bushveld minerals initiation v4 cm€¦ · south africa did not hold its first universal,...

Bushveld Minerals SPECULATIVE BUY

Initiating Coverage

Mining 27 February 2012

Iron and tin in South Africa

Investment case

We are initiating our coverage of Bushveld Minerals with a SPECULATIVE BUYSPECULATIVE BUYSPECULATIVE BUYSPECULATIVE BUY

recommendation. Bushveld Minerals has licences over the Mokopane VTM and

Mokopane tin projects in the Bushveld district of South Africa.

The experienced team has accumulated some exciting prospects with huge

potential. The Mokopane iron deposit constitutes a JORC compliant resource of

634 Mt at 33% Fe, 11.2% TiO2 and 0.3% V

2O

5 of which 76% is in the Indicated

category. The deposit is also located within a prolific mining district which

boasts extensive infrastructure, a rare thing for a junior iron ore explorer.

There is plenty of upside in the iron story, with only approximately 4 km of a

known 12 km strike length being drilled and defined as a resource. The titanium

content, inherent in the iron ore is also a possible metal credit although

metallurgical test work is required to confirm this.

We believe that the value of this company will increase rapidly as it de-risks its

project with additional engineering studies and delineates more ore along the

strike of its iron ore project.

This document was produced by Fox Davies Capital, a trading name of Fox Davies Capital Limited (“FDC”), 1 Tudor

Street, London, EC4Y 0AH. FDC is authorised and regulated by the Financial Services Authority (“the FSA”). This

document is not independent and should not be relied on as an impartial or objective assessment of its subject matter.

Given the foregoing this document is deemed to be a marketing communication and as such has not been prepared in

accordance with legal requirements designed to promote the independence of investment research and FDC is not

subject to any prohibition on dealing ahead of the dissemination of this document as it would be if it were independent

investment research.

Company Description

Bushveld Minerals is a junior iron ore

and tin explorer with a 74% interest in

the Mokopane VTM project and the

Mokopane tin projects near

Johannesburg, South Africa. The

company’s near future focus is to

continue to explore the iron asset with

a view towards advancing it to

production.

Analysts

Juan AlvarezJuan AlvarezJuan AlvarezJuan Alvarez Tel: +44 (0) 20 3 463 5035 Email: [email protected] Peter RosePeter RosePeter RosePeter Rose Tel: +44 (0) 20 3 463 5034 Email: [email protected]

Bushveld Minerals 27 February 2012

p1

Table of Contents

Executive summary................................................................................................................................................................................. 2

Background ............................................................................................................................................................................................ 3

South Africa ..................................................................................................................................................................... 4

Commodity outlook......................................................................................................................................................... 6

Mokopane VTM Project ....................................................................................................................................................................... 17

Background ................................................................................................................................................................... 17

Geology ......................................................................................................................................................................... 17

Exploration .................................................................................................................................................................... 20

Exploration upside......................................................................................................................................................... 23

Metallurgical test work .................................................................................................................................................. 24

Marketing and product sales ......................................................................................................................................... 25

Infrastructure ................................................................................................................................................................. 25

Future work programme ................................................................................................................................................ 26

Mokopane Tin Project .......................................................................................................................................................................... 28

Background ................................................................................................................................................................... 28

Geology ......................................................................................................................................................................... 29

Mining and exploration history ...................................................................................................................................... 30

Exploration potential ..................................................................................................................................................... 32

Mining and Processing .................................................................................................................................................. 33

Valuation .............................................................................................................................................................................................. 34

Risks ..................................................................................................................................................................................................... 39

Corporate Structure & Shareholders .................................................................................................................................................... 41

Directors............................................................................................................................................................................................... 42

Research Disclosures ............................................................................................................................................................................ 43


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Executive summary

What does Bushveld Minerals have?

Bushveld Minerals primary asset is the Mokopane VTM Project located approximately 260 km north of the mining centre of

Johannesburg. The company has recently completed a 15 hole, 4100 m drilling programme on the asset which defined a JORC

compliant resource on the VTM ore body totalling 634 Mt at 33% Fe, 11.2% TiO2 and 0.3% V

2O

5 of which 76% is in the Indicated

category. It must be noted that only 341 Mt of this is at a depth that we believe will be economic under current conditions. The

company also has exploration licences over the Mokopane tin deposit located to the SW of the Mokopane project. A 2011 drilling

campaign verified the historical drilling and a JORC compliant resource of 4 Mt at 0.15% Sn has recently been defined.

Blockbuster management team

Perhaps the most promising feature of this story is the quality of the technical team. The Viljoen brothers are very well known and

respected in the South African mining industry. The management team, which includes Professors Richard and Morris Viljoen, have

a proven track record of successful target generation and development of projects including the discovery of the Akanani Platinum

project which was sold to Lonmin for US$444 M after a spend of US$5 M over 24 months. The Viljoen brothers were also involved

with UraMin at the early stages of those companies’ history, helping to generate the deposits which made it a successful mining

house.

What are VTMs?

Vanadium titano-magnetites or VTMs are a type of magnetite that contains vanadium and titanium oxides in addition to iron.

Bushveld Minerals hope to produce a vanadium rich iron ore concentrate which can be used in the production of iron metal with a

vanadium and titanium bearing slag by-product. Metallurgical studies are still to be done to determine the grades of the iron

concentrate and whether the by-products can be extracted commercially.

Is infrastructure a problem?

Iron ore plays are as much about the access to infrastructure as they are about the deposit. Bushveld Minerals’ projects are located

within the Bushveld Complex, the heart of South Africa’s mining industry and therefore benefits from the mining infrastructure at its

door step. The area is serviced by existing rail infrastructure, linking the coal mines of the region to the numerous ports on the east

coast although bottlenecks in the rail infrastructure means that access can be limited. The closest railway link to the VTM project is

at Mokopane, only 45 km away.

What is the upside?

The ore below 200 m depth could prove to be mineable once it has been considered in a full economic study. This would add an

additional 290 Mt to the resource. Upside also exists in the multi element nature of the deposit. The production of an iron

concentrate from this type of ore is well known technology, however the titanium has never been successfully separated

commercially. There is also a significant phosphorous enrichment layer in the form of apatite which occurs immediately above the

P-Q Zone and could become of economic significance. The company also intends to acquire additional farms adjacent to the

existing project area, over an additional strike length of approximately 10 km which could triple, or more, the current resource.

What are the risks?

We see metallurgy and sales to market as the key risks to the project. Both of these studies still need to be undertaken by Bushveld

Minerals and will determine the commercial viability of the project. The production of an iron concentrate uses well known

technology but it is unknown at this stage what iron grades will be achieved in the concentrate. The production of a vanadium and

titanium by product is also possible titanium has never been extracted commercially from this ore type before. The domestic

market for iron and vanadium is slowing, therefore international markets may be the most likely destination for the ore. This would

incur additional transport costs for what is essentially a low value per unit product.

Valuation

Because of the early stage nature of the projects we have not constructed a DCF model for the project. Instead we have compared

the EV per tonne of metal of the resource based on a selection of comparable companies. The average EV per tonne of metal in

the ground for the company’ peer group in US$1.28 and US$559.4 for iron and tin respectively. We have also considered how the

value of the company can increase as it increases its resources and de-risks the project and believe there is potential to double or

triple the value as engineering studies are completed and extra resources defined.


p3

Background

Bushveld Minerals’ primary asset is the Mokopane VTM Project located approximately 65 km west of the town of Polokwane in the

Mokopane District, South Africa. It also has exploration licences over the Mokopane tin deposit located SW of the Mokopane

project. The location of the two projects is shown in Exhibit 1.

Exhibit 1: Location of the licences delineated in red

Source: Bushveld Minerals


p4

South Africa

The Republic of South Africa is divided into nine provinces, with 2798 kilometres of coastline. It is a multi-ethnic and culturally

diverse country, but its recent history is tainted by the system of apartheid and inequality that persisted into the 1990s, despite

political and civil campaigning and protest. It was only in 1990 that the ruling National Party government took the first step towards

dismantling discrimination when it lifted the ban on the African National Congress (“ANC”) and other political organisations. South

Africa did not hold its first universal, post-apartheid elections until 1994, which the ANC won by an overwhelming majority. It has

been in power ever since.

The political transition in South African in the 1990s also stimulated a transition in economic policies, which needed to achieve

economic growth and address socioeconomic imbalances. During this ongoing period of transition, the South African government

has demonstrated a commitment to open markets, privatisation and a welcoming investment environment.

There has been some success: South Africa is ranked as an upper-middle income economy by the World Bank, with a well-

developed and productive formal sector based on mining, manufacturing, services and agriculture. Agriculture contributes 2% to

GDP, industry contributes 30.8%, and services account for 66.7% of GDP. South Africa has established lucrative export partnerships

with China, the U.S., Germany and Japan, with China qualifying as their largest export market since 2009, and the outlook on

private consumption remains positive. However, the legacy of apartheid is still apparent in terms of both social problems and

economic inequalities. Unemployment is persistently high and the wealth gap is wide and still broadly split along racial lines.

Recent economic developments have seen GDP grow between 2004 and 2007 at an average rate of 5%, but fall to 3.7% in 2008 and

contract further in 2009 because of higher interest rates, weakening commodity prices and the impact of the global financial crisis.

There has been a moderate recovery in GDP growth since 2010 but this figure would have to push past 6 % to offset high

unemployment, which stood at 25.7% in July 2011. Recent data suggest that an economic slowdown is on the cards for 2012.

Although the domestic trade and services industries are expected to remain resilient and positive, with consumers benefitting from

growing disposable income and low interest rates, external economic factors are impacting other supply side sectors. South Africa

saw GDP growth come in at a lower than expected 1.4% in Q3 2011, and forecasts for 2012 are down from estimates in 2011.

Diminishing foreign demand and investment, particularly if the poor outlook for growth persists in the Eurozone and China and

investors become particularly sensitive to South African political risk with ANC elections due in December 2012, is impacting output

in mining and manufacturing industries particularly. The third quarter of 2011 showed a sharp fall in mining (down by 17.4% quarter-

on-quarter) as well as a fall in manufacturing (down by 1.9% quarter-on-quarter).

The South African mining industry

South Africa possesses significant natural resources and mining has historically been a major driving force behind the country’s

economic development. These significant natural reserves span the full spectrum of mineral categories, namely precious metals

and minerals, energy minerals, non-ferrous metals and minerals, ferrous minerals and industrials minerals. South Africa is the world's

largest producer and exporter of platinum; is a significant producer of gold, iron ore, manganese, chrome, vanadium, and titanium;

and also exports a significant amount of coal. Coal accounts for the majority of the mining sector’s value. In terms of other

industries, the value-added processing of minerals to produce ferroalloys, stainless steels, and similar products is an important

growth area and the country's manufacturing sector is a world leader in several specialised products, including motor vehicles and

parts, railway rolling stock, synthetic fuels, and mining equipment and machinery. As these secondary and tertiary industries

develop, the relative contribution of mining to South Africa’s GDP has declined over the past ten years.

The South African mining sector was also badly hit by the global financial crisis in 2009, resulting in commodity price declines

Mining production fell by 6.6% and the value of mineral sales fell by 19.6% to R241.3-billion, although this still accounted for 31.7%

of South Africa's total merchandise exports.

Mineral sales did improve again post 2009, rising by 25% in 2010. This sales improvement was driven primarily by a 60% rise in iron

ore sales, a 91% rise in manganese sales and an 81% rise in chrome ore sales. Forecasts for growth in coal output and iron ore

output for 2012 are also respectable. However, South Africa has not experienced the same degree of growth as the international

mining community. In terms of exploration spending, despite having the world’s largest in situ value of mineral deposits, South

Africa only accounted for 1.4% of global exploration expenditure in 2010, according to the Metals Economics Group (“MEG”). As


p5

outlined above, the South African mining sector is one which is vulnerable to the impact of the European debt crisis and Chinese

slowdown on demand for commodities and exports. Therefore, the sector has particularly suffered through the second half of 2011.

Growth in mining is also found to be uneven across the different mining sectors, with gold reserves depleting and some weakness

in infrastructure; the sector faces increasing competition from mining expansion in Western Africa; and production of platinum and

coal has been affected by recent National Union of Metal workers and mine workers’ strikes.

