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STEENKAMPSKRAAL

HOLDINGS LTD.

Steenkampskraal Rare Earth and Thorium Project

Western Cape Province South Africa

Information Memorandum

For further information, contact:

Trevor Blench, Chairman

Steenkampskraal Holdings Ltd.

+27 (0) 21 852 4998

[email protected]

January 2018

mailto:[email protected]

Steenkampskraal Rare Earth and Thorium Project – Information Memorandum

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Summary

This document is an Information Memorandum (IM) about the Steenkampskraal Rare Earth and Thorium mining and processing project in the Western Cape Province of South Africa.

Steenkampskraal Holdings Ltd. (SHL) was formerly known as Rare Earth Extraction Co. Ltd. (“Rareco” or the “Company)”. Rareco was 100% owned by Great Western Minerals Group Ltd. (GWMG) of Canada until 17 July 2015, when the Company was acquired by Thorium Foundation. Rareco changed its name to SHL on 10 February 2016.

The information presented in this IM is based on work done at the Steenkampskraal mine (SKK) since the early 1950’s through to the recent work done by GWMG. This document provides a synthesis of the relevant information from these historic studies.

SKK is the highest-grade rare earth and thorium mine in the world that has a National Instrument NI 43-101 compliant Mineral Resource Estimate (MRE); the average grades are 14.4% rare earths and 2.14% thorium. SKK was operated by Anglo American Corporation (AAC) from 1952 to 1963. During this time, AAC produced monazite concentrate and exported this concentrate to Thorium Ltd. in the UK, where it was treated using the caustic soda cracking process into the thorium and rare earth fractions; the thorium was sold to make nuclear fuel. SKK was subsequently the subject of several technical studies and mineral resource estimates. These include a study by Rareco in 2002 that formed the basis for the approval by the Industrial Development Corporation (IDC) of finance to re-open the mine.

Following the acquisition of the mine by GWMG in 2010, Snowden Mining Consultants (Snowden) completed a Preliminary Economic Assessment (PEA) in December 2012 that confirmed the economic viability of the project. Following the PEA, GWMG completed a Bankable Feasibility Study (BFS) and Venmyn Deloitte completed a NI 43-101 compliant Independent Technical Report (ITR) on the Results of a Feasibility Study for the Steenkampskraal Rare Earth Project.

This GWMG plan deviated from the previous project plan in three major respects: the production of the mine was increased from 2,700 (two thousand seven hundred tons) to 5,000 (five thousand) tons of rare earth oxides (REOs) per year; it included a mechanized and trackless mine based on the development of new underground infrastructure; and it proposed a sulfuric acid treatment process instead of the commercially proven caustic soda process. This IM is based on the return to an output of 2,700 tons of rare earth oxides (REOs) per year, optimum utilization of the existing mining infrastructure and the use of the caustic soda cracking process. This return to the original project plan substantially reduces the capital and operating costs and reduces the risks of the project in many significant ways.


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Statutory Information

SHL is registered in South Africa with registration number 1989/003212/06. The Company’s registered address is: First floor, Lompre House, Fairways Office Park, Niblick Way, Somerset West 7130, South Africa.

The directors of the Company are:

Trevor Anthony Blench, economist, with ID number 4602075149087. Mr. Blench was involved with the Steenkampskraal project from 1989 until 2011 and has been involved with the project again since 2015. He believes that rare earths are important minerals for some clean energy technologies, like wind power and electric vehicles. He believes that thorium could be a source of clean energy and medical isotopes.

William Gerrit Horne, attorney, with ID number 5306035132089. Mr. Horne has been a director of the Company since 2015. He is interested in the economic and social development of Namaqualand and believes that the Steenkampskraal project will create employment and improve the lives of hundreds of people in the region. He is also a Trustee of the Steenkampskraal Workers’ Trust.

Robert Truter Louw, chemical engineer, with ID number 6004065054088. Mr. Louw was the Steenkampskraal Project Director from 1996 until 2011 and has been the Project Director again since 2015. He is committed to the reduction of carbon emissions and to the prevention of climate change. He believes that rare earths are necessary for many clean energy technologies and that thorium could be a clean source of nuclear power.

The Company Secretary is Michele Bernadette Henderson, with ID number 6208020048081. Mrs. Henderson has a B. Com. Degree and has been with the Company since 2011. She is also the Company’s accountant.

Capital Structure

SHL has one class of shares: ordinary voting shares of no par value. The authorized share capital is 500,000,000 (five hundred million) shares and the issued share capital is 55,500,000 (fifty-five million five hundred thousand) shares. There are presently four shareholders: Thorium Foundation owns 50 million shares, Brumo Foundation owns 2 million shares, Gulf Investments Ltd. owns 2 million shares and Joe T. Eberhard owns 1.5 million shares.

On 31 December 2017, SHL had a total debt of ZAR 35,169,614 (thirty-five million one hundred and sixty-nine thousand six hundred and fourteen South African Rand) which was owed to Thorium Foundation.


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Property Description and Ownership

SKK is in the Western Cape Province of South Africa approximately 330km north of Cape Town and 90km east of the Atlantic Ocean. The mine is located on Portion 1 of the Farm Steenkamps Kraal Number 70 (as the farm is referred to in official documents), which is 473.7 hectares in extent. This land is owned by the State.

The Department of Mineral Resources (DMR) issued New Order Mining Right (MR) Number WC30/5/1/2/2/353 to Steenkampskraal Monazite Mine (Pty.) Ltd. (SMM) on 2 June 2010 for a period of twenty years until 1 June 2030.

SHL holds 74% of the shares in SMM and the balance of 26% is held by the Steenkampskraal Workers’ Trust (SWT), the company’s BBBEE partner.

Mineral Resource and Mineral Reserve Estimations

Snowden prepared a summary of the Mineral Resource Estimate (MRE) for SKK in October 2013. According to this MRE, the ore body contains a total of 86,900 tons of REOs at an average grade of 14.4%. Table 1 summarizes this MRE.

Table 1: Mineral Resource Estimation for the Steenkampskraal Mine - March 2014

MINERAL RESOURCE

CLASSIFICATION CATEGORY

RESOURCE TONNAGE (tonnes)

GRADE (%REO+Y2O3)

CONTAINED (REO+Y2O3)

(tonnes)

In-situ mineral reserves

Measured 85,000 19.5 16,500

Indicated 474,000 14.1 67,000

Inferred 60,000 10.5 6,300

Sub-total in situ Measured+Indicated 559,000 15.1 83,500

Total in situ Measured+Indicated 559,000 15.1 83,500

Historic TSF Indicated 46,000 7.2 3,300

TOTAL Measured+Indicated 605,000 14.4 86,900

Mine Design and Mining Methodology

The mine design referred to in this IM was developed to make optimum use of the existing underground infrastructure. This infrastructure served the AAC operations between 1954 and 1963, when the mine produced about 25,000 tons of ore and about 6,000 tons of


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monazite concentrate per year. This strategy to use the existing infrastructure will substantially reduce both capital and operating costs from those proposed in the GWMG plan.

The mine design is based on conventional stoping techniques, tramming the ore to the bottom of the incline shaft and hoisting the ore up the incline shaft. With a target production rate of 2,700 tons of contained REOs per year and an average mined grade, after allowing for dilution, estimated at 8.7%, the mine will produce about 30,000 tonnes of ore per year. At this rate of production, the mine life will be over 30 (thirty) years. The high grade and the small tonnage mean that mining costs will be relatively low.

The mine has been designed to maximize occupational health and safety. This approach has made it possible to address the concerns about the levels of radioactivity in the mine and will make it possible to operate the mine for its entire life within the regulatory parameters established by the authorities.

The Company plans to make good use of the mining infrastructure that was established by AAC in the 1950s and 1960s and to make good use of the surface infrastructure that was developed by GWMG. These companies invested a great deal of money in the Steenkampskraal mine and the remaining investment to bring the mine into production is relatively small.

Processing

The processing route involves the use of gravity separation and flotation to produce a high-purity concentrate that will contain about 90% (ninety percent) monazite. A concentrate that contains copper, gold and silver will be produced as a by-product during this phase. The monazite concentrate will be chemically cleaned to remove residual apatite and sulphide contamination, after which it will be treated with caustic soda to render the rare earth elements soluble in a dilute acid solution. The cerium will be removed from the mixed rare earth salts at SKK and will be refined for sale in South Africa. The cerium-depleted mixed rare earth carbonate will be sold to companies that separate the individual rare earth oxides.

As the quality and the grade of the feed material are so high, the Company believes that it has the potential to be one of the lowest-cost producers of rare earths and thorium in the world.

Environmental Management Programme (EMP)

SMM prepared an EMP that was approved by the Department of Mineral Resources (DMR) in 2010. This EMP forms an integral part of the Mining Work Programme (MWP) and ensures compliance with the MR. The Company is committed to the sustainable development of the Project and to the protection of the local environment.


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National Nuclear Regulator (NNR)

SMM is registered with the National Nuclear Regulator (NNR) and holds Certificate of Registration Number 23 (COR-23). SMM is licensed to mine, process, transport, and store naturally occurring radioactive material (NORM). The Company employs a Radiation Protection Officer (RPO) whose duty is to ensure that the Company complies with the NNR regulations, manages all radiation issues responsibly and monitors the radiation exposures of employees and the public to ensure that they remain below the legal limits. The most important source of radiation at SKK is thorium; the Company believes that thorium is potentially a valuable resource and will store it carefully for future sale.

Rehabilitation

SMM established the Steenkampskraal Rehabilitation Trust (SRT) and has made financial provision for mine closure and rehabilitation through this Trust. The DMR reviews this provision on an annual basis. The Company has a Notarial Mineral Lease Agreement with the State whereby the State accepts responsibility for the rehabilitation of the historic impacts, the Company will perform this rehabilitation on behalf of the State and the State will compensate the Company for this rehabilitation by reducing the Company’s royalty payments.

Social and Labour Plan

SMM submitted a Social and Labour Plan (SLP) in 2010 that was approved by the DMR and which forms a part of the MR. The Company contributed R 500,000 (five hundred thousand rand) for the construction of a community centre in Lutzville. The SLP is an on-going activity that will continue until the closure of the mine. The Company is presently planning a new project for the SLP which involves the cultivation of indigenous plants for medicinal purposes. The DMR has indicated that it would approve this project.

Steenkampskraal Capital and Production Cost Estimations

The capital and production cost estimations for the project are listed in Tables 2 and 3. These cost estimations are based partly on the escalation of costs that were calculated in 2002 and partly on new quotations that were received in 2017. The Company is recalculating these capital and production cost estimations based on detailed engineering designs and on recent price quotations for all capital equipment items.


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Table 2: Capital Cost Estimations

COST ITEM COST

ESTIMATIONS (RAND)

COST ESTIMATIONS

(US$)1

COST ESTIMATIONS

(US$/tonne REO)

Mining R 45 900 000 $ 3 300 000 $ 1 222/t REO

Infrastructure R 64 356 446 $ 4 596 889 $ 1 703/t REO

Processing plants R 254 183 585 $ 18 155 970 $ 6 724/t REO

Total Capital Cost R 364 440 031 $ 26 031 431 $ 9 641/t REO

In addition to the estimated capital cost, there is an estimated working capital requirement of ZAR 166 million (USD 11.86 million).

Table 3: Production Cost Estimations

COST ITEM ANNUAL COST2 COST PER KILO REO

(RAND/kg) COST PER KILO REO

(US$/kg)

Mining R 13 230 000 R 4.90/kg $ 0.35/kg

Monazite concentrate production R 7 560 000 R 2.80/kg $ 0.20/kg

Mixed RE carbonate production R 86 940 000 R 32.20/kg $ 2.30/kg

Total cost to produce RE carbonate R 107 730 000 R 39.90/kg $ 2.85/kg

RE separation R 207 900 000 R 77.00/kg $ 5.50/kg

Total cost including separation R 315 630 000 R 116.90/kg $ 8.35/kg

Rare Earth Markets

The term “rare earths” includes seventeen different chemical elements, some of which are rare and some of which are abundant. These elements have many different uses and applications. Their present relevance and importance are related to their uses in technologies that reduce carbon emissions and combat global warming and climate change.

