Response to Mandatory Offer

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY IN, INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN.

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.If you are in any doubt about the Offer or the action you should take, you are recommended to seek your own independent financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.

Sierra Rutile Limited ("Sierra Rutile" or the "Company")

Response to Mandatory Offer

14 September 2011

Dear Shareholder,

Pala Minerals Limited, a wholly-owned subsidiary of Pala Investments Holdings Limited ("Pala"), has made an offer for the Company of 25 pence per share in cash (the "Offer"), which is a mandatory offer as required under article 28 of Sierra Rutile's Articles of Association ("Article 28") as a result of Pala's acquisition of 1,725,000 Sierra Rutile Shares representing approximately 0.35 per cent. of Sierra Rutile's issued shares on 6th September 2011.

Article 28 states that if any person who, together with persons acting in concert with him, holds interests in Sierra Rutile Shares representing not less than 30 per cent., but not more than 50 per cent., of the voting rights of Sierra Rutile and such person, or any person acting in concert with him, acquires an interest in additional Sierra Rutile Shares and thereby increases his percentage interest in such voting rights, that person is required to make an offer to all Sierra Rutile Shareholders.

Pala has therefore triggered the obligation under Article 28 for a mandatory cash offer to be made to all Sierra Rutile Shareholders for the Sierra Rutile Shares not already held by the Pala Group at a price of 25 pence per Sierra Rutile Share in cash, being a price not less than the highest price paid for the Sierra Rutile Shares by the Pala Group in the 12 months prior to the announcement of such mandatory offer.

As announced on 7th September, the board has formed an independent Sub-Committee of the Company's Board ("the Sub-Committee or the "Independent Directors") comprising John Sisay, François Colette, Charles Entrekin and Alex Kamara, who has been appointed its Chairman to consider the Offer.

The Independent Directors note that the Offer represents a premium of approximately 18 per cent. over the closing middle market price of 21.25 pence per Sierra Rutile Share on 6 September 2011, the business day immediately prior to the date of announcement of the Offer, and a premium of approximately 26 per cent. based on the previous 20-day volume weighted average price.

The Independent Directors, who have been so advised by Collins Stewart Europe Limited, do not consider it appropriate to recommend the Offer to the Shareholders given that it undervalues the future prospects of the Company. In providing advice to the Independent Directors, Collins Stewart Europe Limited has taken into account their commercial assessments.

However, in making their own assessments Shareholders should take into account the risk factors which exist in an investment of this nature, which include country and operating risk, and investing in a company with limited liquidity in its shares. Shareholders should therefore carefully consider the above mentioned factors and their own personal specific risk appetite and circumstances in assessing the Offer.

Full details of the Company including the Interim Report published on 5th September and the Annual Report and Accounts for the year ended December 2010, which contain risk factors in relation to the Company, can be found on the Company's Website at www.sierra-rutile.com.

The Sub-Committee would like to stress that whilst it believes the offer by Pala undervalues the future prospects of the Company, its relationship with Pala remains strong and the board of the Company as a whole continues to have a shared common view on the strategy for the Company going forward. To this end, the Sub-Committee was encouraged by the statement contained within Pala's mandatory offer announcement that subject to it not applying the provisions of Article 28.7 of the Company's articles of association to acquire compulsorily any outstanding Sierra Rutile Shares, it did not intend that it would procure that any changes were made to the Board of Sierra Rutile or that any material amendments would be made to Sierra Rutile's articles of association. The Sub-Committee look forward to continuing to work with Pala going forward with a view to realising the value that both parties believe exists within the Company.

Yours faithfully,

Alex Kamara

Non-Executive Director

For further information:

Sierra Rutile Limited

John Sisay, Chief Executive Officer

Telephone: +44 (0) 20 7321 0000

www.sierra-rutile.com

Collins Stewart Europe Limited

Financial Adviser John Prior/Adam Miller

Telephone: +44 (0) 20 7523 8350

Aura Financial

Michael Oke/Andy Mills

Telephone: +44 (0) 20 7321 0000

Overseas jurisdictions

The availability of the Offer in, and the release, publication or distribution of this announcement in or into, jurisdictions other than the United Kingdom may be restricted by law. In particular, as described in the Offer announcement, the Offer will not be made directly or indirectly into the United States, Canada, Australia or Japan. Therefore persons into whose possession this announcement comes who are not resident in the United Kingdom should inform themselves about, and observe, any applicable restrictions. Sierra Rutile Shareholders who are in any doubt regarding such matters should consult an appropriate independent adviser in the relevant jurisdiction without delay. Any failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction.

The Offer will not be made, directly or indirectly, in or into, or by the use of the mails or any means of instrumentality (including, without limitation, telephonically or electronically) of interstate or foreign commerce of, or any facilities of a national securities exchange of the United States, Canada, Australia or Japan. Accordingly, except as required by applicable law, copies of this announcement are not being, and may not be, mailed or otherwise forwarded, distributed or sent in, into or from the United States, Canada, Australia or Japan. Persons receiving this announcement (including without limitation nominees, trustees or custodians) must not forward, distribute or send it into the United States, Canada, Australia or Japan.