A recent trend in the South African mining industry has been in the support for a stronger junior mining sector. New legislation in

2006, the Mining and Petroleum Resources Development Act, enforced a "use it or lose it" principle. This prompted unused mining

rights held by established mining groups but not used for years to be awarded to newly established junior companies. In the same

year, the Nedbank South Africa Junior Mining and Exploration Index was launched to track the performance of junior miners

operating in South Africa and raise the profile of the junior sector. The index reached a market capitalisation high of R130 M

(approximately US$18.3 million) on March 2008 and is now showing signs recovery since the global financial crisis.


p6

Commodity outlook

Vanadium titano-magnetite (“VTM”)

Vanadium titano-magnetites (“VTMs”) are a type of magnetite that contains vanadium (“V”) and titanium (“Ti”) oxides in addition

to iron. These types of ores are concentrated using magnetic or dense media separation (“DMS”) methods to produce an iron

concentrate rich in vanadium and titanium. If the vanadium content exceeds 1.5%, the iron ore concentrates can be used in the

production of pig iron metal with a vanadium-bearing slag by-product which can be processed into vanadium pentoxide (“V2O

5”)

for chemical applications or into ferrovanadium (“FeV”) for high strength steels. The remnant slag contains titanium concentrates

which can be successfully separated under laboratory conditions but has never before been achieved commercially. Major deposits

of this type are found primarily in China, Russia, New Zealand and South Africa.

VTMs can only be processed by specialised furnaces as the vanadium and titanium content is generally too high for use in

conventional steel-making operations. The presence of these other metals in the ore increases the cost of iron production by

somewhere between 50% and 100%. The ore produces large amounts of viscous slag, requiring frequent tapping of the furnace. To

recover the additional operating cost the slag is sometimes processed by the smelter operator, or by a third party, to recover the

vanadium. Due to the need for dedicated furnaces and the relatively small size of the market, in comparison to other types of iron

ore, vanadium-magnetite ore and products are typically sold on by way of an off-take agreement where price will be determined in

individual negotiations. The typical utilisation process of VTMs is shown in Exhibit 2.

Exhibit 2: Process routes and utilisation of VTMs

Source: Hatch


p7

The iron ore market

Hematite (“Fe2O

3”) and magnetite (“Fe

3O

4”) are the most commonly mined iron ores. Hematite ores are generally high grade

deposits, >60% Fe, and magnetite lower grade deposits, <30% Fe. Additionally, hematite ores are generally less compact and

therefore more easily excavated, requiring less processing in order to sell as an economic product. In comparison, magnetite ores

require a lengthier and more expensive separation and beneficiation process, generally involving crushing, screening and magnetic

separation. This disparity in mining requirements means hematite ores are often referred to as direct shipping ores (“DSO”)

because they can be almost immediately transported to customers after excavation. Whilst magnetite processing is more time-

consuming and cost intensive, it typically results in a product with fewer impurities. The differences in the ores also impact the

properties of the final shipped product. Hematite ores typically produce lump and fines after crushing and screening but the

additional beneficiation of magnetite decreases the grain size and gives a pellet feed or concentrate product.

Mining iron ore is a high volume, low margin business model, as the value of iron is significantly lower than other metals.

Operational costs lie not just in the mining out of the ground, but in infrastructure, transportation of the iron ore to market and the

disposal of the unwanted by-products. Therefore the value of different iron ores are determined by infrastructure and freight costs,

iron content and chemical impurities. Location and transportation infrastructure is often the most important of these factors

because free on board (“FOB”) contracts involve the mining company covering the cost of transporting the product to the shipping

station and storing and loading of the product before shipping.

Due to the highly capital intensive nature of the infrastructure requirements, iron ore production is concentrated in the hands of a

few major players- namely Vale, Rio Tinto and BHP Billiton. These companies control 90% of the known reserves of low cost, high

grade iron ore. The dominant iron ore producing countries are Australia, Brazil, China and India. These are expected to remain the

top iron ore producing countries until at least 2015.

Pure iron is a soft metal and has always traditionally been hardened by impurities such as carbon during smelting. Crude iron metal

is produced in blast furnaces, where ore is reduced by coke to cast iron, with a high carbon content; further refinement with oxygen

in order to reduce the carbon content produces steel. It currently stands that over 98% of iron ore is used in the steel industry.

Hence, iron ore market dynamics are dominated by steel production, in particular China’s output (Exhibit 3), more so than other raw

materials used in steel production which often also have significant other end-uses.

Exhibit 3: 2011 iron ore price and Chinese steel output

Source: World Steel Association, Bloomberg


p8

The Asian dominance in the iron ore seaborne market as a region is entrenched because of the strength of its steel industry. China

is now the leading market force, having overtaken Japanese crude steel output in 1997. Japan remains the world’s second largest

steelmaker. As its steel output grew, China initially retained its self-sufficiency in iron ore, but despite recording persistent increases

in run-of-mine output in iron ore production since 2002, its dependency on iron ore imports has consistently risen due to its low

grade domestic stock. This trend now means that, despite being one of the world’s top iron ore producers, China is also now the

largest importer, importing two thirds of global seaborne iron ore in 2010. Exhibit 4 demonstrates how China’s iron import

dependency has developed alongside its crude steel output. China’s growing position in the steel-making market has resulted in

iron ore emerging as one of the most sensitive indicators of China’s social and economic transformation and the iron ore pricing

structure has now evolved into one reflecting spot prices prevailing at key delivery points in China, rather than annual contract

prices determined by Japanese steel makers. Under annual contract pricing, the price of 62% Fe iron ore had remained around the

US$10-14/tonne for around 20 years, whereas the new systems signalled the large, controlling companies – BHP, Vale and Rio

Tinto- pushing for price hikes as high as 72%.

Exhibit 4: China’s iron ore import dependency and crude steel output

Source: Morgan Stanley Research

Chinese economic growth and record levels of steel output helped to propel iron ore prices close to $200/t in 2011, but concern

over China’s slowing growth precipitated a sharp fall in prices. Prices were also seen to fall in 2010 in response to the financial crisis.

Exhibit 5 shows iron ore price since December 2009. Recently, it is not just China where the outlook for steel production is slowing.

Although the Indian domestic sector has reassured outsiders that the steel demand will continue to grow at 8 to 10% for some

years to come, the World Steel Association (“WSA”) predicted growth of only 4.3% in 2011, rising to 7.9% in 2012.

However, these growth figures are not thought of as a permanent trend. The Chinese government is thought to have significant

economic firepower to stimulate the economy with reserves of more than $3 trillion and infrastructure projects that includes

36 million new housing units. India currently imports iron at levels seen in China 20 years ago, and if their imports follow the

trajectory of their population growth and/or China’s economic growth, India will secure future demand growth for iron ore. Exhibit 6

compares Indian and Chinese iron ore imports over the last 20 years and suggests the possible growth to be expected from India.


p9

0000

40404040

80808080

120120120120

160160160160

200200200200

Dec 09Dec 09Dec 09Dec 09 Jun 10Jun 10Jun 10Jun 10 Dec 10Dec 10Dec 10Dec 10 Jun 11Jun 11Jun 11Jun 11 Dec 11Dec 11Dec 11Dec 11

USD/t

This demand from India may become particularly important as, in the longer term, the Chinese government seeks to increase

domestic iron ore sourcing again and reduce import dependency. The government announced plans to increase domestic iron ore

supply to 45% in 2015 (from 32% in 2010) and the country is also expected to add more than 100 million tonnes (“Mt”) in iron ore

capacity abroad over the same time frame by encouraging its steel producers to invest in iron ore projects around the world.

Iron ore prices are predicted to remain in the US$150 to US$160 per tonne range for the first half of 2012, reflecting the low prices

seen in 2010, and then rise towards the end of the year. There are several factors expected to contribute to a spot price recovery in

the same way that since mid-2008, three >25% declines in price were followed by even more powerful price rises. Firstly, the current

fall in iron ore price reflects a price and inventory cycle of the Chinese steel mills. With current softening in demand in the Chinese

steel market and low prices affecting steelmaking margins, Chinese steel makers have been forced into reducing blast furnace

operating rates and inventory destocking. However, these de-stocking cycles, which serve to lower iron ore prices back in line with

steel price trends, have historically only lasted two to three months and are observed to precede increasing demand in iron ore

again after correction. Secondly, the turn of this cycle is forecast to coincide with a tightening of supply, with falling output in India

and Brazil and a constrained Chinese domestic supply as operations are impacted by the current price weakness.

In the longer term however, the supply side is expected to exert a downward pressure on price. The large mining companies such

as BHP Billiton and Rio Tinto are planning to increase production dramatically over the next decade, believing strongly in the

demand potential for iron ore, primarily from China. BHP and Rio’s output plans for their Pilbara operation alone are 750 Mtpa. This

is expected to result in high prices up until 2015 before this new supply comes online, followed by a balancing out of prices from

2016, although some commentators have predicted the price falling below $120/t before this. Due to their economies of scale, the

large companies have been building up their market share so that they can handle a price below the $120/t level. This is driving

high-cost producers out of the market. New developments in processing technology may also extend the productive lives of high-

grade iron ore projects by enabling lower-grade mineralisation to be converted to ore. This will contribute to greenfield

beneficiation projects struggling to compete and find a supply position against well-established, large players.

Exhibit 5: Iron Ore Price (China Import, Iron Ore Fines, 62% Fe)

Source: Bloomberg


p10

Exhibit 6: Chinese and Indian Iron Ore Imports since 1989

Source: Century Iron Mines

The vanadium market

Vanadium is a common and widely dispersed element and can occur in specific high grade vanadium ore bodies, as a minor

constituent in other ores including iron and uranium, and in fossil fuels such as oil sands. It is estimated that world resources of

vanadium exceed 63 Mt, although due to the fact that vanadium is usually recovered as a by-product, established world resources

of the element are not fully indicative of available supplies.

The largest source of vanadium is vanadium-bearing iron ore, such as the ones found in South Africa. Slag from the consumption of

iron ore for steel production varies from 10% to 25% contained V2O

5 which can be extracted during the smelting process used to

produce pig iron. Therefore as steel production increases, vanadium production also increases from the slag by product generated.

However, the principal use of vanadium is as an alloy in the production of high-strength steel. Therefore, the steel industry impacts

the vanadium market in two directions: growth in steel production results not just in increased vanadium consumption for alloying

purposes, but also an increase in vanadium generated from iron-ore production.

The leading vanadium-producing nations are China, Russia and South Africa, all of which extract the majority of their produced

vanadium from titaniferous magnetite ores, and Australia, extracting from its high grade vanadium ore bodies. Australia’s share of

the vanadium market is set to increase with the ramp up of the Windimurra project, which is expected to meet about 7% of world

demand. The growth in Chinese vanadium production now exceeds the previous largest producer, South Africa. Vanadium

production in 2010 increased by 5% to 56 000 t and most of this output increase was attributable to China with an increase of 10%

versus 2009, whilst South African production increased by 6%. Exhibit 7 illustrates the increasing Chinese proportion of the

vanadium production market. China’s current position in the vanadium supply market illustrates the two-way relationship vanadium

shares with steel. Although China’s own vanadium ore deposits are not especially rich, as their imports of iron ore increase with

steel output, so does their capacity for vanadium-bearing slag production.


p11

12000

14000

16000

18000

20000

22000

24000

2006 2007 2008 2009 2010 2011e

'000s mt'000s mt'000s mt'000s mt

Global Vanadium Production TrendsGlobal Vanadium Production TrendsGlobal Vanadium Production TrendsGlobal Vanadium Production Trends

Exhibit 7: Vanadium Production: China; Russia; South Africa

Source: USGS

Vanadium is traded and used in various forms but most prevalent are V2O

5 for chemical applications and FeV for alloy use. The

principal use of vanadium (over 87%) is as a steel alloy because of its hardening properties and resistance to corrosion. The

proportion of vanadium used in the steel determines the steel grade, with high vanadium content resulting in high performance, or

high end steel. Thus, the consumption of steel is the main driver of vanadium consumption and prices. When steel production

rebounded strongly after the 2008 financial crisis, vanadium consumption was forecast to increase, particularly boosted by growth

in Brazil, Russia, India and China, however, recent steel production outlook has been less optimistic due principally to recent

cooling of the Chinese economy. The WSA has reported that, whilst not declining, steel demand is predicted to grow by only 5.4%

in 2012, compared to a 15.1% demand growth figure in 2010. Though a less encouraging growth figure, this increased steel

demand still bodes well for vanadium because of the proportion of this growth originating in high performance steel, i.e. steel with

a high vanadium content. China, which accounts for nearly 40% of world steel production, is increasing its intensity of vanadium use

in steel to the levels of Western countries, which averages about 0.05kg of vanadium per tonne of steel, whereas previously Chinese

intensity of use was historically only about half of that. The other main vanadium use is in titanium alloys, which generally contain

about 5% vanadium, to make them stronger and lighter. Titanium alloys are used in critical aircraft and aerospace applications.