1 Converted at the rate of R14.00 per US$ 2 Costs reported in 2016 Rands


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Rare earths are used to make the permanent magnets that are used in the electric motors that provide power for appliances, wind turbines, robots and electric vehicles. They are used in electronic items such as portable computers, smart phones, LED lighting and air conditioning equipment. The demand for rare earths in these applications has been growing rapidly for many years and is expected to continue growing rapidly for many years to come. The Company is in contact with many prospective customers for its production and is confident that it will be able to sell its production at prices that will ensure a good profit margin.

Rare Earth Prices

Rare earth prices have been volatile over the last decade. The prices for the more important rare earth oxides in October 2017 are shown in Table 4.

Table 4: Rare Earth Oxide Prices

REO USD$ Price

per Kg

La $ 2.46

Ce $ 2.77

Pr $ 90.77

Nd $ 75.38

Sm $ 2.31

Eu $ 100.00

Gd $ 29.23

Tb $ 600.00

Dy $ 200.00

Er $ 28.46

Y $ 4.00


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Economic Analysis

The Steenkampskraal Project enjoys many advantages that improve the Project’s economics. Firstly, AAC previously operated the mine and the mine is already developed with a shaft, stopes and ore reserves. Secondly, GWMG invested a substantial amount of money to develop the infrastructure at the mine. Thirdly, the high grades and the shallow depth mean that mining volumes will be small and that mining costs will be low. Fourthly, the processing technologies are well-known, efficient and the costs of producing monazite concentrate and mixed rare earth carbonate will be low. Fifthly, the prices of the rare earths that are used to make magnets have increased significantly are expected to remain high as the production and sales of electric vehicles continue to increase. The Project is expected to have high profit margins.

At the prices presented above and at a discount rate of 14%, the project would have a net present value (NPV) of R 1,700 million (USD 121 million) and an internal rate of return of 66.5%.

Figure 1 shows the Project IRR and NPV as a function of the SKK rare earth basket price. Figure 2 shows the Project Cash Flow, also as a function of this basket price. The SKK basket price in October 2017 was about USD 24.51 per kilo.

If the mine produces 2,700 tons of rare earths per year and sells these rare earths at the SKK basket price of USD 24.51 per kilo, the Project will generate about R 926 million (USD 66 million) per year in sales and a gross profit of about R 611 million (USD 44 million) per year.

Figure 1: Project IRR and NPV (in US$)

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00

Basket price for SKK REO's

Project IRR

-$40 000 000

-$20 000 000

$0

$20 000 000

$40 000 000

$60 000 000

$80 000 000

$100 000 000

$120 000 000

$140 000 000

$160 000 000

$180 000 000

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00

Proj

ect I

RR


Project NPV


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Figure 2: Project Cash Flow in South African Rand

-R 600 000 000

-R 400 000 000

-R 200 000 000

R 0

R 200 000 000

R 400 000 000

R 600 000 000

R 800 000 000

R 1 000 000 000

R 1 200 000 000

R 1 400 000 000

0 1 2 3 4 5 6 7 8 9 10

Year

Project Cash Flow

Cash flow Cumulative project cash flow


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Table of Contents Summary ............................................................................................................................ i

Capital Structure ............................................................................................................... ii

Property Description and Ownership ................................................................................. iii

Mineral Resource and Mineral Reserve Estimations ......................................................... iii

Mine Design and Mining Methodology ............................................................................... iii

Processing ........................................................................................................................iv

Environmental Management Programme (EMP) ...............................................................iv

National Nuclear Regulator (NNR) .................................................................................... v

Rehabilitation .................................................................................................................... v

Social and Labour Plan ..................................................................................................... v

Steenkampskraal Capital and Production Cost Estimations .............................................. v

Rare Earth Markets ...........................................................................................................vi

Rare Earth Prices ............................................................................................................. vii

Economic Analysis .......................................................................................................... viii

1 Disclaimer ...................................................................................................................... 1

2 Glossary of Terms and Abbreviations ............................................................................ 3

3 Introduction .................................................................................................................... 4

4 Sources of Information ................................................................................................... 4

5 Legal Tenure ................................................................................................................. 5

5.1 Surface Right .......................................................................................................... 5

5.2 Mining Right............................................................................................................ 5

5.3 Environmental Liabilities, Legislative and Permitting Requirements ....................... 6

5.4 Radiological Considerations ................................................................................... 6

5.5 Royalties ................................................................................................................. 7

5.6 Litigation ................................................................................................................. 7

6 Overview of the Steenkampskraal Project ..................................................................... 7

6.1 Location .................................................................................................................. 7

6.2 History .................................................................................................................... 8

6.3 Logistics ............................................................................................................... 10

6.4 Settlements near Steenkampskraal ...................................................................... 11


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6.5 Topography, Elevation and Terrain....................................................................... 11

6.6 Climate ................................................................................................................. 11

6.7 Drainage System .................................................................................................. 12

6.8 Flora ..................................................................................................................... 12

6.9 Wildlife .................................................................................................................. 12

6.10 Property Description ............................................................................................. 12

6.10.1 Mining Infrastructure ...................................................................................... 12

6.10.2 Upgrade of Infrastructure and Services ......................................................... 14

7 Geological Setting and Mineralisation .......................................................................... 15

7.1 Regional Geological and Structural Setting .......................................................... 16

7.2 Steenkampskraal Project Geology........................................................................ 17

8 Resource and Reserve Estimations ............................................................................. 26

8.1 Mineral Reserve Estimation .................................................................................. 26

9 Mining .......................................................................................................................... 32

9.1 Underground Mining Methodology ........................................................................ 32

9.2 Ventilation and Environmental Compliance .......................................................... 35

9.3 Rehabilitation ........................................................................................................ 37

10 Processing ................................................................................................................... 37

10.1 Mineral Processing ............................................................................................... 37

10.2 Metallurgical Test Work ........................................................................................ 37

10.3 Concentrator ......................................................................................................... 38

10.4 Chemical Plant Process ........................................................................................ 38

10.4.1 Caustic Destruction ....................................................................................... 38

10.4.2 Tri-Sodium Phosphate Plant (TSP) ............................................................... 39

10.4.3 Hydrochloric Acid Reaction Plant .................................................................. 39

11 Marketing ..................................................................................................................... 40

11.1 Steenkampskraal Competitive Position ................................................................ 40

11.2 Markets for Rare Earths........................................................................................ 45

11.2.1 Geographical Distribution of World Market .................................................... 45

11.2.2 Uses of Rare Earths ...................................................................................... 45

11.2.3 Rare Earth Prices .......................................................................................... 49


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12 Project Economics ....................................................................................................... 50

12.1 Capital Expenditure .............................................................................................. 50

12.2 Production Costs .................................................................................................. 51

12.3 Summary of Financial Performance ...................................................................... 52

12.4 Sensitivity Analysis ............................................................................................... 55

13 Risk Analysis ............................................................................................................... 56

13.1 General and Industry Specific Risks ..................................................................... 56

13.2 Project Specific Risks ........................................................................................... 56

13.2.1 Resource and Reserve Estimations............................................................... 56

13.2.2 Public Acceptance of Rare Earth Elements ................................................... 56

14 Upside Potential .......................................................................................................... 56

15 Strategy ....................................................................................................................... 57

16 Thorium ....................................................................................................................... 57

18 Conclusion ................................................................................................................... 58


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List of Tables Table 1: Mineral Resource Estimation for the Steenkampskraal Mine - March 2014 ............ iii Table 2: Capital Cost Estimations .........................................................................................vi Table 3: Production Cost Estimations ...................................................................................vi Table 4: Rare Earth Oxide Prices ........................................................................................ vii Table 5: Recent Historic Ownership and Exploration of the Steenkampskraal Project ....... 10

Table 6: Comparative Summary of Historical Resource and Reserve Estimations ............. 27

Table 7: Mineral Resource to Mineral Reserve Modifying Factors ...................................... 29

Table 8: Mineral Resource Estimation for the Steenkampskraal Mine (October 2013) ....... 29

Table 9: Mineral Reserve Estimation for the Steenkampskraal Mine (March 2014) ............ 30

Table 10: Critical Rare Earths at Steenkampskraal ............................................................ 31

Table 11: World production of Rare Earths (Source: USGS) .............................................. 40

Table 12: Rare Earth Prices, FOB China ............................................................................ 49

Table 13: Capital Expenditure Estimation ........................................................................... 51

Table 14: Production Cost Estimation ................................................................................. 51

Table 15: Projected Balance Sheets (in R millions) ............................................................ 54

List of Figures Figure 1: Project IRR and NPV (in US$) ............................................................................. viii Figure 2: Project Cash Flow in South African Rand ..............................................................ix

Figure 3: Locality Map with Co-ordinates 30° 59’ 10”S and 18° 37’ 44”E ............................. 8

Figure 4: Satellite Image of the Historic Mine Site .............................................................. 13

Figure 5: Overview of the Historic Workings ....................................................................... 13

Figure 6: The Steenkampskraal Mine in its Present State .................................................. 15

Figure 7: Incline Shaft Headgear and the Steenkampskraal Mine ...................................... 15

Figure 8: Regional tectono-metamorphic terranes of Southern Africa (1) ........................... 16

Figure 9: Regional tectono-metamorphic terranes of Southern Africa (2) ........................... 17

Figure 10: Structural interpretation and geology of the Steenkampskraal Project Area ...... 19

Figure 11: Geology of the Steenkampskraal Project Area .................................................. 20

Figure 12: Structural interpretation of the central historic mined area ................................. 22

Figure 13: Geochemical spatial distribution of selected elements ...................................... 24

Figure 14: Characteristics and relationships between the mineralisation types .................. 25

Figure 15: Steenkampskraal ore body ................................................................................ 25

Figure 16: Broken ore accumulations in the historic mine workings.................................... 32

Figure 17: Layout of 3 level drive ........................................................................................ 33

Figure 18: Full Shrinkage Stoping ....................................................................................... 34

Figure 19: Underhand Stoping ............................................................................................ 35


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Figure 20: Mine Ventilation Design ..................................................................................... 36

Figure 21: Historic Rare Earth Production .......................................................................... 40

Figure 22: China Rare Earth Production ............................................................................. 41

Figure 23: Grades of In-Situ Rare-Earth Oxides (wt%) ....................................................... 42

Figure 24: Global Rare Earth Deposits (Source: iNEMI) ..................................................... 43

Figure 25: Rare Earth Values in Deposits........................................................................... 44

Figure 26: Applications of Rare Earths ............................................................................... 45

Figure 27: Value distribution of SKK rare earths based on October 2017 prices ................ 46

Figure 28: Project IRR and NPV ......................................................................................... 53

Figure 29: Project Cash Flow.............................................................................................. 55

Figure 30: Impact of rare earth prices on IRR ..................................................................... 55


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1 Disclaimer

This Information Memorandum (IM) has been prepared by Steenkampskraal Holdings Limited (“SHL” or the “Company”) to provide information about the Steenkampskraal Rare Earth and Thorium Project (the “Project”).

In accepting this IM, the Recipient agrees for itself and its related corporate entities and their respective directors, officers, employees, representatives and advisers (together the ‘Recipient’) that it is provided on the terms and conditions of this Disclaimer.

This IM is for limited circulation to selected Recipients only. It is provided on a strictly private and confidential basis to be used solely by the Recipient.

It must not be made available to, or discussed with, any other person without the prior written consent of SHL. It is provided to the Recipient solely for its use to provide information about the Project and it is not to be used for any other purpose. The information contained herein has been prepared to assist the Recipient in making its own evaluation of the Project and this IM does not purport to contain all the information that the Recipient may require. The Recipient should conduct its own investigation and analysis of the information contained in this IM or otherwise provided.

Whilst SHL has tried to ensure the completeness and the correctness of the information contained in this IM, SHL has not independently verified any of the information, including any projections contained herein, and does not make or give any representations, warranties or guarantees, whether express or implied, with respect to the completeness, accuracy, currency or reliability of the information, or that reasonable care has been taken in compiling and preparing this information. Accordingly, neither the Recipient nor any other person shall have any claim whatsoever against SHL or any consultant(s), legal and/or financial advisor(s) to SHL arising from the information contained herein.

