independent expert report indian iron ore

Cluf f Resources Paci f ic NL
ABN 72 002 261 565
Registered Office:
1/30 Leighton Place,
Hornsby NSW 2077,
Australia
ASX Code: CFR
Postal Address:
Locked Bag 3355,
Hornsby NSW 2077,
Australia
Tele-Communications:
Tel: (612) 9482 4655
Fax: (612) 9482 4987
email: [email protected]
Internet: www.cluff.com.au
29 July, 2008
The Manager (Companies),
Australian Stock Exchange,
Sydney
Dear Sir,
INDEPENDENT EXPERT REPORT, INDIAN IRON ORE
I attach the Independent Expert Report prepared by N.H.Cole and Associates Pty
Ltd, Project Investment and Mineral Industry Advisors, on six Applications for Mining
Leases in Karnataka State, India. These AMLs have been offered to Cluff as a result
of the Memorandum of Understanding between Cluff Resources Pacific NL and Sai
Engineering, of Bangalore signed on 2 May, 2008.
The mining lease applications are within a district with a large amount of current and
historical mining, and particularly those very close to two of the AMLs offered, the
evidence of past and current illegal mining activity by artisanal mining workers within
at least three of the areas offered, suggesting the presence of commercial grades of
iron ore on the leases. The region produces the large majority of iron ore from the
state, and is the location of at least 140 current or former high grade, low impurity
haematite iron ore open pit mines.
Sampling Haematite Scree Deposit on 2511AML07
The Report encourages the Company to further investigate committing to iron ore
mining in Karnataka State by highlighting the haematitic nature of the deposits, high
grade of iron ore mined regionally, and low levels of silica, alumina, phosphorous and
sulphur within the ores. Reported mine gate price of this iron ore is high. The smaller
size of the mines and low requirement for ore processing suggests that mine
establishment costs would be much lower than for many other commodities. This,
together with likely low stripping ratios, and the use of contract haulage is likely to
result in low production costs. Hence mining operations on these leases have
potential to produce profits suitable for an emerging miner such as Cluff.
Haematite outcrop, 2511AML07
The minimal amount of exploration and geological mapping carried out to date needs
to be remedied. Hence the projects are at the point where they require exploratory
drilling to define a resource, rather than at mine planning stage.
Discussions with our Joint Venture Partner are continuing in order to remedy the
Company’s concerns about uncertainties in time required for grant of the Mining
Leases. It is now examining the possibility of purchasing additional granted Mining
Leases, with the aim of obtaining near term production while grant of the applications
for mining leases described in the Report is obtained.
Haematite on 2511AML 07
Beds of Banded Ironstone, 2318AML07
Iron Ore Transport in Typical Thirteen Tonne Truck, 2318AML07
Scree Ore Mining Area, 2318AML07
Ridge of Banded Ironstone, 374AML08
Illegal Artisanal Miners Settlement, 374AML08
Transport of Iron Ore to Screening Plant
Screening Plant and Stockpiles, Mullock Dump from Large Open Cut in
Background (in Valley, LHS)
Illegal Artisanal Mining Pit in Scree Deposit, with Banded Iron Formation Ridge
in Background, 802AML05
For further information contact:
Scott Enderby on Phone (02) 9482 4655
Fax: (02) 9482 4987
Email: [email protected] or
Peter Kennewell on Phone: (02) 9482 4655
Yours faithfully,
Peter Kennewell,
Managing Director
NN HH CC
PROJECT INVESTMENT AND MINERAL INDUSTRY ADVISORS
Telephone 041 22 66 089 ACN 000 266 606 Level 4 15-17 Young Street
Private (02) 9327 3320 [email protected] Sydney NSW 2000 Australia
23 July 2008
The Directors
Cluff Resources Pacific NL
Unit 1, 30 Leighton Place
Hornsby NSW 2077
Attention: Mr Peter Kennewell, Managing Director
Dear Sirs
TECHNICAL ASSESSMENT REPORT, KARNATAKA, INDIA, IRON ORE PROJECTS
This independent technical assessment report (“the Report”) provides an assessment of five
predevelopment iron ore projects in the southern Indian state of Karnataka, which Cluff
Resources Pacific NL (“Cluff”) is currently considering for joint venture participation. The
Report is prepared in keeping with the countersigned letter of engagement agreed with Cluff.
