenced drawing these funds in accordance with the agreement to fund ongoing project capital.

The Company is also in advanced discussions with its banks regarding the provision of a working capital revolving credit facility at the project level, partly to mitigate loss of planned revenues as a result of revised production guidance in 2012.

Phase I

During the first half of the current year the Tonkolili operation exported 2.6Mt of DSO and in May achieved a run rate of 8Mtpa with cash costs below $50/t.

In March a commissioning team from SNC Lavalin was appointed to expedite the completion of the Phase I expansion.

The Company has put in place several long term contracts for the product from Tonkolili, and can report that all production up to 2016 is fully committed, on the assumption that SISG elects to exercise the annual equity ore option.

The current wet season has been particularly severe in Sierra Leone and has affected both materials handling and project execution.

Once the new wet process plant ("WPP") is operational, and the current mobile dry crushing plant converted to a wet screening plant, the impact of the material handling constraints associated primarily with the unwashed A32 product during wet season will be mitigated. Tonkolili will thereafter produce 100% of screened, washed standard lump and fine DSO material. The replacement of the discounted A32 product with standard lump and fine product will also increase revenue per tonne on this 5Mtpa portion of production.

Construction of the Phase I WPP is nearing completion and we expect to hand the plant over from construction and commissioning to operations by the end of September. The plant will then be gradually ramped up to a sustainable 20Mtpa run rate. We remain confident of achieving this in Q2 2013 with cash costs FOB subsequently falling to below $30/t.

Our assessment of the timing and duration of the ramp up profile has led us to adjust our guidance for the current year to between 5 and 6Mt.

We will provide guidance on export tonnage for 2013 as additional experience is gained in the ramp up of the WPP.

Corporate

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, that search has recommenced.

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.

Phase II

We are pleased to have completed our landmark transaction with SISG, giving us significant funding to continue our growth plans. The strong anticipated cashflow from Phase I, together with our healthy project balance sheet, give us the confidence to move forward with our Phase II development, set to generate higher tonnage, at a lower cost, with higher revenue per tonne and a higher EBITDA margin.

We expect to be able to provide more definition on the various elements of the Phase II expansion later this year following final scope definition and implementation strategy.

Following the success of the SNC team's marshalling of the closing stages of the Phase I expansion to 20Mtpa, we are pleased to have welcomed to the Company the leader of that team, M. Guy Laliberte, as Tonkolili project director for Phase I and subsequent expansion.

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.

In April, a legitimate localised 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 became 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.

Partly in an effort to engage more closely with the concerns of those involved, AML initiated all-party talks with labour leaders, paramount chiefs, the police and the government. As a result of those talks AML negotiated a package 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.

The development of Tonkolili, in Phase I and beyond, is reliant on the men and women who work with us. We are pleased to have recently appointed Mr Graham Foyle-Twining as corporate Global head of Human Resources and Sustainable Development, who will assist us in attracting, retaining, training and developing our most important resource, our people. Graham will be based in London although he will spend a significant amount of his time in Sierra Leone, as we move to establish a comprehensive human resourcing plan and sustainable development strategy.

Thanks

Finally, I wish to thank all of our employees, contractors, stakeholders, and the Government of Sierra Leone for their continued support and hope that together we will continue this success into the remainder of the year, emerging as the largest exporter of iron ore in West Africa.

Keith Calder

Chief Executive Officer

Operational Review

The first half of the year saw considerable progress in the completion and handover of key components of the project which allowed the Company to realise early cashflow through the production and sale of the A32 product.

In the half year achieved exports of 2.6Mt, and in May the ramp up reached an output rate across mine / rail / port of circa 8Mtpa. Cash costs in May had reduced to under $50/t. We remain confident that as we ramp up to a sustainable 20Mtpa production rate the cost will reduce as expected to below $30/t.

The focus of the remainder of the year will be the completion of the Phase I ramp up towards its design production rate. The principal components of this are the wet commissioning and subsequent ramp up of the Wet Process Plant, the commissioning and ramp up of the second Pepel stockyard including the establishment of an additional large train dumper, the completion of the rail upgrade programme on the old 74km track nearest the port, and the receipt of the full complement of locos and wagons, as well as the addition of a third trans-shipping vessel.