No information provided by SHL, or on behalf of SHL, to the Recipient (including, but not limited to, opinions, information or advice provided by legal or financial advisors, accountants or other professional advisors) is warranted or represented (whether express or implied), nor is it provided with the purpose of inducing any agreement between SHL and the Recipient. Therefore, neither the Recipient, nor any other person, shall have any claim of any kind whatsoever against SHL.

None of SHL, legal and financial advisors and other consultants to SHL, nor any of their respective directors, employees or other representatives, including professional and other advisors and consultants or auditors to SHL, shall be responsible for any losses or damages whatsoever arising out of the use of, or reliance upon, any information contained in this IM. The Recipient is advised to seek its own professional advice on the legal, financial, taxation, technical, regulatory and other aspects of the SKK project.


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This IM is for information purposes only; it is not financial product or investment advice or a recommendation to acquire shares in SHL. It has been prepared without taking into account the objectives, financial situations or needs of individuals. Before making an investment decision, prospective investors should consider the appropriateness of this investment in the context of their own financial objectives, situations and needs; they should seek financial, legal and tax advice appropriate to their personal circumstances and jurisdiction. SHL is not licensed to provide financial product advice about its shares.

Pursuant to the laws of the Republic of South Africa, this IM is not a prospectus and it does not constitute an offer or an invitation to any section of the public to subscribe for or to purchase any securities.


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2 Glossary of Terms and Abbreviations

Abbreviation / unit Definition

BEE Black Economic Empowerment

CIM Canadian Institute of Mining

GWMG Great Western Minerals Group

HREE Heavy Rare Earth Elements

IDC Industrial Development Corporation

IM Information Memorandum

IRR Internal Rate of Return

kg Kilogram

km Kilometre

kPa Kilopascal

LREE Light Rare Earth Elements

LUPO Land Use Planning Ordinance

m3 Cubic Meters

MPRDA Mineral and Petroleum Resources Development Act (Act No. 28 of 2002)

NI 43-101 Code CIM Standards for the Reporting of Mineral Resources and Mineral Reserves 2012

NNR National Nuclear Regulator

NPV Net Present Value

PEA Preliminary Economic Assessment

Project Steenkampskraal Rare Earth and Thorium Mine Project

Rareco Rare Earth Extraction Co. Ltd.

RD Relative Density

REE Rare Earth Elements

REO Rare Earth Oxides

RoM Run-of-Mine

SG Specific Gravity

TSP Tri-Sodium Phosphate


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3 Introduction

The Steenkampskraal mine is located about 330 kilometres north of Cape Town in the Western Cape Province of the Republic of South Africa. The Mining Right (MR) is held by Steenkampskraal Monazite Mine (Pty.) Limited (SMM), a subsidiary of Steenkampskraal Holdings Ltd. (SHL) of Somerset West, South Africa.

The Project consists of two separate but integrated activities:

• Mining from an existing underground mine and rock and residue dumps; and

• The production of mixed rare earth carbonate and thorium hydroxide in plant to be built at the mine.

SMM was awarded a South African New Order Mining Right (MR) under the MPRDA on 2 June 2010. This MR allows mining for 20 years until 1 June 2030 and is renewable.

SMM holds Certificate of Registration Number 23 (CoR-23) granted by the South African National Nuclear Regulator (NNR), which allows the company to mine, process, handle, transport and store naturally-occurring radioactive material (NORM) at the mine.

Monazite was mined at SKK from 1952 until 1963 by Monazite and Mineral Ventures (Pty.) Ltd. (MMV), a subsidiary of Anglo American Corporation (AAC). MMV supplied monazite concentrate to European and American customers who separated the monazite into rare earths and thorium. The rare earths were used in the form of mischmetal in the steel industry and to make lighter flints and other products, while the thorium was used to make nuclear fuel for power stations and mantles for gas mantle lamps.

This IM describes the current state of the mine and the project to bring the mine into production. The mine will produce a mixed rare earth carbonate that will contain 2,700 tons of REOs per year.

4 Sources of Information

This IM is compiled with information from the following sources:

• Historic exploration and production information available from previous studies of the project. This includes information from MMV, AAC, Metorex and Rare Earth Extraction Co. Ltd. (Rareco);

• Published information on the processing of monazite from Steenkampskraal at Thorium Ltd. in England during the 1950s and 1960s;

• Test-work done on Steenkampskraal ore by Metorex, Mintek, General Metallurgical Research and Services and Rareco;

• The CIM NI 43-101-compliant Preliminary Economic Assessment (PEA) prepared by Snowden Mining Consultants (Snowden) in 2012;


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• The CIM NI 43-101-compliant Independent Technical Report (ITR) prepared by Venmyn Deloitte in 2014.

5 Legal Tenure

5.1 Surface Right The State is the owner of the Surface Right on Portion 1 of the farm Steenkamps Kraal number 70 (as the farm is referred to in official documents). This Portion 1 covers 473.7 hectares.

As required by the MPRDA, SMM has informed the State that it will undertake mining activities within the area covered by the MR.

SMM has legal access to the property as stipulated in current land use legislation. SMM submitted the Land Use Planning Ordinance (LUPO) application to rezone the land to the Matzikama Municipality on 20 November 2013. SMM requested the temporary rezoning of the land use from ‘agricultural’ to ‘mining’. The Matzikama Municipality approved this rezoning of the land until 1 June 2030.

There are no known land claims registered over the MR area.

5.2 Mining Right SMM was granted an Old Order Mining Right (Protocol No. 378 of 1996 under the Minerals Act Number 50 of 1991) in 1997. This license was valid for fourteen years until 19 November 2011. In terms of Item 7 of Schedule II of the MPRDA, SMM applied for the conversion of the Old Order Mining Right to a New Order Mining Right prior to the deadline of 30 April 2009 (Application number A/2009/04/28/001).

SMM was awarded a New Order Mining Right (Protocol Number 394/2009, WC 30/5/1/2/2/353) on 2 June 2010. This MR covers Portion 1 of the farm ‘Steenkamps Kraal No. 70’ and is valid for a period of 20 years until 1 June 2030.

The MR is subject to the provisions of an agreement signed on 13 October 2009 between Rareco and the Steenkampskraal Workers’ Trust (SWT), by which Rareco transferred 26% of the shares in SMM to the SWT. This Agreement complies with the requirements of the MPRDA and the Broad-Based Black Economic Empowerment Charter and forms an integral part of the MR.

The MR permits the creation of rock, residue and waste disposal sites which, together with other associated surface infrastructure, have been planned and demarcated. The planned plant footprint and the affiliated support infrastructure cover a total area of about 5 ha. Mining operations in the MR area must be conducted in accordance with the Mining Works Programme (MWP) that was approved by the DMR.


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5.3 Environmental Liabilities, Legislative and Permitting Requirements The MR is based on an Environmental Management Programme Report (EMPR) that was approved by the DMR on 15 August 1997.

The Government of South Africa assumed full liability for the historic environmental damage to the site under the terms of a Notarial Lease Agreement signed between the Government and SMM on 19 November 1996 (Protocol No: 378/1996). The terms of this agreement are:

• The State is liable and responsible for the rehabilitation of all historic environmental impacts at SKK;

• SMM will rehabilitate the historic impacts on behalf of the State; this rehabilitation will include the re-processing of the residue and rock dumps;

• SMM will receive compensation from the State for this rehabilitation in the form of waived royalty payments;

• The State indemnifies and holds SMM harmless from any liability for the rehabilitation of existing impacts on the property or for any subsequent environmental impacts attributable to the existing impacts or to the rehabilitation of these subsequent impacts; and

• The State further holds SMM harmless against any claims that may be made against SMM by any third party for any loss, damage, injury or death arising out of any existing impacts and also for any environmental liabilities arising from exploration or mining activities conducted by other parties prior to this agreement.

5.4 Radiological Considerations SKK contains thorium and uranium. The material in the historic surface residues and rock dumps also contain thorium and uranium. The ore is therefore radioactive. The management of this radioactivity is an important part of the Project. Each part of the Project addresses the radiological risks and the management and mitigation measures to minimise these risks.

Legislation governing the management of radioactive sites in South Africa includes the National Nuclear Regulator Act (Act Number 47 of 1999) which is administered by the Department of Energy (DOE). Companies conducting activities on radioactive sites are required to register with the NNR, which ensures that the exposure of labour and the public to ionizing radiation is kept below the maximum legal thresholds.

SMM is registered with the NNR and holds Certificate of Registration Number 23 (COR-23). This COR allows SMM, subject to the conditions specified in the Certificate, to mine, use, possess, produce, store, process and transport radioactive material at, and convey, cause to be conveyed and dispose of radioactive material from the site. Consequently, the Company complies with current South African regulations regarding radioactive material.


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5.5 Royalties Mining companies operating in South Africa are required to pay royalties prescribed by the MPRDA and the Minerals and Petroleum Resources Royalty Act number 28 of 2008 (MPRRA). The royalty payable by each mining company is calculated with a formula and is a function of the degree of beneficiation and profitability; the maximum royalty for refined mineral products is 5%.

However, the State has agreed to offset SMM’s royalty payments against the costs incurred by SMM to rehabilitate the site on behalf of the State. SMM will conduct negotiations with the DMR to determine the amount of future royalties that may be offset against these rehabilitation costs.

5.6 Litigation During 2011, the previous owner of the Company, GWMG, appointed ERES Engineering Projects (Pty.) Ltd. to refurbish the incline shaft at SKK. The value of the contract was R31.67 million and the estimated duration of the work was five months. GWMG also appointed ERES to do some Bulk Earthworks for a contract value of R12.67 million over a period of two months.

One year and a half after the award of the contract, ERES had invoiced a total of R154.7 million, GWMG had paid to ERES a total of R106.2 million and ERES had not yet finished the refurbishment of the shaft or the bulk earthworks. GWMG employed quantity surveyors who valued the work that ERES had done at R44.9 million. GWMG sued ERES for the repayment of R61.28 million. ERES presented a counter-claim for R48.56 million in unpaid invoices.

This dispute is now the subject of litigation in the Pretoria High Court. The Company spent three weeks in Court in May 2017; the trial did not finish and will resume on 29 January 2018. The Company’s advocates and attorneys think that the trial commenced well and are confident that the Company will prevail.

The South African Police Services (SAPS) are investigating the case and the Company’s attorneys believe that the SAPS will lay criminal charges against ERES.

Overview of the Steenkampskraal Project

5.7 Location SKK is located in the Knersvlakte, in the northern sector of the Western Cape Province, approximately 330km north of Cape Town and 90km east of the Atlantic Ocean; it is therefore close to the ports of Cape Town and Saldanha Bay and to Cape Town International Airport.

Portion 1 of the farm Steenkamps Kraal No. 70 is in the Matzikama Local Municipality, which


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is within the West Coast District Municipality (see Figure 3). The main town in Matzikama is Vredendal, which is the administrative and commercial centre of the municipality. SKK is about 105 km north of Vredendal and about 80 km north of the town of Vanrhynsdorp.

Figure 3: Locality Map with Co-ordinates 30° 59’ 10”S and 18° 37’ 44”E

5.8 History The ownership of SKK and the historical exploration undertaken by the various exploration and production companies date back to 1949. For this IM, the recent historic information is presented as it pertains to the BFS for the re-opening of the mine.

Rareco acquired the Prospecting Right (PR) for SKK in 1989 and conducted an exploration and evaluation campaign, which included:

• A geological investigation and a quantification of the ore reserves by Dr. Felix Mendelsohn in 1991;


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• The drilling and testing of three boreholes for water supplies;

• A borehole census and a groundwater sampling and analysis by the Atomic Energy Corporation;

• A survey of the blasted monazite material that was left underground in the ore passes, stopes and drives;

• A scintillometer survey of the contaminated surface area;

• Additional underground sampling focused on the host rock surrounding the monazite deposit;

• A drilling programme comprising four boreholes (RD1, RP1, RP2 and RP3) that were drilled on the southern limit of the known underground workings. These boreholes formed a part of the 1996 Rareco ore reserve estimate by Mendelsohn; and

• The analysis of exploration samples by Anglovaal Research Laboratory.

Academic studies by Dr. Marco Andreoli indicated that the mineralised monazite vein showed a normal REE distribution, enriched in LREE over HREE.