The agreed scope of work for the Report excludes any consideration of due diligence aspects
relating to legal, financial, accounting, taxation, and corporate matters, except to the extent that such
matters are pertinent to the present assessment of projects for the Report. Cluff has arranged for the
preparation of the specialist’s tenement report referred to in Section 8 of the Report.
Site visits have been undertaken during the preparation of the Report by the undersigned to the
three of the five iron ore project areas. A meeting was also held with the Director of Mines and
Geology of the state of Karnataka.
The five iron ore project areas are all at the local, ie Karnataka state, AML (Application for
Mining Lease) stage. A minimal level of exploration expenditure has been undertaken, with no
geological mapping prepared for any of the sites. There is extensive statistical data from prior
iron ore mining at nearby locations, and also plain evidence of past and current unauthorised
mining in some of the areas by artisanal mining workers.
The proposal being considered by Cluff involves its 71 per cent owned subsidiary Elephant
Gold Pty Limited becoming a 60 per cent shareholder in a planned incorporated joint venture
company Karnataka Iron Ore Pte Ltd. The other 40 per cent pro-rata contributing shareholder is
to be a local Bangalore company Sai Constructions.
The focus of much of the Report is on the iron ore project located in the Bellary/Hospet region
of Karnataka. That region produces the large majority of iron ore from the state and is the
location for at least 140 current or former high grade, low impurity haematite iron ore open pit
mines.
Coollee aanndd AAssssoocciiaatteess PPttyy LLttdd
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 2
From inquiry of local experienced persons, it is the opinion of N H Cole and Associates Pty Ltd
that the statistical data we have been able to review can nearly always be regarded as entirely
reliable, even though much of the statistical data is slow to emerge from government sources.
1. EXECUTIVE SUMMARY
1.1 The five project areas are located in areas of active high grade haematite open pit mines.
None has yet involved any significant exploration or assessment expenditures. Two are
assessed as currently worthy of closer investigation.
1.2 The Bellary project area in particular is located in an area of high grade low impurity mines,
with production grades of at least 64 per cent iron and very low silica, alumina, phosphorus
and sulphur levels.
1.3 Ownership of the iron ore operating mines is widely diverse. The Bellary district has
involved at least 143 mainly very small open pit mining areas, averaging 220 hectares in size.
1.4 The Bellary project appears to offer the potential for a minimum of 200,000 tonnes of float
ore, otherwise known as scree, at a grade of 65 per cent iron and higher tonnages of reef ore
of uncertain grade.
1.5 Infrastructure facilities are poor. The transport of ore to export ports is mainly in maximum
13 tonne payload trucks, via roads partly in very poor condition.
1.6 Verbal advice has been received that the mine gate price currently paid for 63 per cent iron
ore fines is the equivalent of approximately A$77 per tonne.
1.7 The float ore appears to indicate a potential pre-tax operating cash surplus of at least A$12
million over an initial two year period from commencement of operations.
1.8 All five areas are at the AML (registered Application for Mining Lease) stage.
1.9 The processing of mining lease applications in Karnataka is extremely slow. For the latest
available annual reporting period, 40 leases were granted from a total of 1216 applications.
1.10 For the possibility of proving and developing the target Bellary district open pit iron ore
project, the main risks assessed are the absence of any JORC Code mineral resources, the
likely permitting delay, the contingency of future environmental constraints and medium term
iron ore price risk, if a protracted period is involved in permitting.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 3
2. ASSESSMENT METHODOLOGY
For the preparation of independent expert technical assessment and valuation reports on mineral
project interests, the appropriate professional standards are as set down in the provisions of the 2005
Valmin Code1 of The Australasian Institute of Mining and Metallurgy ("The AusIMM"). Under the
definitions of that code, three of the five areas are classified as Advanced Exploration Areas, with
the other two possibly being classified as Exploration Areas.
From the discussion later in the Report, it is possible to undertake a technical assessment for the
five iron ore project areas, but it is considered premature to assign any fair market value
assessment to the areas, partly because only a nominal amount of exploration expenditure work
has been undertaken on any of the five areas. With work over the next several months, a fair
market valuation assessment may be reasonably anticipated.
The five iron ore project areas have been assessed with regard to the assessed prospectivity of the
areas, taking into account the geological setting of the projects, and their geological and regional
proximity to existing or past iron ore production areas.
