Indaba 2015, page-3

I would just like to take some time to explain something that I only recently became aware of and I'm sure some people out there may have been curious about as well.

In the Epanko project update announcement 22 Jan they announced that by expanding the annual production to 100 ktpa this would result in increasing the NPV of the project to $251 million. You may have been scratching your head as I was thinking how does increasing the annual production by 150% only result in a slight increase in the base case NPV of $213 million.

The reason for this is the life of mine under a 100 ktpa scenario would be no where near as long as only mining 40 ktpa (which was 27 years). Why didn't they provide the numbers of a 100 ktpa operation over 27 years? Simply because at present they do not have a defined JORC resource that is capable of being mined at 100 ktpa over 27 years. But as we know the company can easily and without much additional cost increase the size of the resource relatively quickly.

Essentially this means the NPV of $251 million for a 100 ktpa operation can not really be compared to the $213 million NPV for 40 ktpa as the life of mines differ significantly. You can probably see where this is going; the NPV of a 100 ktpa operation would be much, much higher.

I will also share a few points that I learned whilst meeting with Andrew last week:

- I mentioned how it was positive that the Merelani JV exclusivity period was only extended for 3 months. He advised that KNL first asked for another 6 months extension however Sky counter-offered with a 3 month extension and as they are confident it will get sorted within this time frame.

- He told me that receiving the mining license and signing a binding off-take with ThyssenKrupp are not risks; the only risk really is the market (i.e. the graphite market as a whole and the ability for the company to receive project finance). I will caution that even though he believes that they are not risks unforeseen circumstances do occur.

- They have been to the USA and recently returned from Japan. The trips involved discussions with a number of traders and end-users. He advised that the discussions in regards to the graphite market and future demand was very much in line with the company's internal knowledge and beliefs.

- He also believes they will have enough cash to last till June but if a cornerstone wanted a 15% stake of the company of course they will take that opportunity up.

Have a good weekend everybody!