In 1994, Rareco listed on the JSE-Venture Capital Board and raised about R10 million to develop the mine. Rareco prepared a feasibility study at that time. Rareco signed an off-take agreement with Rhodia in France and applied for, and was offered, finance from the IDC in South Africa and from Proparco, a part of the Agence Francaise de Development. The project did not proceed at that time because rare earth prices fell and Rhodia did not proceed with the off-take agreement.

During the early 2000s, rare earth prices fell to low levels and the construction of the mine was postponed; Rareco delisted from the JSE in 2007.

In June 2010, SMM applied for, and the DMR granted, the New Order Mining Right for SKK.


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Table 5: Recent Historic Ownership and Exploration of the Steenkampskraal Project

PERIOD COMPANY RIGHTS ACTIVITIES

1989 - 1996 Rare Earth Extraction Co.

Ltd. (Rareco)

Quantification of 1991 reserves (Mendelsohn) , water borehole drilling and census, water sampling and a survey of the broken monazite rock left in the ore passes. Additional underground sampling and surface drilling (4 drill holes). Results were used in the 1996 ore reserve estimate.

1996 - 2007 Rareco listed on the JSE in 1994 to raise funds to develop the Steenkampskraal Project.

2007 - 2011 Rareco

Steenkampskraal Monazite Mine (Pty)

Ltd

New order Mining Right issued in June 2010 for 20 years.

2011- 2015 Great Western

Minerals Group Ltd. (GWMG)

Completion of a large scale exploration campaign comprising 232 drill holes totalling 28,157m. In addition, 99 channel samples were collected totalling 122m. The results of this campaign were used to calculate a Mineral Resource Estimation which was used in the 2012 Snowden PEA. The Mineral Resource Estimation was updated in 2013.

On 12 July 2011, GWMG completed its acquisition of 100% of the Rareco shares from the previous shareholders.

On 17 July 2015, Thorium Foundation completed its acquisition of 100% of the Rareco shares from GWMG.

5.9 Logistics SKK is 330km north of Cape Town and access is provided by the N7, a national tarred road,


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for about 350km, and then by the DR2230 secondary gravel road for about 30km. The mine is about 2km from this road.

The nearest tarred airport to SKK is at Vredendal, which is about 100km south of the mine. Helicopter access from Cape Town International Airport to SKK is the quickest and most direct access route.

SKK is 66km from the railway station at Bitterfontein, 294km from the deep-water port at Saldanha Bay and 330km from the harbour at Cape Town.

5.10 Settlements near Steenkampskraal The Knersvlakte is a sparsely populated region and the nearest settlement to SKK is the village of Nuwerus, situated 51km by road to the west at the junction of the N7 and the R363. The village of Kliprand is 78km north-east of SKK (see Figure 3). These villages offer basic services. The nearest town to SKK is Vanrhynsdorp, which is 80 km to the south. The district capital, Vredendal, is about 100km to the south.

5.11 Topography, Elevation and Terrain SKK is located within a broad transition zone between the coastal lowlands and the inland plateau which slowly loses altitude towards the west and the north, in an area known as the Cape Middleveld. The Cape Middleveld represents the most westerly portion of the inland plateau, where elevations range from 900 meters above mean sea level in the east to 300 meters above mean sea level in the west.

The elevation on the MR area ranges from 437 meters above mean sea level to 362 meters above mean sea level. Within this range, the terrain is generally flat and rugged in nature. The dominant topographic feature of the area, and the focal point of the Project, is the Steenkampskraal Koppie which rises approximately 50m above the Knersvlakte. The Knersvlakte is characterised by rocky gravel planes covered by sandy soils, short shrubs and succulent plants.

5.12 Climate The Project area has three distinct seasons:

• A hot and dry season from January to March with virtually no rainfall and average high temperatures of 30°C; temperatures can occasionally exceed 40°C;

• A relatively cool season from April to August with average maximum daytime temperatures of 22°C and average rainfall of 17mm;

• A hot season from September to December with minimal and variable rainfall (<10mm per month) and average daytime maximum temperatures of 27°C.


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5.13 Drainage System The drainage systems of two non-perennial rivers traverse the MR area; the Klein Riet River drains the northern slopes and the Nabeep River drains the southern slopes. These two intermittent rivers drain into the Geelbeks River, which drains into the Olifants River, which flows into the Atlantic Ocean.

5.14 Flora SKK is located in the Knersvlakte, which is classified as part of the Succulent Karoo eco-region, an area bounded to the south by the Mediterranean fynbos near Vredendal and which extends northwards into southern Namibia. This eco-region has the world’s largest variety of succulent plants, hosting a large number of the world’s 10,000 endemic succulent species.

The Knersvlakte has a rich biodiversity with a total of 1,324 different plant species recorded in the region, of which 266 are succulent Karoo endemics. A total of 128 plant species in the region have been listed on the globally threatened Red List.

5.15 Wildlife The Succulent Karoo eco-region hosts numerous endemic reptiles and invertebrates, while endemism is less pronounced amongst birds and mammals. The large species of mammals include various antelopes and the large birds include ostriches, bustards and raptors.

5.16 Property Description

5.16.1 Mining Infrastructure The remaining historic infrastructure at SKK comprises:

• A single incline shaft, which was the main haulage shaft, located on the southern slope of the SKK koppie;

• A single vertical shaft and a sub-vertical adit located near the top of the koppie;

• Limited open-cast excavations on the southern slope of the koppie;

• Low-grade residue and rock dumps (incorporating the contaminated historical mine ruins);

• The historic infrastructure included the remnants of the original mine buildings which were demolished by SMM and incorporated into the historic low-grade, surface rock dump; and

• The historic residue dumps were moved and consolidated (see Figure 4).


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Figure 4: Satellite Image of the Historic Mine Site

Figure 5: Overview of the Historic Workings


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5.16.2 Upgrade of Infrastructure and Services SMM embarked on a programme which incorporates the re-establishment of surface infrastructure and the underground workings for future mine production. The new infrastructure developed by GWMG between 2010 and 2015 includes:

• An upgraded historic core shed and supporting exploration infrastructure;

• Project office buildings including site administration, geology, safety and security;

• Several boreholes with pumps and pipes to supply water for the mine;

• A reverse osmosis plant to supply up to 30,000l/h, which is sufficient for the mine’s requirements;

• Communications infrastructure, including four Telkom land-based telecommunication lines and a mobile telephone repeater tower that has not yet been commissioned. Electronic communication is provided by a dedicated satellite link. This infrastructure will require expansion when construction and mining commence.

• The dispersal of naturally occurring radioactive material (NORM), primarily as eroded material scattered over the slopes of the Steenkampskraal koppie, has been partially remedied by SMM with its initial rehabilitation measures.

Figures 6 and 7 show the SKK in its present state.


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Figure 6: The Steenkampskraal Mine in its Present State

Figure 7: Incline Shaft Headgear and the Steenkampskraal Mine

6 Geological Setting and Mineralisation

The mineralised monazite vein at SKK has been the focus of numerous geological, mineralogical and metallurgical investigations undertaken by various companies and academics since its official recorded discovery in 1949.


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6.1 Regional Geological and Structural Setting

The geological history of Southern Africa is long and complex, dating from more than 3.7 billion years ago. This complex history has resulted in a wide diversity of geological terranes and the preservation of significant proportions of the Archaean, and older, sequences has contributed to the mineral wealth of the region.

The Kaapvaal Craton, which occupies the north-eastern sector of South Africa, is the oldest and most stable foundation upon which the younger geological formations have been developed. The Kaapvaal Craton is a crustal block composed mainly of gneisses and granitoids with lesser volumes of metamorphosed volcano-sedimentary suites known as greenstone belts. A lengthy period of extensional tectonics, sedimentation, igneous intrusion, lava extrusion and collisions between cratons ultimately resulted in crustal thickening and the formation of distinct regional orogenic belts within which specific tectono-metamorphic terranes developed in response to local conditions. A significant tectono-metamorphic terrane flanking the south and west of the Kaapvaal Craton is the Namaqua-Natal Metamorphic Province, within which SKK is located, and is shown in Figure 8 and Figure 9.

Figure 8: Regional tectono-metamorphic terranes of Southern Africa (1)


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Figure 9: Regional tectono-metamorphic terranes of Southern Africa (2)

6.2 Steenkampskraal Project Geology The geology of the SKK area comprises four distinct geological units of different ages, namely:

• Remnants of the oldest (1,200 Ma) Namaqua-Natal Metamorphic Province granitic-gneiss basement which forms the resistant outcrop of the Steenkampskraal Koppie. The granite-gneiss suite is considered to have formed at the high temperatures and pressures (900ºC/5.5kbars) which exist in the deep crustal conditions created by major continental collisions. The structural features suggest formation under brittle-ductile to ductile deformation conditions in which the progenitor materials did not actually melt but which resulted in deformation fabrics and various gneissic textures. This suite of granitic gneisses is also called the Namaqualand Metamorphic Suite.

• The granite-gneisses are overlain by the 550 Ma to 530 Ma-aged sediments of the Vanrhynsdorp Group, which comprises a lower sequence of sandstones and grits called the Arondegas Formation, followed by the Gannabos Formation phyllites/shales and terminated by an upper unit of sandstones and shale called the Besonderheid Formation.

• The Steenkampskraal Intrusive Suite, comprises discordant dykes of alkali-feldspar


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granite, granite and quartz syenite, together with mafic members such as hypersthenite, anorthosite and leuconorite. Locally, charnockitic and enderbites are developed and the entire suite was classified by Andreoli (1994) as part of the Roodewal Suite.

• Tertiary and recent deposits comprising Knersvlakte dorbank, calcrete, ferricrete and aeolian sands.

The elevated topographic regions often consist of a basement of the Namaqualand Metamorphic Suite unconformably overlain by sediments of the Vanrhynsdorp Group, comprising quarzitic sandstones, siltstones and conglomerates. Geological mapping of the Steenkampskraal Project area has identified numerous upper-granulite metamorphic grade gneisses belonging to the Spektakel Suite, Little Namaqualand Suite and Kamiesberg Group which include granitic gneiss, charnockitic gneiss, mafic gneiss, quartz-feldspathic paragneiss, metaquartzite, as well as minor occurrences of calc-silicate gneiss and marble.

In the immediate vicinity of the mineralised monazite vein, various groups of Namaquan- aged gneisses have been identified which are colloquially referred to as the Steenkampskraal Granitic Gneisses. These Steenkampskraal Granitic Gneisses are the most common country rock around the mineralised monazite vein and consist of undifferentiated equigranular granite-gneisses and megacrystic granite-gneisses. Quartz-feldspar segregations are locally developed in the megacrystic granite-gneiss and these segregations contain both garnet and biotite. Some of the granulite metamorphic facies units contain orthopyroxene and can be locally classified as charnockites and subordinate enderbites of the charnockite group of rocks.

Illustrations of the structural interpretation and geology of the Steenkampskraal deposit are shown in Figure 10 and Figure 11, respectively.

The Steenkampskraal Intrusive Suite is a group of discordant dykes that are transgressive granitic intrusions with respect to the main regional gneissic foliation. Geochemically and mineralogically, the suite has quartz contents and feldspar ratios that span a diverse range of felsic rocks from alkali-feldspar granite through granite to quartz syenite. The Steenkampskraal Intrusive Suite also includes mafic members such as hypersthenite, anorthosite and leuconorite (Basson, 2013), as well as the associated target mineralised monazite vein. In more detail, the mineralogy of the members of the intrusive suite commonly contains alkali-feldspar and quartz with variable amounts of plagioclase, biotite, garnet and orthopyroxene. Apatite, zircon and monazite are common accessory minerals; however, fluorite is rare in this regard.


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Figure 10: Structural interpretation and geology of the Steenkampskraal Project Area


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Figure 11: Geology of the Steenkampskraal Project Area

The mineralised monazite vein strikes east-west through the Steenkampskraal koppie, where it is spatially associated with other granitoid members of the Steenkampskraal Intrusive Suite.

The mineralised monazite vein is a narrow lenticular-shaped body, with an average thickness of 0.6m, a strike length of approximately 400m at surface, a total known strike length of


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approximately 1,200m (Snowden, 2013) and a known dip extension to about 160m below surface.

The mineralised monazite vein undulates both along strike and in the down-dip direction, resulting in true thicknesses that vary from 0.02 meters to over 11 meters. Dips vary from almost flat to 70°S as the mineralised monazite vein “steps downwards” to the south. The contacts of the mineralised monazite vein with the host Namaqua-aged Steenkampskraal Granitic Gneisses are typically sharp and distinct.