Vanadium pentoxide is also a key ingredient in the production of chemicals and synthetic-rubber.

The vanadium market is anticipating the impact of developments in both lithium-vanadium batteries as a replacement for

conventional lithium-cobalt batteries (specifically for electric automobiles), and Vanadium Redox Battery (“VRB”) technology for

grid-level power storage. Lithium-vanadium batteries are safer and more efficient that lithium-cobalt batteries and are in the

trialling phase in the automotive industry. VRB batteries are based on the reduction and oxidation of different forms of vanadium

and provide a 35 to 50 year battery life, room temperature and low pressure operating conditions, instant recharge/discharge time

and low maintenance costs. Proponents of VRB usage emphasise its potential to improve the competitiveness of renewable energy

power generation, but further technological refinements and concerted funding efforts are required to advance VRB into a mature,

large–scale market therefore this additional demand for the metal is not expected in the immediate future.

If the conventional, steel-driven demand for vanadium is considered alone, forecasts estimate an annual vanadium surplus in the

market of 3000 to 5000 t, however if the commercial use of VRBs and lithium-vanadium batteries does succeed in the coming years,

this demand combined with steel demand will introduce a market deficit. Whilst FeV and V2O

5 prices have historically exhibited


p12

0

10

20

30

40

50

Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12

US$/lbUS$/lbUS$/lbUS$/lb

Vanadium Price; Jan 2006Vanadium Price; Jan 2006Vanadium Price; Jan 2006Vanadium Price; Jan 2006----Jan 2012Jan 2012Jan 2012Jan 2012

volatility, forecasts suggest medium term appreciation in prices to around the US$40/kg (FeV) and US$20/kg (V2O

5) levels and if

market dynamics were to include demand from the battery industry, this would provide additional significant upside for the price of

V2O

5. Historical vanadium price is shown in Exhibit 8 and demonstrates the impact of the financial crisis and slowing steel demand in

2008 and 2009. Supply constraints in the producer countries led to a modest market recovery in 2010.

Exhibit 8: Vanadium price chart

Source: Bloomberg


p13

The titanium market

Rutile and ilmenite are currently the only naturally occurring titanium minerals with any economic importance. Rutile is the most

common form of TiO2 and due to its higher Ti content is the favoured titanium-containing raw material. Ilmenite is a titanium-iron

oxide mineral, (“FeTiO3“), and naturally lower in titanium grade. Titanium slag is another major source of the metal. When ilmenite

undergoes smelting and the contained iron oxide slag is reduced to metallic iron, a Ti rich slag material is left behind.

Ilmenite can also be upgraded to synthetic rutile. The Becher Process is a commercial process which converts ilmenite concentrates

to rutile-type substitutes. This involves heating and reducing the ilmenite to convert the iron oxide impurities to metallic iron, then

removing this iron by oxidation and leaching. This leaves a synthetic rutile product containing approximately 90% Ti although

natural rutile remains the higher grade product with approximately 95% Ti content. There are varying grades of synthetic rutile,

reflecting the removal of different portions of the residual non-titanium elements, but in general, it is marketed in the same way as

natural rutile and follows price trends of rutile at a 15% discount.

World production of titanium mineral concentrates is dominated by Australia, China, South African and Canada and just a handful

of production companies, such as Iluka and Kenmare, control approximately 90% of supply.

Ninety five per cent of titanium minerals concentrates is used to produce pigment. Ilmenite is converted via the sulphate process,

whilst rutile is converted via the chloride process. Titanium dioxide has a high refractive index and when enough titanium dioxide

pigment is used in a medium, almost all visible light will be reflected, giving the appearance of it being opaque, white and bright.

This refractive property means there are currently no major pigment substitutes. Titanium dioxide pigment is used extensively in

the manufacture of paints and coatings, plastics and paper and for other applications including inks, fibres, rubber, food, cosmetics

and pharmaceuticals. Plastics is the fastest growing sector, with its major application in the packaging industry.

Titanium metal is an important strategic metal where high strength-to weight ratio and corrosion resistance is required. In its

unalloyed form, titanium metal is as strong as steel but 45 % lighter. Commercial production of titanium metal involves chlorination

of the mineral concentrates and then reduction via the Kroll process to form the pure titanium metal, referred to as titanium sponge

because of its porous appearance. Titanium metal primarily goes on to be used in metal alloys, frequently alongside vanadium, with

end markets including aircraft, spacecraft and military equipment including missiles. The fastest growing of these sectors is

commercial aerospace and aircraft builders, who are highly dependent on titanium and have full order books for the next 6 years.

Titanium demand is underpinned by normalised growth in developed Western markets with high GDPs per capita, and the growth

in emerging markets such as India and China. Consumption of pigment and associated products is linked heavily with GDP growth

and consumer demand for non-essential items. This correlation is shown in Exhibit 9. Recently, the near-term demand outlook for

TiO2 has worsened due to slower growth in China, particularly a contraction in the housing sector. However, the medium term

forecast for this demand is strong. Even with a Chinese slow-down, consumption remains high, especially for high quality TiO2 such

as rutile. Importantly, supply remains tight. There is little prospect of significant new supply coming online within the next five years

and existing production capacity has been declining since 2007. Most new supply is also ilmenite-dominated rather than diversified.

Even moderate growth in demand from pigment producers will have to compete with the aerospace sector as titanium alloy

becomes an even more important component of newer aircrafts, with both industries relying on the same raw mined products. The

forecasted strength in Chinese demand partnered with the predicted tension between supply and demand has prompted mineral

sands producer Sierra Rutile Ltd to more than double its rutile prices for 2012 to US$2000 per tonne and abandon long-term pricing

contracts to take advantage of the medium term, upward pressure on prices from emerging markets. This is in marked contrast to

2010 when the company was facing cash costs of US$600 per tonne and prices averaging $540 per tonne. TZ Minerals International

(“TZMI”) has suggested a rutile price touching US$2500 per tonne towards the end of 2012. A peak in rutile prices should be

echoed by a peak in synthetic rutile prices, with a price high forecasted at around US$1700 per tonne in 2012. An ilmenite price

increase is also expected in the medium term, with forecasts in the range US$250 per tonne. Exhibit 10 shows the recent upward

pressure on rutile and ilmenite prices from the beginning to the end of 2011.


p14

0

200

400

600

800

1000

1200

1400

Aug 10 Dec 10 Apr 11 Aug 11 Dec 11

USD/tUSD/tUSD/tUSD/t

Recent Movements Recent Movements Recent Movements Recent Movements in Titanium Pricesin Titanium Pricesin Titanium Pricesin Titanium Prices

Titanium Ore(Rutile)

Titanium Ore(Ilmenite)

Exhibit 9: Link between pigment demand intensity and GDP

Source: Iluka

Exhibit 10: Titanium prices: rutile and ilmenite

Source: Bloomberg


p15

The tin market

Tin is a malleable, post-transition metal. It does not occur as a native element but must be extracted from its ores. Cassiterite, a tin

oxide mineral (“SnO2”) is the only commercially significant source of tin, although small quantities can be recovered from complex

sulfides too. Secondary, or scrap, tin is also an important source of the metal. The recovery of tin through secondary production or

recycling is increasing rapidly and exceeded 60 000 tonnes for the first time in 2010, representing over 15% of total produced

refined tin.

Tin is valued because of its high corrosion-resistance and low toxicity. These properties mean it is used for: steel tin plating,

especially for food containers; in combination with metals such as copper to produce alloys such as bronze and brass; and primarily

to make solder for electronic and industrial purposes. Prior to 2006 lead made up approximately 33% of solder production until it

began to be banned, creating an immediate 50% increase in the demand for tin solders. Exhibit 11 shows the breakdown of refined

tin use globally in 2009 and illustrates the dominance of solder applications.

Exhibit 11: Refined Tin End Use 2009

Source: ITRI

Tin is considered to be the one of the most overlooked metals in the commodity complex and the trend of strained supply seen

over the last couple of years is forecast to continue. World production of refined tin has been fairly stable around 350 000 tonnes

annually in recent years, dipping in 2008-2009 in line with the fall in world usage as a result of the global financial crisis. However

mine production, having peaked at some 325 000 tonnes in 2005, has been declining.

The major producers of tin, China and Indonesia, control about 65% of mined copper supply. Both reduced their output by over

8 % from 2010 to 2011. Some of Indonesia’s production difficulties lay in Government shutdown of illegal sites. The market now

runs at a 10 000 tonnes deficit, causing upward pressure on price. In response to higher tin prices in 2011, new tin mines and tin

smelters were opened and existing operations expanded in countries including Australia, Bolivia, and Thailand. However, the lower

production in the two key producing countries and the lack of significant planned production development are the main factors

dictating supply tightening.

On the demand side, recent trends in H2 2011 saw Chinese import demand strengthen and LME stocks fall. Still, prices slid slightly

despite the undersupply situation from around $11/lb in September 2011 to $9/lb in December 2011 in line with other commodity

prices reacting to the global economic situation. Exhibit 12 illustrates these recent inventory and price movements. The forecast is

for a recovery in 2012 however, although price forecasts have lowered nearly across the board. Barclays Capital are forecasting a

price around US$27 000 per tonne. In the long term, this will fall back below the US$20 000/t level in 2015. In terms of the longer


p16

term outlook for tin demand, in their market overview for 2011 to 2015, ITRI, the membership based organisation representing the

tin industry, highlighted possible risks to future usage in electronics solders and tin plating as miniaturisation, new assembly

technologies and lower coating weights could begin to compete. However, new potential applications in tin chemicals, energy-

related technologies such as lithium ion batteries and steel alloys could act to offset any redundancy in use and indeed result in a

net increase in tin consumption.

Exhibit 12: LME stockpiles and tin price

Source: Bloomberg


p17

Mokopane VTM Project Background

The Mokopane VTM project covers a total area of 7409 ha and is located in the central portion of the Northern Lobe of the

Bushveld Complex, approximately 45 km NNW of the town Mokopane, or approximately 260 km NNE of Johannesburg. It consists

of a group of four adjacent farms namely Vogelstruisfontein 765LR, Malokong 784LR, Vliegekraal 783LR and Vriesland 781LR

(Exhibit 13). The area is characterised by flat lying to gently sloping ground, punctuated by a series of northerly trending hills in the

east and the higher plateau of Bushveld granite to the west. FoxDavies personnel have not visited the project site.

Exhibit 13: Location of the four farms comprising the Mokopane project area

Source: MSA

Geology

The Mokopane project occurs within the Bushveld Complex (“BC”). The BC is the world’s largest layered complex and is known for

the remarkable geological and geochemical continuity of the magmatic stratigraphy. It can be separated into three main arcuate

areas referred to as the Eastern, Western and Northern Lobes. The BC is dated at 2055 Million years (“Ma”) and consists of a series

of interconnected intrusives comprising an ultramafic-mafic succession of layered rocks known as the Rustenburg Layered Suite

(“RLS”), quasi-contemporaneous granites (the Lebowa Granite Suite) and felsic extrusives (the Rooiberg Group). The RLS is

stratigraphically divided into five main units; the Marginal Zone, Lower Zone, Critical Zone, Main Zone and Upper Zone. The

deposit occurs within the Upper Zone of the RLS Units of the Northern Lobe (Exhibit 14).


p18

Northern Lobe

Eastern Lobe

Western Lobe

Project Area

Mokopane

28° E

Bela

Bela

Johannesbur

g

Pretori

a

Exhibit 14: Location of the project area in the Northern Lobe of the Bushveld Complex

Source: MSA

The mafic to ultramafic layers of the BC have undergone a differentiation process which has resulted in the formation of

magnesium, chromium, nickel and precious metal rich units in the lower part of the Complex with iron, titanium, vanadium and

phosphorus rich layers in the upper portion. Gentle tilting due to tectonic processes and subsequent erosion has caused the entire

stratigraphic sequence to be exposed on surface in the form of shallow westerly dipping units and layers.