Progress to date regarding these various elements:

WPP

The Wet Process Plant has been completely commissioned and is expected to be handed over from the construction and commissioning team to the operation team by the end of September.

Conversion of A32 plant from dry crushing to wet screening

Once the WPP is operational, the A32 plant will be converted to a wet screening plant capable of producing 5Mtpa of washed lump and fines product, thus removing the risk around transportable moisture levels ("TML") in the current A32 product.

This modification, which is expected to cost under $10m, will increase the throughput of the plant, mitigate the material handling constraints associated with wet season operations, and will also enhance revenue per tonne for this tonnage by circa 10-15%.

Stockyard

The additional 580,000t capacity stockyard, with stacker/reclaimer and stacker is expected to be handed over from the construction and commissioning team to the operation team by the end of September. With this stockyard operational, Pepel stockpile capacity will be circa 1Mt.

Rail Upgrade Programme

The 74km of lighter rail closest to the port has now been completely replaced and handed over to operations, with ballasting, tamping and welding remaining, which are expected to be fully completed by year end.

Once the remaining work has been completed, the rail will be capable of supporting average speeds of in excess of 50kph with axle loads of 25 tonnes per axle, allowing shorter cycle times with 25-30% heavier wagons loads.

Locos and Wagons delivery programme

The original complement of 20 locos and 456 wagons has been expanded to 34 locos and 1056 wagons. The first 2 additional General Electric locos are in transit from RRL Grindrod, and the balance is expected to be delivered on a regular basis ending in December 2012. The first 120 additional wagons have been received from CRM / CSR Yangtze with the remainder scheduled for delivery regularly over the remainder of the year and in to the early part of 2013.

Third trans-shipping vessel

The MV Nelvana and its associated complement of tugs are expected on site during Q4, following inspection in dry dock.

Train in-loading

The wagon dumping capacity has already been increased from 3,000tph to 4,500tph, and this will be supplemented by an additional high speed dumper capable of receiving 6,000tph. This will be completed in Q1 2013. A rail loop will be constructed to encircle the stockpiles and increase flexibility, with an expected completion in Q4 2012.

Financial Review

Financial result HY 2012

The Group generated an operating loss for the period of $140.5m, which principally consisted of transaction costs and other professional fees ($86.9m) including costs in relation to the Shandong Iron and Steel Group transaction, loss on de-recognition of borrowings ($21.1m), fuel misappropriation ($18.0m) which represents management's best estimate for fuel theft which was previously capitalised within assets under construction and employee costs ($8.0m). Management has taken a number of measures to mitigate the risk of further such losses occurring.

As the Group's infrastructure and mining assets were still undergoing commissioning at the period end, iron ore sales have been credited to assets under construction and commissioning and other associated costs have been capitalised.

The Group recognised a fair value gain on financial instruments of $53.1m, being the movement recorded through the income statement on revaluation of SISG non-controlling interest put option.

A put option exists in the SISG agreement whereby SISG can sell back their 25% interest in the project companies at fair value, in the event Frank Timis (Executive Chairman) is no longer a director of the Group. Under IFRS, equity is defined as where the Group has the unconditional right to avoid cash payments, regardless of probability of the condition. Consequently 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 other comprehensive loss of $20.5m resulted from fair value reductions in the Group's listed investments, the main components of which were in respect of Cape Lambert Resources ($18.7m) and Obtala Resources Plc ($2.6m), offset by a $0.8m deferred tax credit.

Total comprehensive loss for the period amounted to $106.7m.

Balance sheet

Assets under construction and property, plant and equipment increased by $380m since December 2011 to $1,886m, resulting from expenditure on the Tonkolili mine, the construction and reconstruction of the new and existing rail and the construction and upgrade of the Pepel port facility.