The vein appears to be a unique intrusive body with a fundamental structural control to its dip, plunge and thickness. The thinning, pinching and swelling of the mineralised monazite vein is a primary feature associated with the development and emplacement of the vein and a later ductile shearing of the mineralised monazite vein parallel to its orientation.

Due in part to this complexity, GWMG commissioned TECT Geophysical Consultants in 2013 to undertake an interpretation of the structural features of the Mining Right and Prospecting Right areas. The geological structure was interpreted from a combination of local aeromagnetic surveys, geological mapping, structural logging of drill hole core from the exploration programmes and the interpretation of geological features in the underground developments. The study also included information from both surface and underground structural mapping, as well as structural logging of the drill hole core. The results of the various studies were consolidated into a new 3D structural model for the MRE.

The morphology of the mineralised monazite vein is structurally controled and the deposit is bounded both in the west and in the east by major faults, which effectively close off the mineralisation along strike. However, detailed interpretation of the structural and geological framework supports the potential for the presence of displaced mineralisation beyond the east and west bounding faults. The deposit exhibits moderately consistent lateral and vertical continuity within the fault-bounded block, but the vein has been disrupted by fault structures of varying orientation with displacements of up to tens of metres.

The Project area was affected by an initial Namaqua-aged regional granulite facies metamorphism associated with ductile to ductile-brittle tectonic conditions. This was followed by a lower temperature granulite facies metamorphic event during which the mineralised monazite vein was emplaced. Finally, a later Pan-African aged brittle deformation produced faulting at all scales. Figure 12 illustrates the extent of the complex network of faults that produced a mosaic of fault-bounded tectonic blocks.


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Figure 12: Structural interpretation of the central historic mined area

The mineralised monazite vein is hosted within foliated granites, granite-gneisses and granulite-facies ortho- and paragneisses. These host rocks display uranium and thorium enrichment (Basson, 2013, Andreoli et al, 2006) that could have acted as a source of the radionuclides.

The mineralised vein consists of an unusual combination of minerals, namely monazite together with a gangue of apatite, quartz, ferruginous chlorite, iron oxide minerals, ilmenite and sulphides such as chalcopyrite, pyrite and galena. Mineralogical investigations indicate that the mineralised monazite vein is composed of approximately 40% monazite, which accounts for over 91% of the contained total REEs, with lesser amounts of REE-barren apatite and thorite, and with minor amounts of REE-bearing allanite and xenotime.

The mineralised monazite vein material contains all the REEs and yttrium. The REO grades are typically dependant on the quantity of the diluting minerals within the mineralised monazite vein, such as apatite, quartz, feldspar, magnetite and sulphides, with grades that vary from 0.4% to 46% REO + Y2O3. Geochemically, the deposit is LREE-enriched.

The geochemical and petrographic characteristics of the deposit vary and the mineralised monazite vein can be classified by observation of the characteristics of this vein in the underground exposures, which categorise the intrusion into three distinct types which appear to have gradational relationships:

• Thick mineralised monazite vein which attains thicknesses of up to 11 meters and


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which is internally continuous;

• Common mineralised monazite vein which has an average thickness of 0.6m and which is locally continuous over distances of tens to hundreds of metres, and

• Banded mineralised monazite vein which occurs as distinctive monazite bands and stringers within zones that are up to 2m thick.

As shown in Figure 13, the vein displays a unique geochemical imprint, including TREO, thorium, many trace elements such as scandium and germanium, as well as gold, silver, and copper (Jones, 2013).

The mineralised monazite vein material can occur as undifferentiated material or as differentiated mineralisation types which were documented by Read et al in 2002 (and recently reported in Jones, 2013) and which appear to have gradational relationships between the various phases (Figure 14):

• Phosphate rich (Type 1) accounts for most of the mineralised monazite vein material with a combined content of phosphate minerals (primarily monazite and apatite) of 80% by mass; sulphides, oxides and silicates account for the remainder, in decreasing order of abundance.

• Oxide rich (Type 2) occurs as monazite-bearing magnetite-rich bands in, or adjacent to, the Type 1 phosphate-rich mineralisation. Type 2 mineralisation is relatively rare, but the mineral assemblage resembles that of certain bands of magnetite-spinel-zircon units found interlayered with grey biotite gneisses in other parts of the Namaqua-Natal Metamorphic Province.

• Feldspathic rich (Type 3) contains a broad range of silicate and phosphate minerals, usually as stringers of magnetite and monazite in a plagioclase-quartz matrix, where chlorite, zoisite and minor allanite replace plagioclase, biotite and monazite.

• Siliceous (Type 4) occurs with, and is banded with, massive monazite. In many places, Type 4 grades into lenticular masses of dark quartz-rich material (up to 0.50m thick) that are frequently developed at the contacts between the country rock gneisses/tonalities and the phosphate-rich mineralisation. Type 4 mineralisation comprises monazite, minor apatite, oxides and sulphides with small (2mm to 3mm) disseminated nodules of quartz, monazite, apatite, zircon and skeletal biotite/chlorite pseudomorphs.

The physical and geochemical characteristics of the mineral deposit are well defined from the exploration programmes. The geological model and genetic interpretation are considered consistent with the information available and have been appropriately applied in the exploration programme development.


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Figure 13: Geochemical spatial distribution of selected elements


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Figure 14: Characteristics and relationships between the mineralisation types

Figure 15: Steenkampskraal ore body


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7 Resource and Reserve Estimations

7.1 Mineral Reserve Estimation In 1986, Anglo American Prospecting Services (Pty) Ltd. (Palmer, 1986) estimated the following tonnages of mineralised material:

• 121,000t of in-situ monazite material remained in the underground areas at an average grade of 15.2% REO + ThO2, at a cut-off grade of 5% and with a minimum stope width of 91cm;

• A further 54,000t of low grade (5% to 8% REO + ThO2) material was estimated to be present on the historic rock and residue dumps;

• The 1962 MMV reserves were acceptable for inclusion in the 1986 Proven category;

• The Indicated category included blocks that occurred within, or closely adjacent to, underground development and were discounted by 25% to 75% of the estimated tonnage;

• The Inferred blocks were those that occurred outside the developed areas and which were based on the extrapolation of surface data, geological deduction and peripheral surface drilling. The Inferred tonnages were initially reduced to 50% of the value estimated and they were subsequently removed from the estimations because the outer exploration drill holes proved barren.

In 1995, Rareco tabulated the five historic reserve estimations, all of which were comparable because no mining had taken place at SKK after their estimation. Rareco placed great reliance on the final AAC mine closure estimation, because this estimation was prepared by mine personnel who had an intimate knowledge and understanding of the mineralised monazite vein.

The last comprehensive historic estimation was undertaken by Dr. Felix Mendelsohn for Rareco in 1996. The Rareco reserve estimation was based on 305 sample points for true thickness and 224 sample points for ThO2 and the mineralised monazite vein was divided into 20m x 20m blocks for which the grade estimations were based on Kriged algorithms. The results are summarised as follows:

• The mineralised monazite vein contains 84,000t of recoverable, diluted RoM material, reduced by 10% for geological losses and 10% for mining losses, containing 18% REO and small amounts of copper (0.8% Cu), gold (0.5g/t Au) and silver (6g/t Ag) in the Proved and Probable categories;

• There are additional recoverable reserves of 33,500t at 13.6% REO in the Possible category;

• There are 17,000t of blasted monazite-bearing material underground containing an


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undetermined amount of REO;

• There are patches of host rock immediately above and below the mineralised monazite vein which could contain between 15,000t and 30,000t at lower grades;

• There are 43,500t of residues dumps on surface that contain about 9.5% REO;

• There are 41,500t of rock in a surface dump that contain between 5.0% and 7.0% REO.

The historic Resource and Reserve information is summarized in Table 6.

Table 6: Comparative Summary of Historical Resource and Reserve Estimations

COMPANY DATE

ORE TONNAGE

(t) GRADE %ThO2

GRADE %REO

GRADE %ThO2 + %REO GRADE

Anglo American

Prospecting Services (Pty)

Ltd.

1986 121,000

15.20

Estimation undertaken by Palmer of in-situ monazite material in the underground Steenkampskraal Mine area. Metric tonne resource with an estimated content of 18,400t ThO2+REO concentrate. A 5% REO+ThO2 cut-off grade was used.

1987 108,008 15.74

The database of this revised estimate has not been located. Classified as 81,962t at 16.7% ThO2+REO Proven

Reserves and 26,046t Indicated Resources at 12.7% ThO2+REO.

Rare Earth Extraction Co.

Ltd.

1991 81,900 2.77 22.05 24.02

Mendelsohn re-estimated Metorex's Reserve figures with the addition of several borehole values, some check sample values and improved tonnage factors. The same comments apply to this Reserve estimation as to the Metorex estimates. Estimations split between Proven (35,800 tons), Probable (30,800 tons) and Possible (15,300 tons).

1996 117,500 16.75

The most recent historic estimation was by Mendelsohn for Rareco in 1996, which categorised 84,000t at 18% REO as Proved and Probable and 33,500 tons as Possible.


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The conversion of the Mineral Resource Estimation to the Mineral Reserve Estimation was prepared by Ivor Jones in October 2013 and was independently reviewed by Sound Mining in April 2014. The conversion was based on the mine design and the criteria detailed in Table 7. In addition to mining factors, the NI 43-101 Form 1 requires that additional considerations, including economic and market conditions, metallurgical procedures, infrastructure, permits and social aspects be accounted for in the conversion process.

Modifying factors applied to the reserve estimation require a mining dilution model which incorporates variable ranges in the target horizon widths and two distinct mining methodologies. The dilution model applied comprises a standard minimum mining width of 1.20m for all mining scenarios with modifications depending on the deposit width as follows:

• A general estimated mining dilution of 7cm is added to the minimum applicable mining width, which results in a standard minimum mining width of 1.27m;

• Where the mineralised width is less than 1.2m, the difference in width up to the minimum mining width is made up with waste material, which is ascribed a zero grade; and

• A maximum mining width of 1.8m is planned for conventional down-dip mining.

Mining widths above 1.8m will be exploited using long hole open stoping and the dilution model applied in this case will be an additional 50cm of unplanned dilution waste material.

The New Combined Residue Dump Mineral Resource will be processed in its entirety. This New Combined Dump was converted to a Mineral Reserve by applying a 2% tonnage loss due to the pulping of the material and a 2% REO loss during the mineral processing procedures. The historic rock dump will also be processed to remove all unprocessed radioactive material from surface. The modifying factors applied to the reserve estimation are summarised in Table 7.

In addition to the low-grade, in-reef development material and the high-grade stoping material, supplementary underground and surface material has been included in the mine plan but this material has been ascribed a zero grade for revenue calculations; specifically, this includes the blasted material in the Central Historic Mine Area, ballast and mud recovered from the underground drives during the initial mine clean-up phase and the surface rock dump material. The exact tonnages and grades of this material cannot be calculated and this material has consequently not been included in the Mineral Resource or in the Mineral Reserve Estimations.

The Mineral Resource at a 1% TREO+Y2O3 cut-off grade and at a minimum mineralisation width of 20cm was defined in compliance with CIM requirements and is shown in Table 8.

The Mineral Resource Estimation is based on:


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• A 1% TREO cut-off grade;

• A minimum ore body width of 20cm;

• Tonnages are rounded to the nearest 1,000t and the contained metal to three significant figures.

Indicated and Measured Resources are also based on a cut-off grade of 1% T REO+Y2O3..