The Upper Zone is approximately 1250 m thick and dips 15° to 25º to the west. It is characterised by the pervasive occurrence of

VTM, present in disseminated form in highly variable amounts (1% to >20%), and as semi-massive and massive layers (>90%) of

variable thicknesses. The geology of the Upper Zone consists of gabbronorite, gabbro, Ti-magnetite gabbro (ferro-gabbro), olivine-

diorite, ferro-diorite, anorthosite and minor norite and contains intervals of disseminated, semi-massive and massive VTM. The

rocks show remarkable continuity and individual layers can generally be traced along strike for tens of kilometres.

The Mokopane deposit is divided into two separate stratigraphic units corresponding to the generally accepted nomenclature of

the Upper Zone; the P-Q Layer and the Main Magnetic Layer (“MML”). These two units, along with the licence boundaries are

shown in Exhibit 15. Fault zones rarely outcrop but displacement of strata can be interpreted from aeromagnetic data and is

supported directly in some cases with evidence of displaced geological units encountered during mapping.


p19

P- Q Zone

MML

MML

MML outcrop

Exhibit 15: Map showing relative position of the P-Q and MML layers and farm boundaries

Source: MSA

P-Q Layers

The P-Q Layer (Exhibit 15) occurs near the top of the Upper Zone. The layers occur in the wide, soil-covered plains between the

Main Zone lithologies to the east and the Nebo granite plateau to the west and are therefore not easily recognised in the field

other than by the presence of a distinctive reddish-brown soil containing abundant Ti-magnetite.

The P-Q Layer is approximately 25 m thick and consists of the two semi-massive to massive VTM layers (“P” and “Q”) which are

separated by a ±7 m thick, low VTM grade, leuco-gabbro-norite “parting” with gradual contacts with the foot and hanging wall

rocks. The foot and hanging wall lithologies of the P-Q Layer contain considerable amounts of disseminated Ti-magnetite which

increase the total thickness of the wider mineralised zone to between 40 m and 80 m. The P-Q Layer also shows considerable


p20

internal fluctuations in its VTM content. Apatite-bearing rocks with P2O

5 concentrations of between 1% and 5% occur immediately

above the P-Q Layer and are a common feature in the overlying, uppermost portion of the Upper Zone.

Exhibit 16: Section Line -2643150N (looking north) showing P- Q Zone and MML intersections

Source: MSA

Main Magnetic layer (“MML”)

The MML (Exhibit 16) lies in the lower portion of the Upper Zone and has been mined at the Mapochs VTM Mine in the Eastern

Bushveld Lobe since the 1950s. It consists of an upper VTM-rich interval (“MAG 3”) which is separated from the lower VTM-rich

interval (“MAG 4”) by a low VTM grade, leuco-gabbro-norite parting, which together with the stratigraphically higher MAG 1 and

MAG 2 intervals, form part of the Main Magnetite Group. The MAG 3 and MAG 4 are composite layers, each consisting of bands of

VTM-rich to massive VTM intervals alternating with VTM-poor sections which have a width of approximately 1.8 m. The down hole

width for the entire MML package (MAG 3, MAG 4 and parting) ranges between 8 m and 10 m and has an average true thickness of

8.4 m before correction for a dip of approximately 18°.

The entire MML package has an average vanadium content of approximately 1.3% V2O

5 with maximum concentrations of 1.5% to

1.7% V2O

5 in the massive VTM bands. These values compare favourably with the reported V

2O

5 grades from the Mapochs Mine.

Isolated (<0.5% visible sulphide) to weakly disseminated sulphides (1% to 2% visible sulphide) occur throughout and are usually

more evident in the leuco-gabbro-norite partings and towards the base of the MML.

Structure

Fault zones rarely outcrop in the area, but displacement of strata can be interpreted from aeromagnetic data and is supported

directly in some cases with evidence of displaced geological units encountered during mapping. Faulting is characterised by major

regional NE-SW to ENE-WSW striking sub-vertical fault zones (up to 2600 m), and local ENE-WSW to E-W striking sub-vertical fault

zones (up to 1400 m). The project area is also intruded by two dolerite dyke sets. An earlier E-W trending dyke set is crosscut by a

later ENE-WSW trending dyke set (Exhibit 17).

Exploration

Historic

The first detailed investigations on the project site were carried out in the 1970s and included mapping, ground geophysics,

trenching and limited drilling south of the Mokopane project. This work focussed mainly on the MML because of its high vanadium

content. The project area has not been previously explored for its Ti-magnetite potential but was covered by a regional

geochemical soil sampling and mapping programme by the Council for Geoscience (“CGS”).

During 1979 and 1980, the Mining Corporation Ltd (“MCL”), a South African government company, completed geological

mapping, magnetic surveys, and drilling over the five contiguous farms Gezond, Commandodrift, Molendraai, Mozambique

(Portion 2) and Inhambane bordering the Mokopane project to the south. Schutte (1980) primarily investigated the vanadium

potential of the VTM layers and calculated a non-JORC-compliant mineral resource along a 16 km strike of 419 Mt of VTM-rich


p21

Older Dyke

Younger Dyke and

Fault Zone

Younger Dyke and

Fault Zone

MML P-Q Zone

Older Dyke

NE-trending Fault Zone

VRIESLANDVRIESLANDVRIESLANDVRIESLAND

material containing 6.5 Mt of V2O

5. The tonnages represent the total estimated amount of Ti-magnetite “concentrate” potentially

extractable from the Main Magnetite Group layers (MAG 1 to MAG 4) to a vertical depth of 80 m and the Lower Magnetite Group

to a vertical depth of 200 m.

A regional aeromagnetic and radiometric survey was conducted in the 1990s which showed prominent northerly-trending magnetic

anomalies which were correlated with the MML and the P-Q Layer (Exhibit 17). A stratigraphic borehole BV-1 (as shown in the south

west corner of Exhibit 15) was drilled in 1991 on the Bellevue farm approximately 2 km south-west of the project area. The hole

covered the entire Upper Zone stratigraphy and intersected 32 discrete layers of Ti-magnetitite or Ti-magnetite-rich rock ranging in

thickness between 7 cm and 13 m

Exhibit 17: Regional aeromagnetic map with interpreted structural features

Source: MSA

The CGS carried out a semi-regional aeromagnetic survey in the late 1990s which covered the project area and the results were

used to identify structural features. A ground magnetic survey was conducted by the MCL and used to locate the sub-outcropping

Ti-magnetite layers and to guide Bushveld Minerals’ maiden diamond drill programme in 2010.

Bushveld Minerals’ current exploration programme included the first drill programme on the project and was undertaken between

August 2009 and September 2011. It consisted of desk top reviews of the project data, geological mapping, soil sampling, air


p22

photo interpretation, rock chip sampling and diamond drilling. Six drill holes (Holes VK1 to VK3 and VL2 to VL4), with a total length

of over 1500 m were drilled in 2010 and provided an indication of type and width of VTM mineralisation along an east-west section

covering virtually the entire Upper Zone stratigraphy. A further nine holes (VK4 to VK8, VK10 to VK15 and VL5), with a total length of

approximately 2600 m were drilled between March and September 2011 targeting the P-Q and MML layers directly. The holes were

drilled at regular intervals of between 500 m and 1200 m along the deposit. The drilling locations can be seen in Exhibit 15.

Resources

A Mineral Resource Estimate (“MER”) was estimated by a Competent Person (“CP”) belonging to the MSA Group (“MSA”) in

November 2011 and is considered compliant with the JORC Code (2004).

The MML Layer wireframe was constructed primarily on whole rock geochemistry from core samples of the 2010/2011 drilling

campaign and extends 800 m to the north and 900 m to the south of drilling limits. The wireframe was limited to 100 m depth as

this is considered the likely limit of economic extraction within the foreseeable future. The P-Q Layers wireframe is comprised of the

P-Q Ti-magnetite layers as well as associated semi-massive to disseminated Ti-magnetite hanging- and footwall material.

Geochemistry was utilised to define the base of the P-Q Layers because of the gradational contact of this Ti-magnetite bearing

interval. The layer was modelled down to vertical depths of 100 m, 200 m, 300 m and 400 m.

In the absence of adequately defined variography, the inverse distance weighting, to the power of 2 (“ID2”) method was used for

the grade estimation for all elements. Resource classification was applied as a function of the drill hole spacing with the MML

classified as an Inferred Mineral Resource, while some of the P-Q Layers classified as an Indicated Resource and the remainder as

Inferred. For the purposes of mineral resource estimation, a cut off of 40% Fe2O

3 was applied to the MML and a cut-off of 35% Fe

2O

3

was applied to the P-Q Zone.

MSA also constructed “waste models” in order to estimate the depth cut-off that would be appropriate for the deposit to have a

reasonable potential for economic extraction. In the exercise, MSA created theoretical pits and calculated the strip ratio that would

be generated from such a mining scenario (Exhibit 18). An average stripping ratio of 5:1 was used as the limit for any economic

extraction. Based on this number, the possible depth limit of economic extraction is down to 200 m for the P-Q Layer, and 100 m

for the MML, and this is the depth to which we have used for our valuation of the project.

Exhibit 18: MSA waste models showing probable stripping ratios and likely depth limits to economic extraction

Source: MSA

By virtue of the wide drill hole spacing (±1900 m), the MML is classified as an Inferred Mineral Resource down to a vertical depth of

100 m. Owing to the closer spacing of drill holes (≤600 m), the P-Q Layers are classified as an Indicated Mineral Resource down to a

vertical depth of 200 m, and as an Inferred Mineral Resource from vertical depths of 200 m to 400 m.

The MER states a resource (Table 1) of 633 Mt at 32.64% Fe, 11.2% TiO2 and 0.3% V

2O

5 of which 41% is in the Indicated category

and 24% in the Inferred category. However in our valuation, we have used the resources at the grade cut-offs recommended in the

CPR (i.e. 40% Fe2O

3 applied to the MML and 35% Fe

2O

3 to the P-Q Zone) and the depth cut-offs which define the possible limit of


p23

economic extraction as defined in the CPR (i.e. <100 m in the MML and <200 m in the P-Q Layers). This gives a resource of 341 Mt

at 33.21% Fe, 10.9% TiO2 and 0.39% V

2O

5.

Table 1: JORC compliant resource estimation for the MML and P-Q Layer of the Mokopane Project

DepositDepositDepositDeposit Depth cutDepth cutDepth cutDepth cut----

offoffoffoff CategoryCategoryCategoryCategory Grade Cut OffGrade Cut OffGrade Cut OffGrade Cut Off TonnesTonnesTonnesTonnes FeFeFeFe Fe2O3Fe2O3Fe2O3Fe2O3 P2O5P2O5P2O5P2O5 TiO2TiO2TiO2TiO2 V2O5V2O5V2O5V2O5

Fe2O3% (M) % % % % %

MML <100 m Inferred 40 66.21 37.1 53.1 0.01 9.2 1.24

P-Q North < 200 m Indicated 35 93.73 32.3 46.2 0.04 11.2 0.19

P-Q North < 200 m Inferred 35 14.43 30.5 43.6 0.03 10.3 0.23

P-Q North 200 - 400 m Inferred 35 118.1 34 48.6 0.04 12.3 0.2

TotalTotalTotalTotal 226.3226.3226.3226.3 33.133.133.133.1 47.347.347.347.3 0.040.040.040.04 11.711.711.711.7 0.20.20.20.2

P-Q South < 200 m Indicated 35 166.47 32.4 46.4 0.06 11.4 0.18

P-Q South < 200 m Inferred 35 0.42 33.9 48.5 0.09 11.2 0.12

P-Q South 200 - 400 m Inferred 35 174.28 30.6 43.8 0.05 11 0.18



Source: MSA

Exploration upside

Bushveld Minerals has progressed the project considerably in a short amount of time. On the basis of a targeted exploration

programme, the company has achieved a maiden resource of 341 Mt of VTM above 200 m depth. But there is still considerable

potential upside to this story. The CPR quotes an additional 292 Mt below the 200 m depth. Because of the skinny nature of the

deposit and steep incline, which translates into very high stripping ratios, it is not thought to be economically extractable in the

foreseeable future. However the possibility exists that conditions will change in the future, and advances in technology or supply

and demand fundamentals in the iron ore industry could make this ore economic. Perhaps underground mining methods will prove

to be economic and this will be defined in a comprehensive feasibility study.