As at 30 June 2012 the Group had total cash and cash equivalents of $1,165m. $1,017m of the total relates to funds received from the SISG transaction, which can only be used to fund expansion capital costs. $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 fair value on the balance sheet of $542.7m. The $18.1m fair value borrowings decrease from December 2011 is principally due to $392.5m repayment of secured loan facility offset by $352.5m convertible bond issue and $24m asset financing drawdown. Under IFRS fair value of the $400m Bond has been recorded as: liability $352.5m, equity $52.9m plus $16m interest less $10.6m issue costs.

Equity decreased by $43.6m during the period to $938.6m. This movement is principally comprised of $86.2m increase in accumulated deficit, $20.5m decrease in fair value equity reserves, offset by an increase of $56.7m in equity reserves.

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

Equity reserves increased by $56.7m, due to $52.5m from the convertible bond issue, $10.6m from warrants issued for the secured facility refinancing, $2.7m from a share based payment credit for the period, offset by $3.7m decrease from a share based payment equity transfer to share premium.

The non-controlling interest put option liability of $941.4m 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 leaves the Group and SISG exercises its option to sell back their interest.

An amount of $505.6m was recognised as deferred income as at 30 June 2012 for a discounted off-take agreement with SISG for the purchase of iron ore. The amount recognised at the balance sheet date represents the present value of the iron ore off-take discount that SISG will receive under the agreement. The discount rate used in the valuation is 12.5%. 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.

As at 30 June 2012 the Group recognised a non-controlling equity interest for $137.5m 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. At December 2011 ARPS was in net liability position and therefore no non-controlling interest was recognised.

Provisions of $90.5m include amounts for legal disputes as well as provision being recognised from an inability to fulfil several off-take contracts against which the Group has made a provision.

A warranty exists within the agreement with SISG which stipulates that the Group will produce at least 10 Mtpa in 2012. A revision to the timing and duration of the ramp up profile in August 2012 led the Group to adjust the guidance for the year to between 5 and 6 Mtpa. Production at this level would be a breach of this warranty at the end of the year.

To the extent that a liability may exist, management intends to negotiate a commercial settlement although it is not presently practicable to arrive at a reliable estimate of the financial effect.

Taxation

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

DIRECTORS' RESPONSIBILITY STATEMENTS

The Interim Report is the responsibility of, and has been approved by, the Directors.

We confirm that to the best of our knowledge:

- the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

- the Interim Report includes a fair review of the important events during the first six months; and

- the Interim Report includes a fair review of disclosure of related party transactions and changes therein.

The Directors are also responsible for the maintenance and integrity of the African Minerals Limited website.

For and on behalf of the Board

Miguel Perry

Chief Financial Officer

INDEPENDENT REVIEW REPORT

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the Interim Report for the 6 months ended 30 June 2012 which comprises Interim Consolidated Statement of Comprehensive Income, Interim Consolidated Statement of Financial Position, Interim Consolidated Statement of Cash Flow, Interim Consolidated Statement of Changes in Equity, and related notes 1 to 13. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with International Accounting Standards 34, "Interim Financial Reporting," as adopted by the European Union.

As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this Interim Report has been prepared in accordance with International Accounting Standards 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report for the 6 months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.

Emphasis of matter

In forming our opinion on the condensed set of financial statements, we have considered the adequacy of the disclosure made in note 2 to the condensed set of financial statements concerning the Group's ability to continue as a going concern. The conditions as explained in note 2 to the condensed set of financial statements indicate the existence of material uncertainties which may cast significant doubt about the Company's ability to continue as a going concern. The condensed set of financial statements does not include the adjustments that would result if the Company was unable to continue as a going concern.

Ernst & Young LLP

London

10 September 2012

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

INTERIM CONSOLIDATED STATEMENT OF CASH FLOW

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the financial year 2011, six months ended 30 June 2012 and six months ended 30 June 2011

AFRICAN MINERALS LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION AND CHANGES TO THE GROUP'S ACCOUNTING POLICIES

Basis of preparation

The unaudited condensed set of financial statements for the six months ended 30 June 2012 has been prepared in accordance with International Accounting Standard ('IAS') 34 Interim Financial Reporting. The unaudited condensed set of financial statements does not include all of the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements.

The unaudited condensed set of financial statements for the six months ended 30 June 2012 do not constitute statutory accounts and have been drawn up using accounting policies and presentation consistent with those applied in the audited accounts for the year ended 31 December 2011.