Table 7: Mineral Resource to Mineral Reserve Modifying Factors

FACTOR UNIT VALUE

Geological tonnage losses for minor faulting % 2

Mining losses of REO +Y2O3 % 3

Mine Call Factor % 100

In-reef development over break % 8

Off-reef waste development over break for decline ramps % 5

Conventional down-dip stoping over break for reef widths between 0.0 to 1.2m cm 7

Conventional down-dip stoping over break for reef widths between 1.2m to 1.8m cm 7

Conventional down-dip stoping over break for reef widths >1.8m cm 50

New combined tailings tonnage relocation loss % 2

New combined tailings relocation REO +Y2O3 loss % 2

Overall process plant recovery % 85

Separation plant recovery % 93

Table 8: Mineral Resource Estimation for the Steenkampskraal Mine (October 2013)

MINERAL RESOURCE CATEGORY

CLASSIFICATION CATEGORY

RESOURCE TONNAGE

(tons) GRADE

(%REO+Y2O3) CONTAINED

(REO+Y2O3) (tons)

In-situ mineral Resources

Measured 85,000 19.5 16,575

Indicated 474,000 14.1 67,000

Inferred 60,000 10.5 6,300

Sub-total in situ Measured + Indicated 559,000 15.1 83,500

Total in situ Measured + Indicated 559,000 15.0 83,500

Historic TSF Indicated 46,000 7.2 3,300

TOTAL Measured + Indicated 605,000 14.4 86,900


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Table 9: Mineral Reserve Estimation for the Steenkampskraal Mine (March 2014)

MINERAL RESERVE CATEGORY

TONNAGE (tons)

GRADE (%REO+Y2O3)

CONTAINED (REO+Y2O3) (tons)

Underground Mine

Proven 103,600 12.39 12,800

Probable 651,000 8.20 53,400

Sub-total 754,600 8.78 66,200

New Combined Tailings

Proven - - -

Probable 45,100 7.10 3,200

Sub-total 45,100 7.10 3,200

Mine and New Combined Tailings

Proven 103,600 12.39 12,800

Probable 696,100 8.13 56,600

TOTAL 799,700 8.68 69,400

The Mineral Reserve Estimation was based on a specific physical deposit volume as defined in the geological and mineral resource block model and the extraction of the ore was based on a mine plan governed by a radiological model and achievable mining widths.

The mining plan requires that the minera l reserves be diluted, which accounts for the increase in reserve tonnages, the reduction in grade and the expected reduction in rare earth content in comparison to the Mineral Resource Estimation. The Mineral Reserves therefore reflect unavoidable mining dilution, as well as modifying mining and processing recovery factors.

The overall conversion rate from Mineral Resource to Mineral Reserve is 79%, after accounting for the retreat mining of pillars based on a 5% cut-off grade, a 20cm minimum ore thickness and applied geological and mining factors (primarily stope and fault pillars).


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The total average grade of the rare earths at SKK is so high, at 14.2%, that the grades and the quantities of the critical rare earths at SKK are substantial and they are shown in Table 10.

Table 10: Critical Rare Earths at Steenkampskraal

MINERAL RESOURCE ESTIMATION CLASSIFICATION CATEGORY

In situ Measured

In situ Indicated

Tailings Indicated Totals

Inferred Total

Resource tonnage (t)

85,000 tons 474,000 tons 46,000 tons 605,000 tons 60,000 tons

Item

Contained m

etal (t)

Grade (%

)

Contained m

etal (t)

Grade (%

)

Contained m

etal (t)

Grade (%

)

Contained m

etal (t)

Grade (%

)

Contained m

etal (t)

Grade (%

)

TREO+ Y2O3 16,600 19.54 67,000 14.12 3,330 7.18 86,930 14.37 6,300 10.46

Pr6O11 850 1.00 3,430 0.72 170 0.36 4,450 0.74 320 0.53

Nd2O3 2,950 3.48 12,060 2.55 590 1.27 15,600 2.58 1,140 1.9

Sm2O3 470 0.55 1,930 0.41 94 0.20 2,494 0.41 180 0.30

Eu2O3 8 0.01 47 0.01 2 0.01 57 0.01 6 0.01

Gd2O3 320 0.38 1,310 0.28 67 0.14 1,697 0.28 120 0.20

Tb4O7 34 0.04 140 0.03 8 0.02 182 0.03 14 0.02

Dy2O3 160 0.19 670 0.14 37 0.08 867 0.14 62 0.10

Y2O3 680 0.80 2,750 0.58 150 0.32 3,580 0.59 270 0.44

Total Critical REO

5,472 6.45 22,337 4.72 1118 2.40 28,927 4.78 2,112 3.50

It is notable that the neodymium grade, on its own, is 2.58%, which is higher than the total rare earth grades in most other rare earth deposits. The total quantity of neodymium in the mine is 15,600 tons. The total grade for all the critical rare earths is 4.78%, which is also much higher than the total rare earth grades in most other rare earth deposits. The total quantities of the other magnetic rare earths are: praseodymium 4,450 tons, samarium 2,494, gadolinium 1,697 tons, dysprosium 867 tons and terbium 182 tons.


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8 Mining

8.1 Underground Mining Methodology The monazite reef is a tabular deposit that dips to the south at dips that vary from 20° to 70°. The underground workings have been extensively developed from surface down to 3½ level over a strike distance of about 400m and approximately 180m on dip, as shown in Figure 16. The widths of the ore reserve blocks vary from 27cm to 94cm and the average width is 56cm.

Historical mining during the AAC era was based on grade. Very little additional on-reef development will be required in the areas of the old workings, as the existing primary development has blocked reserves of 82,000 tons of ore. Together with the broken ore accumulations, these blocks will provide material for about four years of mining at a treatment rate of 2 000 tons per month. Development to access the remainder of the mine will start during this initial period and will be continued thereafter.

Figure 16: Broken ore accumulations in the historic mine workings

Access to the underground workings is via the main incline shaft which extends down to 3 level. A second incline shaft was developed from 3 level to 3½ level.


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Figure 17 shows that 3 level is equipped and developed westwards for approximately 400m, of which about 300m is payable. Immediately before the 3W4 raise, a crosscut was developed north for 100m and this was used to transport ore from the upper levels.

Figure 17: Layout of 3 level drive

The following plan will be implemented to bring the mine back into production:

• The Main Incline Shaft and the Second Exit will be repaired;

• The Main Incline Shaft was partly refurbished by GWMG during the period 2010 to 2015; this refurbishment was not finished and the following work still needs to be done:

o The installation of a concrete floor in the shaft to facilitate decontamination;

o The installation of pumps at the bottom of the shaft;

o The installation of a pipe rack in the shaft.

• Cleaning and re-equipping 3 level:

o The fill used in 3 level by the previous operator is monazite ore which will be removed from the drive for health and safety reasons;

o The drive will be re-levelled with river sand and topped with a concrete slab with drainage channels;

o New rails will be installed on the concrete slab.

• Infrastructure:

o The mine will be equipped with air, water and electrical systems;

o The second exit will be equipped to ensure a safe exit.


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• Development of Footwall Crosscut:

o A footwall crosscut, like the one at the western end of the mine, will be developed at the eastern end of the mine;

o Ore-passes will extend from 3 level to below 1 level and will be used to tram the ore from the upper level.

The underground mining activities will be divided into the eastern and western sections. Due to the substantial available ore reserves, no additional reef development will be required during the first two years of mining.

There are approximately 17,000 tons of broken ore underground which are immediately available and which will be hoisted to the surface during the first phase of production.

The large variations in the dip of the orebody require the use of several stoping methods, including:

• Shrinkage stoping for dips that are greater than 60° (see Figure 18);

• Underhand stoping for dips that are between 35° and 60° (see Figure 19); and

• Conventional breast stoping for dips that are less than 35°.

Figure 18: Full Shrinkage Stoping


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Figure 19: Underhand Stoping

All mined ore will be transported along the footwall crosscuts and 3 level drive to the Main Incline Shaft and hoisted to surface.

8.2 Ventilation and Environmental Compliance Primary ventilation at the mine will be designed to meet the objectives of providing adequate air for men underground and of diluting and exhausting the noxious gases in the shortest possible time to reduce the exposure of personnel to possible contaminants including airborne dust, radon daughter products, blasting fumes, flammable or explosive gases, and toxic and asphyxiating gases.

The exhaust ventilation system was chosen on the assumption that the host rock for radon daughter products is competent and that little radon gas will be emitted through the fractures and faults in the rock.


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The intake airways were selected to ensure that the contamination of air drawn down into the mine will be minimised. The incline shaft and the No. 1 vertical shaft will be used as the main intake airways; approximately 75% of the fresh air will be brought in through the incline shaft and 25% will be brought in through the vertical shaft.

Since the incline shaft will also be the thoroughfare for men and material, the air velocity will be in the range of 6 m/s to 7 m/s. The incline shaft will be watered down at regular intervals to minimize dust levels in the intake air.

Figure 20: Mine Ventilation Design

From the underground working areas, the contaminated air will be directed to 1 Level which will be utilised as the main return airway for the mine. From 1 Level, the contaminated air will be expelled to the surface through the main surface fans. The air velocity in the return airways will be between 6m/s and 8m/s. Due to the anticipated high levels of radon daughter products (above 0.33WL), employees will not be allowed to remain in the return air for more than very limited periods of time.

It is anticipated that relatively high levels of radon daughter products will be present at the stope faces as a result of blasted rocks in the foot-wall, hanging-wall and worked-out areas. A minimum air quantity of 6.5m3/s will be allocated to each stope of 1.2m height, 30m width and 45m length. The minimum stope face air velocity will remain at 0.5m/s. The maximum face wet and dry bulb temperatures will not exceed 27.5°C and 32.0°C, respectively. High fresh air velocities at the stope faces will be maintained with the construction of ventilation seals along the old worked-out areas and the installation of ventilation brattices inside the stope areas.


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8.3 Rehabilitation The DMR requires SMM to make provision for rehabilitation. The Company established the Steenkampskraal Rehabilitation Trust (SRT) and financial provision for eventual mine closure is made through this Trust. The DMR determined the initial amount of this provision and reviews this provision on an annual basis.

9 Processing

9.1 Mineral Processing The development of two main processing areas is planned. The first process is the concentrator and the second process is the hydro-metallurgical section.

9.2 Metallurgical Test Work Many mineral processing and metallurgical tests have been done on ore samples from the mine, including recent work at Mintek. Mineral processing and metallurgical test work is being undertaken as part of the on-going exploration and evaluation programme.

A sample of 697kg of underground ore was deemed to be representative of likely future RoM production. This sample was delivered to Mintek for metallurgical process test work and the following standard tests were performed:

• Abrasion Index testing of +12-20 mm fraction;

• Grind mill evaluation (mill design and simulation on the -50mm fraction);

• Bond Work Index testing (-8mm fraction); and

• Mineralogical evaluation (-1.7mm fraction).

This sample was milled for mineral processing and hydrometallurgical testing. In parallel with this activity, coarse waste and reef samples were tested for the applicability of XRF sorting to the Steenkampskraal underground mineralised zone.

The following concentration tests were performed on the milled rock:

• Low intensity magnetic separation;

• Gravity concentration by various methods;

• Sulphide rejection by flotation; and

• Monazite concentration by flotation.

The monazite concentrate was then tested hydro-metallurgically by caustic cracking to convert the insoluble rare earth phosphates into soluble rare earth hydroxides. The resulting solids were washed in acid solution and leached in hydrochloric acid to dissolve the hydroxides into a rare earth chloride solution.


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The test work was successful in selectively precipitating most of the contaminant cations and in producing a pure mixed rare earth salt solution.

9.3 Concentrator Monazite is a heavy mineral with a specific gravity of 5.1 t/m3, compared to the lighter minerals, quartz (SG of 2.7t/m3), feldspar (SG of 2.6t/m3) and apatite (SG of 3.2t/m3). Advantage will be taken of this high specific gravity to separate the monazite. Gravity separation is necessary to remove the apatite that would otherwise float off with the monazite. A sequence of spiral concentrators will be employed to separate, de-slime and clean the monazite concentrate. However, as magnetite and the accessory minerals, chalcopyrite, pyrite and ilmenite are also heavy minerals, they will also be concentrated with the monazite.

The heavy mineral concentrate containing a variety of mineral impurities will be passed through a sulphide flotation process to remove the chalcopyrite and pyrite. This is a non-selective float that will include all sulphide minerals, with the result that the copper content of this concentrate will be about 10%. In addition, gold at a grade of approximately 10g/t and silver at a grade of about 200g/t, will report to this concentrate. This mineral concentrate will be sold to a refinery.

The sulphide-free heavy mineral concentrate will then be prepared for monazite flotation by the addition of conditioning reagents and a monazite-specific frothing agent. The monazite overflow/froth from the flotation cells will be cleaned in an iterative process to produce a pure monazite concentrate.