Upside also exists in the multi element nature of the deposit. Production of an iron concentrate and vanadium rich slag is proven

technology, and has defined markets, however the titanium has never been successfully separated from a magnetite slag

commercially. However the titanium market is where supply and demand fundamentals are currently driving titanium prices upward,

and the development of technology which can release the titanium from slag will be able to supply a demand shortfall.

There is also a significant phosphorous (“P”) enrichment layer in the form of apatite which occurs immediately above the P-Q Zone

and could become of economic significance. The phosphate is just potential at this stage based on literature and the results of one

drill hole which was assayed and showed approximately 3% to 5% over 10 m.

The company also intends to acquire additional farms adjacent to the existing project area, namely Malokong 784LR and

Vogelstruisfontein 765LR, and carry out a similar exploration programme in order to confirm continuity of VTM mineralisation over

an additional strike length of approximately 10 km. From the regional geophysics and knowledge of the geology of the area, it is

obvious that the iron formation extends to the north and south of the project area. If Bushveld Minerals are successful in acquiring

the adjacent licences, there is the potential to triple, or more, the current resource.


p24

Metallurgical test work

There is no recorded historical mineral processing or metallurgical test work on the VTM deposits of the project area, however,

MCL produced Ti-magnetite concentrates under laboratory conditions in drill core intersected on the MML on neighbouring farms,

and determined the V2O

5 and TiO

2 contents by standard X-Ray Fluorescence analyses (“XRF”).

The percentage of titano-magnetite in the MML was reportedly between 67.7% and 74.8% and the VTM concentrate contained

between 1.62% and 1.69% V2O

5. The latter vanadium concentrations are almost identical with the 1.69% V

2O

5 (after crushing,

washing and screening) which EVRAZ Highveld reported for the MML at its Mapochs Mine.

Crushing and milling parameters for the MML on the Mokopane Project are likely to be similar to the procedures used at EVRAZ

Highveld whereby an iron concentrate is produced containing vanadium and titanium by the use of gravity and DMS methods. This

product can then be sent or sold to a specialist smelter who can pyrometallurgically treat the ore to produce pig iron and a

vanadium/titanium rich slag. It is possible to separate the vanadium from the slag using ladling methods to produce V2O

5, however

the separation of the titanium is not yet a proven, commercial technology. No comparable studies or comparable mining

operations exist for the P-Q Layers.

Alternatively a processing route similar to the one that Baobab Resources (“Baobab”) intend to use on its Tete VTM deposit could

prove to be a less expensive option. Davis Tube Recovery analysis was performed on samples from Baobab’s deposit which

indicated that its ore could be processed using both a high and low magnetic separation circuit to produce two concentrates: a low

magnetic separation circuit producing a ferro-vanadium concentrate containing high grade iron and vanadium, supplemented by a

high magnetic separation circuit which could produce a concentrate containing high grade TiO2. The Baobab proposed process

flow sheet is shown in Exhibit 19.

Exhibit 19: Proposed process flow sheet for Baobab’s VTM deposit

Source: Baobab Resources


p25

Marketing and product sales

Although Bushveld Minerals has not yet undertaken the metallurgical test work required to define the exact products that will be

produced from any future mine, it is likely to be a vanadium and titanium bearing iron concentrate. EVRAZ Highveld produces steel

and vanadium slag products at its Emalahleni steelworks nearby, as well as mining VTMs from its Mapochs Mine. The company uses

vanadium-bearing iron ore from Mapochs to produce a slag that contains 20% vanadium oxide. In 2010 it produced 64 000 tonnes

of vanadium slag which was predominantly sold in the domestic market and internationally to independent converters for the

downstream production of vanadium-bearing products.

EVRAZ Highveld could potentially take the Mokopane ore for processing but sales were flat for 2011 due to weakness in domestic

demand caused by a weakening South African economy. Also EVRAZ Highveld has large in-ground resources which they could

potentially ramp up mining production and therefore have little need for extra smelting feed. Alternatively, Bushveld Minerals could

sell its products into the international market, for which there is no lack of demand for pig iron, although this would incur a

significant extra transport cost. The final customer for the Bushveld Minerals ore will need to be investigated and remains a key risk

to the project until off take agreements can be signed.

An alternative could be for Bushveld Minerals to build its own smelter facilities, but we do not see this as a viable option in the short

term. The capital required to undertake this option would be prohibitive for a junior miner such as Bushveld Minerals, especially

when considering the uncertainty of sales markets. A 2009 study into building a smelter in the area estimated the capex required at

nearly US$500 M. Permitting would also be a lengthy process for such an endeavour.

Infrastructure

Iron ore plays are as much about the access to infrastructure as it is about the deposit. Greenhill’s projects are well located for

infrastructure rail, port and road infrastructure. The closest railway link to the VTM project is at Mokopane and consists of the line

connecting Polokwane (65 km east of the project area) to Johannesburg and several ports on the eastern coast. Bottlenecks in the

rail infrastructure mean that access can be limited and must be negotiated. The existing rail and port infrastructure in the region is

shown in Exhibit 20.

Johannesburg can be accessed in less than four hours by the major N1 motorway. The R518 tarred secondary road runs through the

property. This existing infrastructure gives Bushveld Minerals a competitive advantage regarding transport costs and possible

capital outlay when compared to some of its peers in western Africa.

Mining services and human resources are also readily available in the area which has a long history of mining. There are nearby

operating platinum, chrome and gold mines. Drilling contractors, services and consultants are available in Johannesburg and the

greater Gauteng area. The region is served by major existing power infrastructure. The 765 kV Matimba-Witkop power line passes

25 km north of the property. In addition, further infrastructure is in development to transmit power from the Matimba power station

(situated some 120 km to the northwest of the property) to accommodate the increased demand in the Mokopane area from the

platinum mining industry.

Water availability may be limited due to the semi-arid environment. However, nearby old underground mine workings are flooded,

and the property is flanked by the Mogolakwena and Sterk Rivers. It is therefore probable that sufficient process water could be

sourced locally.


p26

Exhibit 20: Rail and port infrastructure in South Africa

Source: Universal Coal

Future work programme

Bushveld Minerals plans to follow up its exploration programme with a second phase. The make-up of this will largely depend on

the amount of funds raised in an up-coming IPO on the London Stock Exchange. Bushveld Minerals has budgeted a total of

approximately US$12 M for these activities.

Bushveld Minerals are planning an infill drilling programme at 250 m spacing with the objective of upgrading the current Inferred

Resource to Measured and Indicated categories, and to extend the limits of known mineralisation along strike into adjacent

properties of Malokong 784LR and Vogelstruisfontein 765LR. The drilling will be limited to 100 m depth due to excessive stripping

ratios below this depth. This drilling will also add confidence to the continuity of the mineralisation and the nature of any structural

off-sets. Work will also be undertaken on trenching in order to expose and sample in-situ oxidised material for ore characterisation

test work and bulk density measurements as well as defining outcrop and sub-outcrop positions.

Following the Phase 2 drilling and sampling programme, Bushveld Minerals intend to progress the project through a Scoping Study

to a Pre-feasibility Study and ultimately to Feasibility Study, to be completed by mid-2013. This includes:


p27

• ore characterisation and beneficiation / recovery test work;

• preliminary pyrometallurgical test work;

• product definition and marketing studies;

• geotechnical studies to determine pit slope stability and mining parameters;

• mining method, mine design, pit optimisation and mine scheduling studies;

• mine engineering and mine tailings;

• environmental studies;

• hydrogeological studies;

• infrastructure (rail and road) and utility (power and water) studies;

• financial evaluation (NPV and IRR) including Capex and Opex; and

• sensitivity and risk analyses.


p28

Mokopane Tin Project Background

The Mokopane tin project is located SW of the Mokopane Fe project and consists of the 13 420 ha Prospecting Right (“PR”) LP

2205 PR. The PR is valid for five years until July 2015 and gives Bushveld Minerals the right to explore for tin, rare earth metals,

fluorspar, molybdenum, gold, arsenic, uranium, zirconium, iron ore and zinc.

The PR is defined by a series of contiguous farm boundaries, namely Zaaiplaats 223KR, Roodepoort 22KR, Groenfontein 227KR, De

Hoogedoorns 233KR and Salmons Temple 230 KR. Outcrops of disseminated tin mineralisation and historic workings delineate the

exploration targets within the PR, with the Groenfontein and Zaaiplaats prospects being the two primary targets. Two other targets,

Sterkwater and Union Tin are lower priority and due for exploration expenditure in 2013. A fifth target, Appingdam lies within the

Appingdam 805 LR farm boundary and is in the process of being acquired by Bushveld Minerals but is still subject to government

approval. The location of the Bushveld Minerals’ targets is shown in Exhibit 25. A map of the property as defined by the description

in the PR and the relative location of the Groenfontein and Zaaiplaats targets is shown in Exhibit 21.

Exhibit 21: Location of the Bushveld Minerals licences delineated in red



p29

Geology

The Mokopane tin project is situated within the Lebowa Granite Suite on the Northern Limb of the Bushveld Sequence. Three

major types of granite occur within the Lebowa Granite Suite: the Nebo, Bobbejankop, and Lease Granites. Mineralisation occurs as

cassiterite (SnO2) within the Bobbejankop and Lease Granites in pipe-like bodies, sub-horizontal lenticular bodies and/or as a sub-

horizontal disseminated low grade. The higher grade pipes are of hydrothermal origin and cross-cut the disseminated deposits,

although these pipes have largely been mined out historically.

Groefontein target

The mineralisation in the Groenfontein prospect is hosted within the Lease Granite, a fine-grained aplite that forms a thin (up to

120 m) but continuous hood facies to the Bobbejankop Granite. The mineralisation is thought to be synformational with the granite

and has been emplaced by late pulses of granite into the system. There does not appear to be any evidence of brecciation or

distinct veining associated with the emplacement of the mineralisation. The mineralisation style within the Bobbejankop Granite is

disseminated cassiterite and high grade pipes of hydrothermal origin.

The disseminated mineralisation, which is the main target for Bushveld Minerals, is found immediately below the contact with a

pegmatite which is a discontinuous feature in the roof of the Lease Granite, close to the contact with the overlying Rashoop

Granophyre. This zone of mineralisation is more irregular than the larger disseminated body and does not generally crop out at

surface. It has been locally mined in the past. From drilling it is believed that local high-grade pipe-like bodies exist within and

below the lower-grade mineralised zones. Although high-grade, they are not voluminous and do not make up a significant

resource. An example of Lease Granite core, displaying disseminated cassiterite mineralisation is shown in Exhibit 22.

Exhibit 22: Lease granite of the Groenfontein deposit displaying disseminated cassiterite mineralisation.

Source: FoxDavies site visit

Zaaiplats target

The mineralisation in the Mokopane tin prospect is hosted within the Bobbejankop Granite, a medium to coarse-grained deep red

rock with a distinctive texture composed of linked chains of quartz. The dark areas are cavities filled with hydrothermal minerals

including cassiterite, scheelite, sericite, and fluorite. The mineralisation is associated with fluorite alteration and there is often the

presence of pyrite, chalcopyrite and scheelite. The zone of mineralisation crops out at surface and extends NE-SW along the strike

for over 500 m and forms the bulk of mineralisation identified.

FoxDavies staff examined core from the Zaaiplaats and Groenfontein prospects while onsite and found it difficult to differentiate

between the high grade mineralised intervals and low grade material in terms of alteration, grain size and mineralogy. There

appears to be very little visual differentiation between high and low grade zones suggesting that geological modelling of the

deposit and grade control during mining may be difficult.