The financial information for the year ended 31 December 2011 has been extracted from the statutory accounts for that period. The auditor's report for the year ended 31 December 2011 was unqualified.

Going concern

Refer to Note 2.

Changes in accounting policies

The accounting policies adopted in the preparation of the unaudited condensed set of financial statements is consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2011, except for the adoption of the following new amendment to existing standards as of 1 January 2012:

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

- IFRS 7 - Disclosures - Transfers of financial assets (Amendment)

- IFRS 1 - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (Amendment)

The adoption of these amendments has no impact on Group earnings or equity in the current or prior periods.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs, and subsequently carried at amortised using the effective interest method. The convertible bond is calculated in two components, a liability, which is valued at the present value of future interest payments and principal using an effective interest rate of 12.5%, and an equity component, which is the residual amount to the $400m of funds received.

The $417.7m Secured Loan Facility (note 9) was repaid in February 2012, prior to its anniversary date. Only borrowing costs that are directly attributable to the construction of a qualifying asset can be capitalised. The loss on derecognition relating to early repayment of the $417.7m Secured Loan Facility, from a management decision for refinancing, does not qualify for capitalising under IAS 23 and is expensed in the period in which it incurs.

Segment reporting

The Group is managed as a single operating segment which is developing a mine and related infrastructure in order to meet commercial production in the first quarter of 2013. 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 majority of the non-current assets are located in Sierra Leone.

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. The criteria used to assess the start date are determined based on the unique nature of each mine construction project, such as the complexity of the project and its location. 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.

By the end of period, the Group's iron ore infrastructure and mining assets in Sierra Leone were still undergoing commissioning. The mine was processing iron ore, and sales occurred throughout the period. The ore stockpile was held as inventory at the end of the period.

Commissioning costs are capitalised into assets under the 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 period for iron ore sales.

Reclassification

A reclassification of $195,747,000 from exploration and evaluation assets to assets under construction and property, plant and equipment has been made in the 30 June 2011 comparatives to be consistent with classification with the 2011 annual report.

2. GOING CONCERN

Whilst the Group has a significant cash balance on hand as at 30 June 2012, a significant portion of those funds are restricted in its use for the funding of capital expenditure. A portion of those restricted funds has been used to fund Phase 1 construction and Management expect to draw down an additional $120m to complete Phase 1 construction with the balance being available for Phase 2 construction.

In the past two months there have been delays to completion and subsequent ramp up of the Wet Process Plant and rail upgrade programme as well as moisture issues experienced during the wet season which have limited the volume of All-in-32 shipments. The impact as announced in our Project Update on 24 August 2012, is that the ramp up to full production will be later than previously forecast.

To fund completion of Phase 1 and the working capital requirement during the ramp up period, Management intends to use $120m of restricted funds, extend the existing equipment financing facility by $80m and secure an additional short term working capital facility of $100 - $150m at the subsidiary level.

The Group is also negotiating a waiver from Standard Bank for debt covenants breached on the $100m Standby Facility in the period as well as forecast to be breached in the next six months.

In the event the Group is unable to ramp up production to a forecast level of 20 Mtpa by Q2 2013 or the cost to complete is significantly higher than those forecast, it may have to seek additional sources of financing.

The Directors having reviewed the cash flow forecast for the period ending 31 December 2013 have concluded that the steps to secure the funding discussed above represent material uncertainties that may cast significant doubt over the Group's ability to continue as a going concern. Nevertheless, the Directors after making enquiries and considering these material uncertainties are confident that the Group will continue to have adequate resources to continue in operation for the foreseeable future. For this reason, the condensed financial statements of the Group have been prepared on a going concern basis.

Accordingly, these condensed 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

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. Management have taken a number of measures to mitigate the risk of further such losses occurring.

4. LOSS PER SHARE

Basic earnings/loss per share is calculated by dividing the profit/loss attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year. Although the company has outstanding share options, warrants and performance share awards that could result in further common shares being issued, these are not taken into account in computing diluted loss per share as they are antidilutive.