The clean monazite concentrate will be gravitated to the secondary ball mill which will reduce the material from ±200 microns to approximately 40 microns, thereby accelerating the chemical process. This secondary mill will discharge into a surge tank, which will be the final step in the continuous process.

9.4 Chemical Plant Process The chemical plant is designed as a dual-stream process, with each stream operating on a 24-hour basis. Five days per month are scheduled for maintenance purposes.

9.4.1 Caustic Destruction The caustic destruction plant involves two processes, a nitric acid cleaning stage and a caustic reaction stage. The nitric acid will digest the unwanted phosphate and sulphide compounds that adversely affect the downstream process, while the caustic soda will liberate the rare earths by cracking the monazite to produce rare earth hydroxides and tri-sodium phosphate.

The nitric acid cleaning will take place in a nitric reactor using 0.74m3 of 56% nitric acid at


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50°C to treat a 2.84 m3 batch containing 55% solids.

Caustic digestion requires a 65% caustic solution heated to 140°C with steam and operated at a pressure of 400 kPa for a period of 4 hours. Approximately 2.7m3 of caustic soda solution will be utilised to treat the batch (2.84m3 at 55% solids) and the total digestion period will be 6.5 hours.

9.4.2 Tri-Sodium Phosphate Plant (TSP) Tri-sodium phosphate will be recovered as a by-product of the caustic destruction of monazite. The reaction takes place as follows:

RE(PO4) + 3NaOH Æ RE(OH)3 + Na3PO4

Following the destruction of the monazite, the clarified liquor will be pumped to the tri-sodium phosphate evaporator. Throughout the process, the liquid will be kept above 80°C to prevent premature tri-sodium phosphate precipitation.

The liquid product from the evaporator will be cooled to 45°C in a tri-sodium phosphate precipitation tank, after which the precipitate will be recovered via a drum filter. The recovered tri-sodium phosphate, about 1 tonne per tonne of monazite treated, will be packed in one tonne bags and sold.

9.4.3 Hydrochloric Acid Reaction Plant Hydrochloric acid will be used to form rare earth chloride, RECl3, by reacting with the rare earth hydroxide in solution. The reaction takes place as follows:

RE(OH)3 + 3HCl Æ RECl3 + 3H2O

Approximately 2.7m3 of 32% hydrochloric acid will be required per batch. This will be added to the liquor from the tri-sodium phosphate precipitation tanks. The reaction is controlled at a temperature of 70°C with the pH at 3 to ensure thorium precipitation.

The thorium hydroxide precipitate will be separated in a solid-liquid separation centrifuge. This product will be packed in plastic drums and stored underground for later sale.

As a final precaution to remove all possible hazards, barium chloride and sodium sulphate will be added to the liquid in radium recovery tanks. These reagents cause the growth of barium sulphate crystals that trap the radium in their crystal structure. After a 24-hour reaction time, the liquid will again pass through a solid-liquid separation centrifuge to extract the barium chloride with the radioactive radium. Finally, the rare earth chloride solution will be filtered before it reports to the rare earth chloride evaporator.


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10 Marketing

10.1 Steenkampskraal Competitive Position The officially reported global production of rare earth elements amounted to 124,000 tons in 2015. The breakdown of these official figures is shown in Table 11 and Figure 21.

Table 11: World production of Rare Earths (Source: USGS)

COUNTRY MINE PRODUCTION 2014

(tons REO) MINE PRODUCTION 2015

(tons REO)

China 105,000 tons 105,000 tons

Australia 8,000 tons 10,000 tons

United States 5,400 tons 4,100 tons

Russia 2,500 tons 2,500 tons

Thailand 2,100 tons 2,000 tons

Malaysia 240 tons 200 tons

World total 123,240 tons 123,800 tons

Figure 21: Historic Rare Earth Production

At the planned production rate of 2,700 tons of REOs per year, the Company will account for about 2.2% of global official production. The Company is in contact with many prospective customers and expects to sell its production easily.

The historic and forecast production of rare earths in China is shown in Figure 22.


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Figure 22: China Rare Earth Production3

SKK is unique in the global rare earth landscape because its rare earth grades at 14.4% are the highest in the world that comply with the Canadian NI 43-101 regulations regarding mineral resource estimations. SKK has a neodymium grade of 2.5% in the run of mine ore, which is higher than the total rare earth grades in most other rare earth deposits. The high grades in the mine, in conjunction with the low mining depth and the ease of access to the mine and to the ore body, will enable SKK to be one of the lowest cost producers of rare earths in the world. The in-situ grades of the most important rare earths at SKK and in some other rare earth deposits are shown in Figure 23.

3 Source: Arnold Magnetic Technologies: USGS forecast of China’s rare earths production based on the generalized Weng Model and policy recommendations, Wang et al, 2015.


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Figure 23: Grades of In-Situ Rare-Earth Oxides (wt%)

Some of the most important rare earth deposits in the world are shown in Figure 24. Figure 25 shows the economic values in these deposits. The position of SKK as the deposit with the highest value of contained rare earths per unit of ore is clearly shown. On average, each ton of ore in the Steenkampskraal mine contains rare earths with a value of about USD 3,519, at present market prices.

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Grad

e of

In-S

itu R

are-

Eart

h O

xide

s (w

t%)

Neodymium Praseodymium Dysprosium


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Figure 24: Global Rare Earth Deposits (Source: iNEMI)


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Figure 25: Rare Earth Values in Deposits

(Based on Oct 2015 Argus Media FOB China Prices)

Steenkampskraal


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10.2 Markets for Rare Earths Rare earths are used in many high technology applications, as shown in Figure 26. Rare earths are indispensable for many sustainable energy technologies, including energy production and increased energy efficiency.

The total market for rare earths in 1960 was about 5,000 tons. By 2015, this market had grown to about 145,000 tons and there are forecasts that the market will grow to over 200,000 tons by 2020. The Company expects to be able to easily sell its production of 2,700 tons per year.

The Ford Motor Corporation published a report in 2015 entitled “Rare Earths in Vehicles: Current Problems and Future Directions”, which states that “A shortage in supply for neodymium, praseodymium and dysprosium is possible by the end of this decade.”

Figure 26: Applications of Rare Earths

10.2.1 Geographical Distribution of World Market The countries that use the largest quantities of rare earths are China, Japan and the United States. China exported rare earths to the world for many years. However, China has recently enforced environmental regulations and reduced illegal mining and rare earth production in China has fallen as a result. At the same time, Chinese demand for rare earths has continued to rise. Chinese exports of rare earths are falling, many factories in China do not have sufficient supplies and some Chinese companies are now looking around the world to find rare earth supplies to import into China.

Over the past decade, many international companies relocated their factories to China to secure their rare earth supplies.

10.2.2 Uses of Rare Earths The value distribution of the rare earths at SKK (based on August 2016 prices) is shown in Figure 27. This shows that more than half the economic value of the SKK ore is in the neodymium, followed by around 20% in the praseodymium and 10% in the dysprosium. The rare earths used in magnetic applications account for about 85% of the value in the ore.


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Figure 27: Value distribution of SKK rare earths based on August 2016 prices

Magnets

Neodymium, praseodymium and dysprosium make up 13.4% of the mass of the rare earths in the SKK ore and 85% of the economic value.

Neodymium, praseodymium and dysprosium are the rare earth elements used in the manufacture of permanent magnets. Neodymium and praseodymium form the basis of neodymium-iron-boron (NdFeB) magnets and the addition of dysprosium enables these magnets to operate at high temperatures.

The market for NdFeB magnets has been growing at between 5% and 10% per year for many years. These magnets are used in many products, including electric motors, wind turbines and miniature speakers in smart phones.

Because of their superior magnetic flux density, neodymium-iron-boron magnets are in high demand for motors and generators. Small (servo) motors power disc drives in computers, electric windows in automobiles and many other electric and electronic appliances. Large motors, such as those in electric cars, use up to 200g of neodymium and 30g of dysprosium per motor. Wind turbine generators contain up to one ton of neodymium per megawatt of electricity generation capacity.

Arnold Magnetic Technologies state that neodymium magnets are used in the manufacture of:

• Hard disk drives:

o The total weight of the NdFeB magnets used in 2015 is estimated at 7,500 tons, of which about 2,325 tons (31%) was neodymium.

Neodymium55%

Praseodymium19% Dysprosium

11%

Cerium6%

Lanthanum3%

Terbium2%

Yttrium2%

Gadolinium2%

Other9%


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• Hybrid and electric cars and trucks:

o It is estimated that between 6 million and 10 million hybrid vehicles will be manufactured in 2020;

o Each hybrid vehicle uses an average of 2kg of neodymium magnets in sensor and motor applications, such as electric power steering, electric brakes, e-Turbo, speakers, etc.;

o It is estimated that the total amount of neodymium used in magnets in 2015 was 7,000t and that this demand will rise to 17,000t in 2020.

• Wind turbines:

o Between 200kg (hybrid) and 500-600kg (direct drive) neodymium magnets are used for each MW of output;

o The replacement of a 500 MW coal-fired power plant with wind turbines would require about 275t of neodymium magnets;

o The global demand for neodymium for use in wind turbines in 2015 was about 8,500t.

• Electric bicycles:

o 65 to 350 grams of neodymium magnets are used in each electric bicycle;

o About 25 million electric bicycles were sold in China in 2015 and these sales are expected to rise to 47 million in 2018;

o The global market for electric bicycles is forecast to grow to 60 million units in 2018;

o The demand for neodymium magnets for electric bicycles was about 7,500t in 2015 and this demand is expected to rise to about 15,000t by 2018.

• Air conditioning:

o This industry is in a phase of rapid growth;

o The use of neodymium magnets improves efficiency by 20%;

o The demand for neodymium magnets in this industry in 2014 was over 4,000t.

• Acoustic transducers:

o More than 1.8 billion cell phones contain speakers and vibrator motors;

o More than 280 million speakers are used in motor vehicles each year;

o Speakers, ear buds and headphones use about 4,500t of neodymium per year.

Batteries

Cerium, lanthanum and neodymium are used in the manufacture of Ni-MH batteries.


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Battery characteristics dictate how much energy can be stored and how quickly the energy can be released. The difference between these preferences can be critical for applications such as hybrid electric vehicles, which above all need power, and battery powered electric vehicles, which above all need energy to travel long distances without an internal combustion engine. Ni-MH batteries are chosen for many hybrid vehicles like the Toyota Prius, while Tesla uses lithium-ion batteries.

Rechargeable batteries account for about 60% of the battery market and portable rechargeable batteries account for slightly more than one-third of this market.

Rechargeable batteries are used in:

• Cellular phones

• Computers

• Camcorders

• Digital cameras

• MP3 Players

• Hybrid and electric vehicles

• Others (energy storage, medical applications, UPS, backup systems, etc.).

Catalysts

The use of rare earths in catalysts accounted for 19% of global demand in 2014.

The main uses are:

• Fluid Cracking Catalysts (FCCs) are used in the oil refining process to convert heavy oils (gas oils and residual oils) into more valuable gasoline, distillates and lighter products. Rare earth elements are used in FCCs to control the product selectivity of the catalyst and to produce higher yields of the more valuable products, such as gasoline. Lanthanum is the predominant rare earth used in FCCs, along with lesser amounts of cerium and neodymium. Cerium is an important component of the FCC additives that reduce stationary source nitrogen oxide (NOx) and sulphur oxide (SOx) pollutants.

• Automotive catalytic converters use cerium to facilitate the oxidation of carbon monoxide (CO) and to significantly reduce toxic vehicle CO emissions. While the amount of cerium required per vehicle is small, catalytic converters are used in most passenger vehicles and accounted for approximately 9% of global rare earth demand by volume in 2015.

Phosphors

The rare earths used in phosphors are necessary to produce television sets and energy-


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efficient lamps. This is a small sector by volume, at about 7 percent, but a large sector by value, at 30-40 percent, due to the relatively high prices of europium and terbium.

Glass

Cerium is used in ultra-violet light filtering and in the manufacture of glass polishing powders that take advantage of cerium’s unique chemical and mechanical properties.

Fuel Cells

Fuel cells are a promising clean energy technology for vehicle propulsion and for distributed power generation. Rare earths are used in several different fuel cell chemistries; in particular, there is presently no substitute for their use in solid oxide fuel cell separator stacks.