Cassiterite mineralisation


p30

Mining and exploration history

Historic mining and exploration

Cassiterite was first discovered in the area in 1905 which led to the establishment of the Groenfontein Tine Mine and the Zaaiplaats

Tin Mining Company. The Zaaiplaats Tin Mining Company produced cassiterite concentrate and tin metal continuously from its

inception to its closure in 1989. Over 21 000 tonnes of tin metal has reportedly been mined in the area.

Modern exploration of the area commenced in the 1960s. Transvaal Consolidated Lands (TCL) led a targeting exercise in 1962 that

identified the Roodepoort and Groenfontein as targets for further exploration. A wide spaced follow up percussion drilling

programme comprising 12 drill holes was conducted in 1963 over the disseminated cassiterite target on Groendoorn. The details of

the sampling and assay methodology are not available; however the programme established a broad, anomalous zone of tin

mineralisation.

In 1976, a detailed systematic surface sampling programme was carried out over the southern part of Groenfontein and

Groendoorn. The entire area was sampled except the areas covered by tailings from the Zaiplaats Tin Mine and alluvium. Granite

chip samples and soil/alluvial/elluvial samples were collected on a 10 m by 5 m grid on selected areas. The results of the

geochemical sampling programme prompted the planning and execution of a phased percussion and diamond core drilling

programme during 1978, to further investigate the disseminated tin mineralisation. The programme consisted of 203 holes for

8292 m and an average hole depth of 41 m. The distribution and coverage of the historic drilling programme is shown in Exhibit 23.

Exhibit 23: Location of historic drill holes on the Groenfontein target

Source: MSA


p31

The drilling defined an approximately 200 m wide, NW-SE trending zone of anomalous tin mineralisation (>0.02% Sn) extending for

over 1 km and open ended on both ends. Within this zone is a core of mineralisation with a 0.05% Sn cut-off grade that extends for

over 600 m, and within this core are two contiguous, more highly mineralised zones defined by a cut-off grade of 0.1% Sn. These

cover a combined area of approximately 125 m by 325 m in extent and broadly correspond to the surface outcrop of the

disseminated tin mineralisation.

Current exploration

Bushveld Minerals are currently conducting a diamond drilling programme on the Groenfontein target. The programme is focussed

on an area where extensive mining activity has taken place in the past. An example of a historical mine shaft and Bushveld Minerals’

drill collars are shown in Exhibit 24. Much of the historic mining was focussed on the extraction of high-grade pipe-like ore bodies,

and only limited mining of disseminated ore was carried out, as it was considered uneconomic at the time. Bushveld Minerals is

targeting the disseminated tin mineralisation in the Lease Granite and aims to verify historical drilling of the Groenfontein prospect

by twinning some of the historical holes, and move the prospect towards a scoping or feasibility study.

In 2010, Bushveld Minerals drilled 53 holes of which 22 are twins. The results of the modern holes were compared statistically with

the historical holes and found to verify the original assay values to an acceptable degree of confidence. This allowed the historical

holes to be used in a modern, JORC compliant resource estimation. The best intersections encountered include:

• 6m @0.99%, from BH080;

• 2m @ 1.08% from BH024;

• 1m @16.86% and 18m @ 0.41% from BH042;

• 2m @ 5.76% from BH043; and

• 11m @ 0.46% from BH175.

A further 20 holes have been completed in 2011 to test the deeper horizons of the mineralisation. These results have not been

included in the most recent resource estimation. Bushveld Minerals is also about to undertake drilling on the Mokopane tin

prospect with two drill rigs with the aim of validating the historical exploration at Zaaiplaats and estimating a resource on the

prospect by the end of 2011. Bushveld Minerals is targeting 8000 t to 10 000 t of tin metal at the Mokopane tin project.

Exhibit 24: Historic workings targeting high grade tin mineralisation. Bushveld Minerals drill collars can be seen in the foreground (rhs)

Source: FoxDavies site visit


p32

Resources

Following the results of 2010 drilling programme, Bushveld Minerals commissioned an estimation of the tin resource of the

Groenfontein prospect from Independent Resource Estimations (“IRES”), a small, independent geological consultancy. A grade

based wireframe was compiled from scanned plans and sections of the original drilling. The contact of the Lease granite with the

pegmatite was separated from the main disseminated body by a distinct wireframe in order to keep the two populations

independent of the influence on each other and prevent smearing of grades between the two. The grades within the main

envelope were interpolated using Ordinary Kriging methods. A specific gravity of 2.65 g/cm3, based on picnometer readings of

sample pulp material, was used to convert volume into tonnes. The final estimated tonnes and grade of the deposit, at a 0.1% Sn

cut-off grade, is shown in the mineral resource statement in Table 2.

Table 2: JORC compliant resource estimation at a 0.1% Sn cut-off grade

TonnesTonnesTonnesTonnes GradeGradeGradeGrade Sn MetalSn MetalSn MetalSn Metal

(t)(t)(t)(t) (%)(%)(%)(%) (t)(t)(t)(t)

Measured 1,177,000 0.179 2,107

Indicated 1,918,000 0.14 2,685

M+I 3,095,000 0.155 4,792

Inferred 898,000 0.134 1,203

TotalTotalTotalTotal 3,993,0003,993,0003,993,0003,993,000 0.150.150.150.15 5,9955,9955,9955,995

Source: FDC

The low cut-off grade used was due to the following reasons:

• The median value for tin between 31 July 2009 and 31 July 2011 was approximately US$24 000 per tonne. At a grade cut-

off of 0.05% this is equivalent to a value cut-off (in situ) of US$12 per tonne, with an average in situ ore value of US$25 per

tonne (at an average grade of 0.104% Sn). This would be a total of nearly US$200 M worth of contained metal;

• The deposit is outcropping at surface, which means that there are no stripping or underground development costs;

• A 0.05% cut-off provides for a contiguous zone of surface mineralisation (approximately 500 x 125 m at an average grade

of 0.104%) which would be relatively easy to mine; and

• The resource is the first of two geologically similar targets to be investigated on the property, with a further three targets

identified, all within a short distance of each other.

Exploration potential

The current resource estimation delineates the Groenfontein disseminated tin prospect, but further upside can be found in the

exploration of the Zaaiplaats prospect which lies along strike from Groenfontein and is geologically very similar (Exhibit 25). There is

also the possibility of finding upside in high grade pipe features that were missed by historical miners, especially in the deeper

parts of the deposit. There is some evidence in the modern drilling that some of these pipes still exist unmined.

In addition to the Groenfontein and Zaaiplaats targets, which are the focus of the recent drilling, three other targets have been

identified in the project area. These are:

• Salomon’s Tempel Target, historically mined on a limited scale for tin in the Lease Granite,

• Appingendam Target, a vein system historically mined for tin, molybdenum and rare earth elements in the Bobbejaankop

and Lease Granites. The Appinggendam target is located on the Appingendam Farm 805 LR for which Bushveld Minerals

has applied for the licence but which is pending approval; and

• Union Shale Target – historically mined on a limited scale for tin from breccia bodies and structures associated with the

Union Tin Shale unit in the overlying felsites of the Rooiberg Group.

Higher-grade parts of each of these targets have been partially mined historically on various scales for tin and other elements.

None of these targets have been previously investigated for lower-grade styles of mineralisation. They are therefore key targets for

further exploration and expansion of the tin resource in the project area. Bushveld Minerals plans to drill 25 000 m in all five

prospects and has a target of 30 000 tonnes of tin for the project.


p33

Exhibit 25: Mokopane tin project exploration targets


Mining and Processing

Because the mineralisation appears to be shallow in nature, this will help any eventual economics of the project by reducing the

strip ratio of the mining and saving on development costs. Blasting will be required as the granites are hard, even from the surface.

Mining cost would be relatively low compared to other tin projects around the world.

No metallurgical test work has been conducted on the disseminated ores of the Mokopane tin project, but initial thoughts on the

processing route for the cassiterite have been contemplated by MSA Group, the consultant company who authored the Competent

Persons Report. They believe that a primary and quaternary crushing circuit would be utilised to reduce the ore to approximately

sand sized with no milling involved. Then a riffle shaking table could be used to gravity separate the cassiterite from the gangue

mineral. Froth flotation can be used to separate the fine cassiterite particles created during crushing (due to its extreme brittleness).


p34

Valuation

Because of the early stage nature of the projects we have not constructed a discounted cash flow model for the project. Instead we

have compared the EV per tonne of metal of the JORC (or similar) compliant resource based on a selection of comparable

companies including explorers and producers.

Mokopane iron

Table 3 shows a list of VTM explorers and producers. All of these companies have flagship deposits which contain all three

elements in the resource. A brief description of the companies is provided below the table. Table 3 shows that the grades of iron,

titanium and vanadium for the Mokopane project are high relative to its peers, and total tonnes of contained metal also favour

comparably for all three elements. We have compared the EV per tonne of iron for each of the peer group because we believe that

the iron concentrate will be the most likely ore product for Bushveld Minerals. We have been unable to compare the concentrated

iron grade as Bushveld Minerals has not yet undertaken metallurgical studies to determine what the concentrate grade will be.

Additionally, on the 11 January 2012, private company, Mboweni Brothers Investment Holdings (“MBIH”) signed a memorandum of

understanding (“MOU”) to acquire up to 20% in Ferrox Holdings Ltd. (“Ferrox”) for a consideration of US$32 million. Ferrox has a

74% indirect interest in the Tivani iron ore project in South Africa’s Limpopo Province. The Tivani project has a NI 43-101 compliant

Fe/Ti/V resource of 470 Mt of measured, indicated and inferred resources and is further advanced than Mokopane, having

completed a scoping study and significant metallurgical test work on the ore. Because Ferrox is privately listed it does not have a

market capitalisation and the grades of titanium and vanadium in the resource have not been published, but this deal values Ferrox

at US$160 M or US$1.45 per tonne of iron.

The average EV per tonne of Fe of the whole peer group is US$2.54, however it must be noted that the projects are in a more

advanced phase than Bushveld Minerals i.e. they have a scoping study, feasibility study or are in production, and therefore are

significantly de-risked in comparison. If we remove the companies in the list which are producers, we attain an average EV per

tonne of iron of US$1.28 (the average EV/t for non-producers excluding Speewah Metals, which is low because its large resource

project is in early development, is also shown at US$1.53). An EV per tonne of US$1.28 would value the deposit at US$145M;

Bushveld Minerals has a 74% attributable share bringing its EV value to US$107M. We believe that a discount should be applied to

any valuation of the comoany due to the fact that Bushveld Minerals is at a very early stage of its project life and various de-risking

studies are still required before an economic deposit can be declared. As the company completes engineering, metallurgical and

marketing studies to de-risk the project and moves closer to production stage, its peer group changes to include producers and

thus EV per tonne Fe increases. The Company is also planning on increasing its resource base. With these two factors in mind,

Table 4 shows the effect of increasing resource and increasing project development i.e. increasing peer group EV/t, on the project

value. Table 5 illustrates the same effects on share price in the case of 350M shares in issue. Whilst the valuation of the project and

the EV/t is quoted in US$, the share prices shown are quoted in GBP for the Company’s AIM listing.

