Saudi Arabia

Wadi Sawawin - Saudi Arabia

The Wadi Sawawin Project located in the north-west corner of Saudi Arabia, 125km from Tabuk and 60km from the Red Sea port of Duba. Wadi Sawawin is of strategic and economic importance to Saudi Arabia as it will provide a domestic source of Direct Reduction (“DR”) pellets for use in the DRI steel plants which account for 90% of steel production in the Middle East and North African region. The location of Wadi Sawawin will provide it with a competitive advantage over competing Brazilian and European supply through reduced freight rates from its deep water port in the Red Sea and access to low cost Saudi Arabian energy. In addition, the project will assist in the programme of diversification of the economy which is an important element of Saudi Arabian economic policy, and the government is expected to provide low cost funding via the PIF and SIDF.

The process to secure the funding of the Wadi Sawawin project continues. There have been initial positive discussions with the power, water and port authorities in Saudi Arabia regarding the provision of these services. In the event that agreements are reached, this would materially reduce the capital expenditure requirement of the project. London Mining is currently producing 10 tonnes of concentrate at a pilot plant in Perth, Australia to enable DR pellet samples to be produced by pellet plant bidders, and to provide samples to potential offtake providers.

National Mining Company (“NMC”) and London Mining continue to work jointly on the ongoing application to the Deputy Ministry for Mineral Resources for an exploitation licence for the proposed 5Mtpa 20 year operation and there are ongoing discussions.

In July 2010, London Mining announced the results of an updated bankable BFS for the Wadi Sawawin project and a revised agreement with its partner NMC.

Under the terms of the new agreement signed on 20 July 2010, in return for no further material funding requirements and no further dilution in subsequent equity fundings, London Mining will receive a direct interest of 25% in the Wadi Sawawin project through NMC. NMC holds the historical exploitation licence for the Wadi Sawawin project and three adjacent exploration licences. The Chairman of NMC is Prince Nawaf bin Sultan bin Abdul Aziz al Saud, who has provided his full commitment to the project and to this agreement. This agreement supersedes the previous agreement whereby London Mining held a 50% interest in a joint venture company, Saudi London Iron Limited, into which the licences were going to be transferred. Upon closing London Mining will receive shares equal to 25% of the issued share capital of NMC.

The updated BFS further improved the feasibility of the Wadi Sawawin project at 5Mtpa. The key economic parameters, based on the detailed analysis undertaken in the BFS, are:

• Total capital expenditure including power and desalination plant of USD 1.9 billion (a USD100 million reduction versus the previous BFS)
• Capital expenditure for power and desalination plant of c.USD 0.3 billion
• Operating costs of USD 48.3/t pellets (increased from USD 47.4/t)
• Project IRR of 13%, which produces an NPV 8 of USD 932 million (increased from 9% and USD 225 million) Project IRR of 15% estimated if power and water provided by a third party (increased from 13%)
• Project IRR of 18% estimated under 10Mtpa mine scenario (increased from 15%)

The economics of the project were also positively impacted by the assumption of higher pricing for Brazilian benchmark Tuberao DR quality pellets, which feed directly to higher pricing expectations for Wadi Sawawin DR pellets. In addition, the potential to increase the IRR through further optimisation of the capital expenditure, provision of power, desalination and potentially port facilities by third parties and through the expansion of the mine to 10Mtpa is significant.

The equity IRR will be dependent on the funding structure selected. NMC expects to raise financing to build the project through a combination of funding from local sources (including PIF and SIDF), commercial debt and the provision of offtake arrangements in exchange for an equity stake. The minimum leverage achievable is expected to be 60%.

The current indicated JORC resource of 248Mt grading 39.8% Fe is sufficient for a mine life of 21 years at the run rate of 5Mtpa. In addition, London Mining has inferred resources of 134Mt grading 39.2% Fe (as well as further exploration targets) which may provide the basis for an extension of the mine life at 5Mtpa by over 10 years or an expansion to 10Mtpa. London Mining will continue to undertake sufficient exploration to maintain the licences in good standing until funding is secured. The current resource is based entirely within the Western exploration licence and is contiguous with the current exploration licence. NMC has recently submitted to the Ministry of Petroleum and Mines in Jeddah an application for a revised exploitation licence sufficient for a 5Mpta 20 year mine.

The BFS process was managed by the London Mining project team, based primarily in Oman, who engaged a team of consultants comprising: Worley Parsons (project management, transport, bathymetry and ESHIA studies), Ausenco (mineral processing and plant engineering), Snowden Group (geology and mine planning), AMMTEC (ore variability testing), Corus Consulting (formerly British Steel Consulting Overseas, mineral processing), CIT (drilling contractor), AME Mineral Economics and CRU Strategies (market report) and Southern Mining Consultants (financial analysis. The BFS has been conducted to ensure the operation will meet Equator Principles.

As announced on the 23 November 2011, London Mining’s partner in the Wadi Sawawin Project, National Mining Company (“NMC”) has signed an agreement with STX Heavy Industries (“STX”) to conclude the pre-construction engineering design and continue the programme of assisting arranging the full financing for the Wadi Sawawin Project in Saudi Arabia. London Mining will work with STX to undertake the final pre-construction design and procurement preparation.

Wadi Sawawin  Resources as at March 2010, reported at a 30% Fe cut‐off.

Category	Tonnes (%)	Fe (%)	Al2O3 (%)	SiO2 (%)	CaO (%)	P (%)	S (%)
Indicated	248	39.79	2.48	31.00	3.81	0.31	0.13
Inferred	135	39.15	2.43	31.90	3.85	0.30	0.11
Total	382	39.56	2.46	31.32	0.31	0.31	0.12