During the six months to 30 June 2012:

Share Options

983,336 new common shares were issued for consideration of $1,070,000 on the exercise of share options.

Warrants

250,000 new common shares were issued for consideration of $1,724,000 on the exercise of share warrants.

Total

1,233,336 shares were issued for consideration of $2,794,000.

5. CASH AND CASH EQUIVALENTS

$1,041,813,000 of the $1,164,571,000 total cash and cash equivalents balance is restricted as at 30 June 2012. $1,016,813,000 of the total relates to funds received from the Shandong Iron and Steel Group transaction, which can only be used to fund capital projects. The remaining $25,000,000 of restricted cash relates to funds held in escrow in relation to a dispute with lendors regarding a fee for the early repayment of the secured loan facility.

6. NON-CONTROLLING EQUITY INTEREST

As at 30 June 2012 the Group recognised a non-controlling equity interest for $137,496,000 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. At December 2011 ARPS was in net liability position and therefore no non-controlling interest was recognised.

7. ASSETS UNDER CONSTRUCTION AND PROPERTY, PLANT AND EQUIPMENT

During the six months ended 30 June 2012, the Group acquired property, plant and equipment with a cost of $379,667,000 (30 June 2011: $433,641,000; 31 December 2011: $1,052,719,000). There were no disposals of property, plant and equipment (30 June 2011: $nil; 31 December 2011: $438,000).

8. TAXATION

Deferred Taxation

With the Tonkolili mine in a commissioning phase and with production starting in Q1 2013, the Group has confidence of their ability to generate taxable profits against brought forward tax losses. Consequently a net deferred tax asset as at 30 June 2012 of $37,207,000 is recognised. This is comprised of deferred tax asset of $267,713,000 and deferred tax liability of $230,506,000.

The Group has unrecognised deferred tax assets of approximately $10,350,000 in respect of tax losses that are available indefinitely for offset against future taxable profits and $14,830,000 in respect of short term timing differences. The Group also has an unrecognised deferred tax asset of $2,600,000 in relation to future deductions available in relation to employee share schemes.

Taxation rates

The Sierra Leone rate of corporation tax applicable to the Group's activities is 25% and has not changed in the period.

Provisions to reduce the rate of UK corporation tax to 24% with effect from 1 April 2012 were substantively enacted in March 2012 under the Provisional Collection of Taxes Act 1968.

The UK government has announced that it intends to further reduce the rate of corporation tax to 22% from 1 April 2014. As this legislation was not substantively enacted by 30 June 2012, the impact of the anticipated rate change is not reflected in the tax provisions reported in this interim report.

9. BORROWINGS

Convertible bond

On 31 January 2012 the Group announced the pricing of US$350 million of convertible bonds.

The bonds were settled and closed on 9 February 2012. If not converted or previously redeemed the bonds will be redeemed at par at maturity 5 years from the closing date (9 February 2017). The Group will have the option to call the Bonds at 110% of par at 3 years after the closing date (9 February 2015). In addition, the Group has the right to redeem the bonds if at any time the aggregate principal amount of the bonds outstanding is equal to or less than 15% of the aggregate principal amount of the bonds initially issued.

The principal terms of the facility are as follows:

- 5 year term

- A rate of effective interest rate of 12.62%, including issue fees.

- Coupon payable semi-annually in arrears and will be converted into fully paid ordinary shares of the

Group

- Conversion price GBP £7.00 equivalent to USD $10.98 converted into US$ at the GBP:USD exchange rate as of 30 January 2012.

Based on the issue size of US$350m, the ordinary shares to be issued upon conversion of the Bonds would represent 31,876,138 ordinary shares and at the time of pricing this corresponded to 9.7% of the current total number of issued and outstanding ordinary shares of the Group. In addition, the Group offered China Railway Materials Commercial Corporation (CRM) the right to subscribe to ordinary shares in accordance with their right to preserve their 12.5% shareholding. The Board of CRM confirmed acceptance of this offer and an additional $50m worth of bonds were subscribed to with the same conditions as the existing $350m.

The fair value of the equity component of this issue was $52.9m.