Metal Alloys

Rare earths form a part of the many super alloys that are used to make components for gas turbines, electric generators and many other items. This sector accounts for about 18% of global rare earth demand. Rare earth metal alloys are also used in the manufacture of nickel metal hydride rechargeable batteries; the demand for these batteries is growing and this growth will increase the demand for lanthanum.

10.2.3 Rare Earth Prices Rare earth oxide prices for October 2017 are shown in Table 12 below:

Table 12: Rare Earth Oxide Prices, October 2017, FOB China

Rare earth Product

Prices on

14 November

20155

Prices in August 20166

Prices in September 20177

Cerium Oxide – 99.5%

purity US$ 4.40/kg US$ 1.52/kg US$ 2.77/kg

Lanthanum Oxide – 99.5%


Samarium Oxide – 99.5%


Neodymium Oxide – 99.5%


Yttrium Oxide – 99.99%


Praseodymium

Oxide – 99.5% purity

US$ 105.00/kg US$ 48.50/kg US$ 90.77/kg


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Gadolinium Oxide – 99.5%


Dysprosium Oxide – 99.5%


Europium Oxide – 99.99%


Terbium Oxide – 99.5%


11 Project Economics

11.1 Capital Expenditure The capital expenditure for the project was originally calculated in 2001. The IDC approved finance for the project following a due diligence analysis of the project design and the capital and working cost estimations.

The Company recalculated the capital estimation for the project during 2015/2016. This present capital cost estimation is based on detailed process flow diagrams and prices from suppliers of all the major process equipment. This capital cost includes:

• Re-opening the mine, including:

o Completion of the refurbishment of the incline shaft (started by GWMG);

o Refurbishment of 3-level drive as the main ore haulage way;

o Development of footwall drives as off-reef ore haulage ways; and

o Cleaning of old stopes by removing the broken ore left in the stopes by AAC.

• Construction of the following plants:

o The monazite concentration plant;

o The monazite cracking plant;

o The cerium separation plant.

The capital budget estimation presented in this document is based partly on an escalation of the 2001 costs and partly on recently acquired quotations from industrial suppliers.


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Table 13: Capital Expenditure Estimation

COST ITEM COST ESTIMATION

(ZAR) COST ESTIMATION

(US$)4 COST ESTIMATION

(US$/tonne REO)

Mining R 45 900 000 USD 3 300 000 USD 1 222/t REO

Infrastructure R 64 356 446 USD 4 596 889 USD 1 703/t REO

Processing plants R 254 183 585 USD 18 155 970 USD 6 724/t REO

Total R 364 440 031 USD 26 031 431 USD 9 641/t REO

The capital cost estimation presented here will be completed in detail. There will also be a working capital requirement of about ZAR 166 million (USD 11.86 million).

11.2 Production Costs The production cost estimation is presented in Table 14.

Table 14: Production Cost Estimation

COST ITEM ANNUAL COST5 COST PER KILO REO

(R/kg) COST PER KILO REO

(US$/kg)

Mining R 13 230 000 R 4.90/kg $ 0.35/kg

Monazite concentrate R 7 560 000 R 2.80/kg $ 0.20/kg

Mixed RE carbonate R 86 940 000 R 32.20/kg $ 2.30/kg

Total cost to produce mixed RE carbonate R 107 730 000 R 39.90/kg $ 2.85/kg

RE separation cost R 207 900 000 R 77.00/kg $ 5.50/kg

Total cost including separation R 315 630 000 R 116.90/kg $ 8.35/kg

4 Converted at the rate of R14.00 per US$. 5 Costs reported in 2016 Rand.


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11.3 Summary of Financial Performance

The annual sales of 2,700 tons of rare earths will be made up as follows:

Name Percentage of

total REO Kilos Price (USD) Sales (USD)

Lanthanum 20.72 559,000 2.46 1,375,140

Cerium 45.48 1,228,000 2.77 3,401,560

Praseodymium 5.12 138,000 90.77 12,526,260

Neodymium 17.77 480,000 75.38 36,182,400

Samarium 2.83 76,000 2.31 175,560

Europium 0.05 1,300 100.00 130,000

Gadolinium 1.93 52,000 29.23 1,519,960

Terbium 0.2 5,400 600.00 3,240,000

Dysprosium 0.96 26,000 200.00 5,200,000

Holmium 0.15 4,050 76.92 311,526

Thulium 0.02 650 100,00* 65,000

Erbium 0.31 8,370 28.46 238,210

Ytterbium 0.1 2,700 30.00 81,000

Lutetium 0.01 270 892.31 240,924

Yttrium 4.1 111,000 4.00 444,000

Totals 99.75 2,692,740 65,131,540

The SKK basket price, based on these prices, is about USD 24.51 per kilo.

The SKK cost of production, including separation, is estimated at USD 8.35 per kilo.

The gross profit is therefore estimated at USD 16.16 per kilo.

*The prices of these rare earths are not readily available, so the notional price of US$100 per kilo is used.

With these prices and volumes, the Company would have total sales of about USD 66 million (ZAR 926 million) per year, total costs of about USD 23 million (ZAR 316 million) per year and a gross profit of about USD 44 million (ZAR 611 million) per year.

With the figures presented above, the Project has an internal rate of return (IRR) of 66.5% and a net present value (NPV) of ZAR 1,700 million (USD 121 million) at a 14% discount rate. Figure 28 shows the project IRR and NPV as a function of the SKK rare earth basket price.


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Figure 28: Project IRR and NPV

The projected balance sheets of the company are shown in Table 15.

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00


Project IRR

-$40 000 000

-$20 000 000

$0

$20 000 000

$40 000 000

$60 000 000

$80 000 000

$100 000 000

$120 000 000

$140 000 000

$160 000 000

$180 000 000

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00

Proj

ect I

RR


Project NPV


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Table 15: Projected Balance Sheets (in R millions)

2015 2018 2023

Latest

financials Plant

commissioning After 5 years

operation

Fixed Assets 41 307 153

Assets 38 38 38

New Assets at Cost 296 296

Investments 3 3 3

Accumulated Depreciation 31 185

Current Assets 14 217 924

Debtors 10 29 34

Stock 18 19

Rehabilitation Fund 4 7 17

Thorium Provision 8 87

Cash in Bank 155 768

TOTAL ASSETS 55 524 1 077

Long-term Liabilities 4 4 4

Decommissioning Liability 4 4 4

Current Liabilities 10 22 87

Creditors 10 22 25

Tax - 62

Bank Overdraft - -

Ordinary Shareholders Funds

41 498 987

Ordinary Share Capital 1 1 1

Shareholders Loans 9 9 9

Share Premium 451 451 451

New Capital Investment 400 400

Retained Profit (420) (363) 125

TOTAL LIABILITIES 55 524 1,077


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The Project will generate about ZAR 912 million (USD 66 million) per year in sales. The cash flow from operations, as shown in Figure 29, will be about ZAR 525 million (USD 37 million) per year.

Figure 29: Project Cash Flow

11.4 Sensitivity Analysis The capital expenditure, the production costs, the production profile and rare earth prices were tested for sensitivity. The most significant parameter is rare earth prices. Due to the volatility in rare earth prices, the financial return on the project could vary significantly, as shown in Figure 30. At a rare earth basket price of USD 19.00 per kilo, the Project would yield an IRR of 45.10%. The SKK basket price in October 2017 was around USD 24.51 per kilo.

Figure 30: Impact of rare earth prices on IRR

-R 600 000 000

-R 400 000 000

-R 200 000 000

R 0

R 200 000 000

R 400 000 000

R 600 000 000

R 800 000 000

R 1 000 000 000

R 1 200 000 000

R 1 400 000 000

0 1 2 3 4 5 6 7 8 9 10

Year

Project Cash Flow

Cash flow Cumulative project cash flow

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-25% -20% -15% -10% -5% 0% 5% 10% 15%

Proj

ect I

RR

Change in Rare earth price


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12 Risk Analysis

12.1 General and Industry Specific Risks Market conditions, particularly those affecting resource companies, may affect the value of the Project, regardless of its operating performance. The Company could be affected by unforeseen events outside its control, including natural disasters, political unrest and/or government legislation or policy.

The financial markets’ perceptions of resource companies could change and affect the Company’s ability to raise funds.

General economic conditions affect exchange rates, interest rates and inflation rates and movements in these rates could have an impact on the Company’s profit margins and on the cost of raising and maintaining debt finance.

12.2 Project Specific Risks

12.2.1 Resource and Reserve Estimations The Mineral Resource and the Mineral Reserve Estimations are expressions of judgement based on knowledge, experience and industry practice. These estimations may be materially affected by geological, mining, metallurgical, infrastructure and other relevant factors. The Company cannot guarantee that the ore reserves will be brought into profitable production.

12.2.2 Public Acceptance of Rare Earth Elements The unique characteristics of rare earths imply that the industry may be subject to public opinions about risks that could have an adverse impact on the demand for rare earths. In particular, rare earth mining is frequently associated with radioactive by-products. Concern about these radioactive by-products could affect perceptions about the Company, inhibit rare earth mining and affect the performance of the Company.

13 Upside Potential

Previous studies and test work indicate that the Project’s technical designs and processing methods will lead to a profitable operation. The long and substantial history of the Steenkampskraal mine and its workings form a strong basis to develop a robust, efficient and sustainable business.

The preparation of the BFS will enable the optimization of the Project, including:

• Additional work to upgrade the current Mineral Resources in the Inferred category and to include them in the mine design;

• Additional work to reduce the capital expenditure by optimising the refurbishment of the mine; and


57 | P a g e

• Further test work to improve recoveries and to recover by-products.

The Project has great potential. If prospecting could expand the size of the resource, then the Company could increase the production volume or the life of the mine.

The Company could build a rare earth separation factory to add more value and to create more jobs in South Africa.

14 Strategy

SKK is the highest-grade rare earth deposit in the world with a NI 43-101 compliant Mineral Resource Estimation. SKK is therefore potentially also one of the lowest-cost producers of rare earths in the world. REEtec in Norway has developed a new technology to separate rare earths and is potentially one of the lowest-cost separators of rare earths in the world. The Company’s strategy is to work with REEtec to build upon these comparative advantages and to become a profitable supplier of high-quality rare earth products to world markets. Many companies have expressed their desire to sign off-take agreements to buy the rare earth production from SKK.

15 Thorium

Many nuclear power stations are under construction around the world and many more are planned. Thorium, with its good safety and operational characteristics, has great potential as a nuclear fuel. Thorium is more abundant than uranium; if a shortage of uranium emerges, thorium could be used as a supplementary or replacement fuel.

SKK, with a thorium grade of 2.14%, is the highest-grade thorium deposit in the world. The Colorado School of Mines estimates that the global demand for thorium could rise to nearly 4,000 tons per year over the next 20 years and states that SKK will be the lowest cost producer of thorium in the world. The Mineral Resource Estimation indicates the presence of about 11,700 (eleven thousand seven hundred) tons of thorium at SKK.

The Company has an association with Thor Energy AS in Norway, a company that has manufactured thorium fuels and that is now qualifying these fuels in the nuclear reactor at Halden in Norway. These fuels are now more than four years into a five-year qualification programme that could culminate in the licensing of these thorium fuels for commercial use by 2018.

The Company plans to be a supplier of thorium to manufacturers of nuclear fuel.

Thorium is also the only natural source of alpha emitters for Targeted Alpha Therapy (TAT), a new and effective treatment for various types of cancer. The Company could become a supplier of alpha emitters derived from thorium for these new medical isotopes.


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16 Conclusion

The conclusions of this IM are as follows:

• SKK has a sufficiently large, high-grade deposit of rare earths to justify the

development of a mining operation with a production rate of 2,700 tons of rare earth

oxides per year and a life-of-mine of about 30 (thirty) years;

• The mining of the monazite ore is feasible and economical;

• The production of high-grade monazite concentrate is feasible and economical;

• The processing technology to produce mixed rare earth carbonate is relatively

simple and has been proven on laboratory, pilot plant and industrial scale;

• The project will yield a high return on the investment, based partly on current costs

and partly on costs escalated from 2002 to 2015 terms; and

• The strong demand for, and the high prices of, the magnetic rare earths indicate

that the NPV and the IRR will be high.

END

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