Note that the assumptions in this valuation are not without its problems as we have only compared the Bushveld Minerals’ head

grade resources. This is because metallurgical studies have not yet been conducted on the resource to determine recovered

grades and metal content which is very important in deposits such as these as recoveries can vary significantly. Therefore it is not

possible to compare recovered grades of the comparable deposits. A more precise valuation, which compares the Bushveld

Minerals deposit to other similar deposits with similar recovered iron content, can be achieved once this test work has been

completed.


p35

Table 3: Comparables table for Fe/Ti/V deposits

Company nameCompany nameCompany nameCompany name MarketMarketMarketMarket ProjectProjectProjectProject TonnesTonnesTonnesTonnes Grade %Grade %Grade %Grade % Contained metal (mt)Contained metal (mt)Contained metal (mt)Contained metal (mt) Market Market Market Market

capcapcapcap EVEVEVEV

EV EV EV EV per per per per

tonne Fetonne Fetonne Fetonne Fe

NonNonNonNon----ProducersProducersProducersProducers

Mt Fe V2O5 TiO2 Fe V2O5 TiO2 US$ M US$ M US$

Apella Resources TSX:APA Iron T 14 27.3% 0.4% 6.6% 3.9 0.06 0.9 12 10.2 2.61

Baobab Resources AIM:BAO Tete 324 30.1% 0.4% 11.2% 82.9 1.10 30.8 39 30.4 0.37

TNG Limited ASX:TNG Mount

Peake 160 22.0% 0.3% 5.0% 35.2 0.43 8.0 30 27.0 0.77

Speewah Metals ASX:SPM Speewah 3,566 14.7% 0.3% 2.8% 524.2 10.70 99.8 36 28.3 0.05

Argex Mining TSX:RGX La Blanche 44 44.2% 0.2% 11.2% 19.4 0.09 4.9 52 47.6 2.45

Ferrox Holdings n/a Tivani 471 24% unk unk 110.7 unk unk unk 160.0 1.45

AverageAverageAverageAverage

34343434 51515151 1.281.281.281.28

Average excAverage excAverage excAverage exc.... Speewah Speewah Speewah Speewah

MetalsMetalsMetalsMetals 33333333 55555555 1.531.531.531.53

Bushveld Minerals - Mokopane 341 33.2% 0.4% 10.9% 113.2 1.33 37.1

107.3107.3107.3107.3 1.281.281.281.28

ProducersProducersProducersProducers

China VTM HK:893 Various 236 22.2% 0.2% 8.8% 52.4 0.45 20.8 573 535.7 10.22

IRC HK:1029 Kuranakh 1,154 22% - 9.6% 253.0 - 110.9 629 612.8 2.42

AverageAverageAverageAverage

600.6600.6600.6600.6 574.3574.3574.3574.3 6.326.326.326.32

Source: FoxDavies

Peer Group Companies

Apella Resources Apella Resources Apella Resources Apella Resources is focused on vanadium resources across its projects in Canada. Its Iron T Project covers Fe, V and Ti

mineralization over a strike of more than 20km. With its upgraded NI 43-101 resource released in 2010 of 14Mt, the company plans

to complete a Bankable Feasibility study by the end of 2012.

Baobab ResourcesBaobab ResourcesBaobab ResourcesBaobab Resources is a Mozambique focused explorer and its Tete Project is the Company’s priority. Their JORC resource of

324 Mt was completed in 2011 alongside a scoping study and the Company are continuing drilling to expand the resource to a

planned 500 Mt.

TNG LimitedTNG LimitedTNG LimitedTNG Limited is an Australian resource company focused on the development of its Mount Peake Fe-V-Ti project. The project

current has a resource of 160Mt with exploration hoping to target a further 400 Mt. A pre-feasibility study is currently being

conducted.

Speewah MetalsSpeewah MetalsSpeewah MetalsSpeewah Metals owns mineral exploration tenements in the East Kimberley region of Western Australia with a major titanium-

vanadium-hematite asset totalling 3.6 Bt JORC compliant, the largest of its kind in Australia. The Company completed a

metallurgical test programme in February 2012 demonstrated ~90% recoveries for each of Ti, V and Fe.

Argex MiningArgex MiningArgex MiningArgex Mining’s ’s ’s ’s La Blanch property in Quebec hosts an NI 43-101 compliant Fe-Ti-V resource of 44Mt and is approaching

production on the property. A Preliminary Economic Assessment Report was prepared in October 2011 and the Company has

begun processing at its pilot plant in Ontario.

Ferrox HoldingsFerrox HoldingsFerrox HoldingsFerrox Holdings Tivani Project is located in the mining Limpopo Province of South Africa and has NI 43-101 compliant resource of

471 Mt. The existing infrastructure surrounding the Tivani Project has given good results for its internal scoping study with a total

life of mine of 70 years.

IRC IRC IRC IRC LLLLtd td td td produces iron ore concentrate products in the Far East of Russia; the Kuranakh mine and processing site produces

titanomagnetite and ilmenite concentrate products since the processing plant was commissioned in 2010. The design capacity of

the mine and plant is for 900, 000 tpa of iron ore concentra at 62.5% Fe and 290, 000 tpa of ilmenite concentrate at TiO2 at 49%.


p36

China VTM MiningChina VTM MiningChina VTM MiningChina VTM Mining is the second largest operator of iron ore mine in Sichuan, China (2010). The Group primarily engages in

mining, ore processing, iron pelletizing and the sale of iron concentrates, iron pellets and titanium concentrates. It owns and

operates four vanadium-bearing titanomagnetite mines, two iron ore mines, five processing plants and two iron pelletizing plants,

all located in Sichuan province, a region with the most abundant vanadium-bearing titanomagnetite resources in the PRC.

Table 4: Effect of increasing resource and increasing de-risking of project on value (US$M)

Potential Potential Potential Potential

Resources Mt Resources Mt Resources Mt Resources Mt 341 633 750 1000 2000 3000

Peer GroupsPeer GroupsPeer GroupsPeer Groups Peer group Peer group Peer group Peer group

average EV/taverage EV/taverage EV/taverage EV/t (US$)(US$)(US$)(US$)

NPV (US$)

Explorers 1.28 107107107107 198198198198 234234234234 313313313313 625625625625 938938938938

Explorer excl. Speewah 1.53 127127127127 237237237237 280280280280 374374374374 747747747747 1121112111211121

Small Producer (IRC) 2.42 202202202202 374374374374 443443443443 591591591591 1182118211821182 1773177317731773

Average Producer 6.32 526526526526 977977977977 1158115811581158 1543154315431543 3087308730873087 4630463046304630

Table 5: Effect of increasing resource and increasing de-risking of project on share price (GBP)

Potential Potential Potential Potential

Resources Mt Resources Mt Resources Mt Resources Mt 341 633 750 1000 2000 3000

Peer GroupsPeer GroupsPeer GroupsPeer Groups

Peer group Peer group Peer group Peer group

average EV/taverage EV/taverage EV/taverage EV/t

(US$)(US$)(US$)(US$)

Share Price (GBP)

Explorers 1.28 0.0.0.0.20202020 0.0.0.0.38383838 0.0.0.0.45454545 0.0.0.0.60606060 1.1.1.1.19191919 1.791.791.791.79

Explorer excl. Speewah 1.53 0.0.0.0.24242424 0.0.0.0.46464646 0.530.530.530.53 0.710.710.710.71 1.421.421.421.42 2.142.142.142.14

Small Producer (IRC) 2.42 0.380.380.380.38 0.0.0.0.73737373 0.840.840.840.84 1.131.131.131.13 2.252.252.252.25 3.383.383.383.38

Average Producer 6.32 1.001.001.001.00 1.901.901.901.90 2.202.202.202.20 2.942.942.942.94 5.885.885.885.88 8.828.828.828.82

Source: FoxDavies


p37

Mokopane tin

We have taken a similar approach and assembled a group of tin explorers to account for the value of the tin asset. We have

however included Metals X in the table despite the fact that it is a tin producer from its Renison Project but we have included it in

the table as it sold a 50% interest in the project to Yunnan Tin – Parksong Group in 2011 for approximately AUD$50 M, which gives

a good indicative value for the tin assets without the distortion of its nickel assets. These data have been compiled in Table 5.

The average EV per tonne of tin for the comparables group is approximately US$559. Note that all of these companies are further

progressed than Bushveld Minerals in terms of the undertaking of scoping studies to feasibility studies, and in the case of Metals X,

production, and therefore the Groenfontein project should attract a discount to the average EV of the peer group.

Table 6: Tin comparables table

Company nameCompany nameCompany nameCompany name MarketMarketMarketMarket ProjectProjectProjectProject ResourcesResourcesResourcesResources EVEVEVEV EV per tonneEV per tonneEV per tonneEV per tonne

Tonnes Grade Sn Metal

(t) (%) (t) (US$ M) (US$ M)

Bushveld Resources - Groenfontein 3,993,000 0.15% 5,990 559.4

Celeste Copper Corporation C CN Equity South Crofty 2,800,000 1.45% 40,600 14.4 353.8

Stellar Resources SRZ AU Equity Heemskirk 3,600,000 1.21% 43,560 19.0 437.0

Consolidated Tin Mines CSD AU Equity Mt Garnet 7,300,000 0.60% 44,400 11.7 264.6

Venture Minerals VMS AU Equity Mt Lindsay 43,000,000 0.40% 120,000 61.6 513.2

Kasbah Resources KAS AU Equity Achmmach 7,000,000 0.80% 54,000 54.5 1008.7

Metals X MLX AU Equity Renison 7,250,000 1.77% 128,391 100.0 778.9

AverageAverageAverageAverage 43.5 43.5 43.5 43.5 559.4 559.4 559.4 559.4

Source: FoxDavies

Peer Group Companies

Celeste Copper CorporationCeleste Copper CorporationCeleste Copper CorporationCeleste Copper Corporation acquired 100% of Cornish Minerals Ltd in 2011 and thus the South Croft Mine in Cornwall, historically

mined for tin and copper. An NI 43-101 report has been filed for the property and extensive drilling continues.

Stellar ResourcesStellar ResourcesStellar ResourcesStellar Resources focuses exploration on its South Australia and Tasmania prospects with iron ore, uranium and tin properties. The

Heemskirk Tin Project is located in Tasmania, with a previously reported historic JORC resource of 3.6Mt.

Consolidated Tin MinesConsolidated Tin MinesConsolidated Tin MinesConsolidated Tin Mines is an ASX-listed explorer concentrating on the Mt Garnet Tin project near Cairns, Queensland. Made up

of three key deposits, the Mt Garnet project has a current JORC Resource of 7.3Mt and the Company is progressing a pre-

feasibility study.

Venture MineralsVenture MineralsVenture MineralsVenture Minerals’ ’ ’ ’ Mt Lindsay tin/tungsten project is located in northwest Tasmania. It is one of the world’s largest undeveloped tin

project and is in the process of a bankable feasibility study.

Kasbah ResourcesKasbah ResourcesKasbah ResourcesKasbah Resources is awaiting the results of a feasibility study on its 7Mt Achmmach Tin Projects in Morocco. A scoping study has

already been released and the Company are continuing to drill to define new targets.

Metals XMetals XMetals XMetals X is a an ASX-listed resource company with a considerable portfolio encompassing exploration through to production of a

variety of commodities. Metals X commands 2.5% of global supply of tin from its Mt Bishchop and Renison mines in Tasmania.


p38

Valuing the upside

We see the majority of the upside to the company lying in the VTM project. There is significant opportunity to increase the

resources either by acquisition of neighbouring deposits (see “Exploration upside”) and to derisk the project by undertaking

metallurgical, engineering marketing and infrastructure studies.

Tables 4 and 5, and the recent deal for Ferrox shows us the enormous upside potential of Bushveld Minerals if it conducts the

appropriate metallurgical and engineering studies, and progresses the Mokopane project through to scoping and feasibility stage.

This can be added to the exploration upside discussed in ‘Exploration Upside’ (page 20) which, if the exploration programme

proves to be successful, will also increase the value of the company. The current valuation should increase to levels more

comparable (per tonne of iron resource) to Baobab, TNG, Argex and Ferrox with the completion of scoping and feasibility studies,

and levels comparable to IRC and China VTM if the company puts the project into production.


p39

Risks

Metallurgy

We see metallurgy as one of the key risks to the Mokopane project. VTM deposits are metallurgically complex and although the

production of an iron concentrate is relatively straight forward, the extraction of vanadium and titanium from the slag is much more

complex. No metallurgical studies have been done and therefore Bushveld Minerals do not know what concentrate grades are

achievable, or if the by products can be extracted economically. The titanium by-product in particular is an unknown entity as its

extraction has never been achieved commercially from this type of slag. This risk will be mitigated once thorough metallurgical test

work has been completed. Another company EVRAZ Highveld Steel and Vanadium Limited (“EVRAZ Highveld”) is currently mining

the MML at its Mapochs Mine, albeit a considerable distance away in the Eastern Lobe of the Bushveld Complex, and successfully

producing a saleable product to the domestic market. Other VTM explorers such as Baobab Resources have also completed

metallurgical studies on their resources with variable levels of success, and this adds some confidence that the Bushveld Minerals

VTM ore will prove to be saleable. Metallurgical test work also needs to be undertaken on the tin ore body. Tin is notoriously

difficult to process due to its very brittle nature, therefore at the low grades displayed for the Mokopane tin project, high tin

recoveries will be needed to make the project economic.