Secured loan facility repayment and refinancing

In 2011 the Group closed a secured a $417.7m non-revolving credit facility "417.7m Secured Loan Facility". On 31 January 2012 the Group announced that The Standard Bank of South Africa Limited (Standard Bank) approved a refinancing package for $518m in order to redeem the existing $417.7m Secured Loan Facility prior to its anniversary date and continue the existing $100m Standard Bank Standby Facility. The refinancing had been concluded on improved and less restrictive terms than the facilities that it has replaced.

On 9 February 2012 the Group announced that it had repaid the $417.7m Secured Loan Facility with the new financing package provided by Standard Bank. $21,133,000 loss on derecognition of borrowings has been recognised in the statement of comprehensive income.

The $417.7m available under the new facility agreement was been completely drawn down to redeem the previous secured loan facility in full, at par.

Principal terms of the agreement are as follows:

- 9 month term (full repayment at end of term)

- An interest rate of Libor plus 7.5% per annum and a commitment fee

- Secured over the principal assets of the Group

Under the agreement, commitment fees are payable in warrants convertible into new common shares in the Company at 515 pence per share. 1,985,000 warrants were issued to Standard Bank with a 3 year tenure.

On 2 April 2012 this facility was repaid following the investment of $1.5 billion from Shandong Iron and Steel Group (SISG).

Standby facility

This facility was arranged in 2011 and refinanced on 9 February 2012 (see refinancing section above). As at 30 June 2012, the facility is fully drawn down.

Borrowing costs of $5,278,000 have been capitalised and transferred to assets under construction based on an effective interest rate of 10.7% (incorporating transaction fees).

As at 30 June 2012, the Standby facility was in breach of a debt service cover ratio covenant, as such the full loan has been classified as current. For comparability purposes, the amount that was classified as non-current at 31 December 2011 has been re-classified as current.

Asset financing facility

This facility was arranged in 2011 and was increased to $96.5m in March 2012 from $92.5m when is it was originally signed in September 2011. The increase to the facility meant that it had a draw down total of $95m.

As at 30 June 2012 the facility was fully drawn down.

During the period borrowing costs of $3,861,000 have been capitalised and transferred to assets under construction based on an effective interest rate of 7% (incorporating transaction fees).

10. NON-CONTROLLING INTEREST PUT OPTION AND DEFERRED INCOME

On 30 March 2012, following receipt of all PRC approvals, SISG completed its $1.5bn acquisition of a 25% shareholding in the mine, rail and port and power subsidiaries comprising the Tonkolili iron ore project, for a cash consideration of $1.5bn.

Deferred income

Under the agreement completed on 30 March 2012 with SISG a discounted offtake agreement exists for the purchase of iron ore, specifically: volumes of 2 Mtpa of Phase I production, increasing to 10 Mtpa following completion of Phase II, with discounts ranging from 0% to 15%, depending on the benchmark FOB iron ore price. The amount recognised at the balance sheet date represents the present value of the iron ore offtake discount that SISG will receive under the agreement. The discount rate used in valuation is 12.5%. 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 offtake volumes.

Non-controlling interest put option

A put option exists in the agreement whereby SISG can sell back their 25% interest in the project companies (as mentioned above) at fair value, in the event Frank Timis (Executive Chairman) is no longer a director of the Group.

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 (where the Group cannot avoid payment if Frank Timis leaves) and determined that IAS 32 takes precedence: on this basis, the shares held by SISG are not recognised as non-controlling interest within equity and the put option is accounted for as a financial liability under IAS 39.

The liability recognised is management's best estimate of the amount of the fair value that would be payable to SISG in the unlikely event Frank Timis leaves the Group and SISG exercises its option to sell back their interest.

The put option was valued at inception and is revalued at each reporting period to fair value. Any movement will be recorded through the Statement of Comprehensive Income.

Fair value gain on financial instruments

The fair value gain on the put option from 30 March 2012 to 30 June 2012 was $53,061,000.

11. PROVISIONS

The provisions balance includes amounts for legal disputes as well as amounts for the cancellation of off-take contracts resulting from the completion of the SISG transaction.

12. RELATED PARTY TRANSACTIONS