Sales to market

Marketing is an important aspect of any iron ore business. VTMs are highly specialised and can only be smelted by a limited

number of steel producers due to its high titanium content. EVRAZ Highveld has a specialised smelter in the region capable of

processing VTM ore, and this would be a propitious customer for Bushveld Minerals although they are currently producing below

full capacity due to recent slowing sales. The iron concentrate could also be shipped to international smelters after initial

beneficiation, with the most likely customer being the Chinese smelters, but this would incur high transport costs and be subject to

competition from the growing global production of high grade, easily extracted, Direct Shipping Ore (“DSO”) from regions such as

West Africa. Bushveld Minerals has yet to conduct marketing studies and do not yet understand where the product will be sold.

The vanadium market

Global vanadium production sits around 60 000 tpa and supply is forecast to be in surplus in the near future. The industry is hopeful

of the development of Vanadium Redox Battery (“VRB”) technology to drive future demand but further technological refinements

and funding are required to advance it into a mature, large–scale market. This additional demand for the metal is not expected in

the immediate future. If the conventional, steel-driven demand for vanadium is considered alone, forecasts estimate an annual

vanadium surplus in the market of 3000 to 5000 t, however if the commercial use of VRBs and lithium-vanadium batteries does

succeed in the coming years, this combined demand will introduce a market deficit. The vanadium market is tightly controlled by a

few major players and mainly sold on pre-determined off-take contract agreements, making it difficult for Bushveld Minerals to

penetrate sales in a substantial way in the short term. Because of the low levels of global production, any major sales by Bushveld

Minerals could potentially flood the market, therefore driving prices lower.

Geology

The geology of the deposit is relatively narrow for an iron ore deposit, and steeply dipping. This leads to high mine stripping ratios,

and therefore higher operating costs. Known regional fault zones and the likely presence of associated local fault splays might have

a detrimental effect on the lateral and down-dip continuity of the mineralisation than currently indicated by the existing borehole

spacing.

South African slowing economy

The most cost effective market for Bushveld Minerals’ VTM ore is likely to be the domestic market. The national economy is poised

for a slow-down in 2012 with a real GDP growth forecast of 2.7% down from an estimated 3.1% in 2011. This could potentially

weaken further than the global economy as investors show increasing aversion to higher risk jurisdictions. International markets are

less potentially lucrative because of increased transport costs. Sales to these markets will depend on the quality of the product

produced and the cost at which it is produced.


p40

South African nationalisation

The current political landscape in South Africa is uncertain. During 2011, populist ANC Youth Leader Julius Malema caused political

upheaval by calling for the nationalisation of the mining industry. Malema was subsequently suspended from politics for five years,

but remains a popular figure, with support amongst poor South Africans. Recently, the Mineral Resources Minister, Susan Shabangu

stated that nationalisation was neither government policy nor that of the ruling party, and has taken steps to reduce uncertainty,

however the debate is having an adverse reaction on the risk perception of doing business in South Africa. This can only serve to

deter future investment in the South African mining industry in the short to medium term or until this issue is resolved.

Power and skills shortage

Beneficiation of this type of ore is power intensive. Although the 765 kV Matimba-Witkop power line passes 25 km north of the

property, power blackouts or “load sharing” remain common in South Africa. There has been little significant capital injection into

generation and transmission, from either the private or public sector, for at least 15 years, and strong economic growth, poor

planning and high oil prices have exacerbated the problem. Although this has improved in recent years, national power

infrastructure will continue to fail to meet demand until major power infrastructure initiatives have been completed, estimated to be

another five years.

Financing

Financing is a substantial risk for most exploration companies as discovering an ore body and putting it into production is

expensive and exploration companies do not generate revenues. A beneficiation plant is likely to be capital intensive and will

require a large capital raising.


p41

Corporate Structure & Shareholders Exhibit 26: Corporate Structure



p42

Directors

Fortune Mojapelo, Fortune Mojapelo, Fortune Mojapelo, Fortune Mojapelo, Executive DirectorExecutive DirectorExecutive DirectorExecutive Director---- Founding director of VML Resources, a private junior mining company CEO of AIM-listed

Copper Resources Corporation, Started career with Mckinsey & Company, B.Sc Actuarial Science from University of Cape Town.

Anthony ViljoenAnthony ViljoenAnthony ViljoenAnthony Viljoen, , , , ExecutivExecutivExecutivExecutive Director e Director e Director e Director ---- Investment banking experience with Deutsche Bank, Barclays Capital and Loita Capital

Partners, Founding director of VML Resources, B.Sc Economics & Agricultral Economics from University of Natal

Prof. Richard ViljoenProf. Richard ViljoenProf. Richard ViljoenProf. Richard Viljoen, , , , Chief Operating OfficerChief Operating OfficerChief Operating OfficerChief Operating Officer---- Over 30 years in the mining industry including 15 years as chief consulting

geologist for Goldfields of South Africa. Development/key role in the development of significant mines including Northam

Platinum, and the Leeudoorn and Tarkwa gold mines. Key role in identifying and development of a significant platinum deposit in

the Bushveld complex of South Africa for Akanani Resources. Consultant for exploration and mining companies in Canada, Mexico,

Venezuela, India and China in the fields of base metals, gold and platinum

.A number of Competent Persons Report (CPR) for projects including the Witwatersrand South Reef Project, Doornkop mine project

and the Uramin uranium project. President, CEO and director of Solfotara Mining Corp.

Prof. Morris ViljoenProf. Morris ViljoenProf. Morris ViljoenProf. Morris Viljoen, , , , NoNoNoNonnnn----executive Directorexecutive Directorexecutive Directorexecutive Director---- An internationally recognized geologist, fellow of numerous geological and

scientific bodies both in South Africa and internationally. 20 years with JCI working in base metals (including nickel, copper

antimony), gold and platinum exploration and mining in Southern Africa; Seven years consulting geologist for Rustenburg Platinum

Mines, now Anglo Platinum Limited; Seven years consulting geologist for Rustenburg Platinum Mines, now Anglo Platinum Limited;

Past 13 years as Professor of Mining Geology at the University of Witwatersrand; Established the Centre for Applied Mining and

Exploration Geology at the University of Witwatersrand, involved in identifying and developing mineral projects, and these have

included the Amalia and Blaaubank lode gold deposits, the Akanani/Afri Ore platinum project, the Uramin uranium project and the

Central Rand Gold project.


p43

Research Disclosures

Juan AlvarezJuan AlvarezJuan AlvarezJuan Alvarez

Juan has a Bachelor’s degree in geology from Macquarie University in Sydney and currently has over fifteen years’ experience in

exploration, mining geology, resource estimation and grade control. Juan has joined from Golder Associates where he spent

seven years as a consultant working on resource estimation, due diligence studies and feasibility studies. Prior to Golder, Juan

worked for four years with Anglogold, three years with Rio Tinto in the iron ore mines of the Pilbara and two years as an exploration

geologist.

+44 (0)203 463 5035

[email protected]

Peter RosePeter RosePeter RosePeter Rose

Peter has 25 years’ experience in equities as a resources analyst, most recently having spent 11 years with Deutsche Bank in

Australia. Prior to this he spent 3 years with Prudential Bache and 5 years with James Capel. Peter's industry experience includes 16

years as a metallurgist, 3 years with De Beers in South Africa and 8 years in the uranium industry, 5 of which were spent at the

Ranger Uranium mine. Peter holds a BSc degree in Applied Mineral Science from Leeds University UK and a Bachelor of Commerce

from the University of South Africa. Peter is also a member of the Institute of Mining & Metallurgy and a chartered engineer.

+44 (0)203 463 5034

[email protected]

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p44

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p45

Fox-Davies Capital Coverage

Fox-Davies corporate client & coverage universe as of 27 February 2012:

CompanyCompanyCompanyCompany TickerTickerTickerTicker RecommendationRecommendationRecommendationRecommendation DateDateDateDate Target PriceTarget PriceTarget PriceTarget Price Last PriceLast PriceLast PriceLast Price

Mining

African Barrick Gold ABG LN Equity HOLD 17.02.12 £4.89 £4.65

Alecto Minerals ALO LN Equity SPEC BUY 16.01.12 NA £0.02

Alexander Nubia AAN CN Equity BUY 17.02.12 C$0.35 C$0.09

Angel Mining ANGM LN Equity BUY 03.03.10 NA £0.02

Antofagasta ANTO LN Equity SELL 02.02.12 £11.21 £13.30

Atlantic Coal ATC LN Equity BUY 10.01.12 £0.010 £0.004

Aura Energy AEE AU Equity BUY 29.11.11 A$0.80 A$0.195

Centamin Egypt CEY LN Equity BUY 31.01.2012 £1.42 £0.91

Colt Resources GTP CN Equity BUY 15.02.12 C$0.84 C$0.51

Copper Development Corporation CDC LN Equity BUY 17.02.12 £1.02 £0.26

Discovery Metals DME LN Equity HOLD 25.01.12 £1.06 £1.06

EMED Mining EMED LN Equity BUY 07.02.12 £0.48 £0.14

Exco Resources EXS AU Equity BUY 16.02.12 A$0.29 A$0.195

Hambledon Mining HMB LN Equity BUY 25.01.12 £0.190 £0.03

Highland Gold HGM LN Equity BUY 31.01.12 £2.82 £1.65

Hochschild Mining HOC LN Equity BUY` 02.02.12 £5.92 £5.00

KEFI Minerals KEFI LN Equity SPEC BUY 17.02.12 NA £0.03

Kryso Resources KYS LN Equity BUY 21.04.10 £0.22 £0.30

Lydian International LYD CN Equity BUY 25.01.12 C$5.25 C$2.61

Mariana Resources MARL LN Equity BUY 19.01.12 £0.22 £0.09

Minera IRL MIRL LN Equity BUY 15.02.12 £1.37 £0.74

Mindoro Resources MIO CN Equity BUY 15.02.12 C$0.39 C$0.13

Paragon Diamonds PRG LN Equity BUY 16.02.12 £0.34 £0.32

Randgold Resources RRS LN Equity HOLD 07.02.12 £78.95 £71.45

Serabi Mining Plc SRB LN Equity BUY 25.01.12 £0.49 £0.15

Stratex International STI LN Equity BUY 16.02.12 £0.15 £0.10


p46

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Bushveld Minerals

International Sales Corporate Finance & Broking Market Making

Daniel FoxDaniel FoxDaniel FoxDaniel Fox----DaviesDaviesDaviesDavies

Tel: +44 (0)20 3463 5060

Email: [email protected]

Oliver StansfieldOliver StansfieldOliver StansfieldOliver Stansfield

Tel:+44 (0)20 3463 5061


Jonathan WilliamsJonathan WilliamsJonathan WilliamsJonathan Williams

Tel:+44 (0)20 3463 5066


Charlie GellerCharlie GellerCharlie GellerCharlie Geller

Tel: +44 (0)20 3463 5063


Kai BuckleKai BuckleKai BuckleKai Buckle

Tel: +44 (0)20 3463 5087


Barry SaintBarry SaintBarry SaintBarry Saint

Tel: +44 (0)20 3463 5017


Richard HailRichard HailRichard HailRichard Hail

Tel: +44 (0)20 3463 5027


Simon LeathersSimon LeathersSimon LeathersSimon Leathers

Tel:+44 (0)20 3463 5022


Jonathan Evans Jonathan Evans Jonathan Evans Jonathan Evans

Tel: +44 (0)20 3463 5016


Susan WalkerSusan WalkerSusan WalkerSusan Walker

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Lisa CLisa CLisa CLisa Cairesairesairesaires

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Russell JacksonRussell JacksonRussell JacksonRussell Jackson

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Chris HartChris HartChris HartChris Hart

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Alan PatersonAlan PatersonAlan PatersonAlan Paterson

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Steve KingSteve KingSteve KingSteve King

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STX 77766

Equity Research Dealing

Peter RosePeter RosePeter RosePeter Rose

Tel: +44 (0)20 3463 5034


Juan AlvarezJuan AlvarezJuan AlvarezJuan Alvarez

Tel: +44 (0)20 3463 5035


Paul SingerPaul SingerPaul SingerPaul Singer

Tel: +44 (0)20 3463 5042


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Tel: +44 (0)20 3463 5039


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STX 77767

bushveld minerals initiation v4 cm€¦ · south africa did not hold its first universal,...

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