Except where otherwise noted, all references to mineral resources and ore reserves herein are in
accordance with the Australasian Code for Reporting of Identified Mineral Resources and Ore
Reserves, 2004 Edition (“the JORC Code”), as defined in and required under Appendix 5A of the
ASX Listing Rules, effective 17 December 2004. References in many of the information sources
listed in the Appendix to “reserves” reflects a much more liberal use of that term in India than
applies under the JORC Code.
References herein to dollars are to Australian dollars, expressed in July 2008 terms, except where
otherwise indicated. The exchange rate adopted for the conversion of local currency is A$1.00 =
41 INR.
3. OVERVIEW OF THE INDIAN IRON ORE INDUSTRY
India has a very large iron ore resource base, with an inventory in excess of 25 billion tonnes,
with the haematite to magnetite ratio of about 58 per cent to 42 per cent. India has long been a
major producer of high grade iron ore, with growth in recent years mainly to supply exports to
China.
There are two main iron ore production regions:
• The Central and Eastern States of Orissa, Chattisgarh and Jharkhand, producing about 55
per cent to 60 per cent of total production.
• The South-Western States of Karnataka and Goa, producing the balance.
1 "Valmin Code" is the Code and Guidelines for Technical Assessment and/or Valuation of Mineral and Petroleum
Assets and Mineral and Petroleum Securities for Independent Expert Reports, 2005 Edition, which is binding on
members of The AusIMM, and applies to all relevant reports issued from 29 April 2005.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 4
The biggest growth in production has come from the state of Orissa, where production increased
from 16.6 million tonnes to 49.9 million tonnes over the four years to 2006.
There is very minor production of concentrates in India, from one mine source that mined and
concentrated magnetite ore, but which closed in late 2005. There is no evidence of any form of
concentration of lower grades of haematite ore feed by jigging or heavy media separation as is
practiced extensively in the Pilbara region of Western Australia.
The key iron ore industry data are shown in Table 1.
Table 1
INDIAN IRON ORE INDUSTRY STATISTICS
Production Domestic
Consumption
Exports Balance
2000-01 million tonnes
2001-02 million tonnes
2002-03 million tonnes
2003-04 million tonnes
2004-05 million tonnes
2005-06 million tonnes
80.8
86.2
99.1
122.8
145.9
154.4
36.0
37.7
40.9
45.0
48.2
52.2
37.3
41.6
48.2
62.6
78.1
89.3
7.5
6.9
10.1
15.3
19.7
12.9
For the latest statistical year, 38 per cent of production was from public sector organisations. 23
per cent of production was from mines captive to steel works in India in 7 different locations.
The low and declining proportion of lump iron ore can be seen in the data in Table 2.
Table 2
INDIAN IRON ORE EXPORT STATISTICS
Iron Ore Fines Lump Iron Ore Total
2003-04 million tonnes
2004-05 million tonnes
2005-06 million tonnes
49.1 (78.5%)
64.6 (82.7%)
75.0 (84.0%)
13.5 (21.5%)
13.5 (17.3%)
14.3 (16.0%)
62.6
78.1
89.3
Although Indian iron ore is well recognised as relatively high in grade and with low levels of
silica, alumina and phosphorus, the recent trend has been consistently towards slightly lower
grades, as shown in Table 3.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 5
Table 3
INDIAN IRON ORE EXPORT GRADES
>64% Fe 63-64% Fe Lower Grade Total
2002-03 million tonnes
2003-04 million tonnes
2004-05 million tonnes
2005-06 million tonnes
24.1
21.9
20.2
18.1
5.4
15.6
34.2
39.3
18.5
25.1
23.8
31.9
48.0
62.6
78.1
89.3
Figure 1 shows the location in India of the five project areas being assessed for joint venture
participation by Cluff, referred to the five separate AML location groups listed later in Table 6.
Figure 1
LOCATION OF TARGET IRON ORE PROJECTS
3.1 Iron Ore Production in Karnataka
The high grade haematite and lower grade magnetite resources of Karnataka are very extensive,
but with much of the magnetite being located in the Western Ghats area, which is described as
ecologically sensitive. As at 2000, the recoverable haematite resources of 62 per cent to 65 per
cent iron grade were estimated at 966 million tonnes. Earlier data (Indian Bureau of Mines, Year
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 6
Book, 1993) indicates the then estimates were that 714 million tonnes, or 77 per cent, out of a
then total of 929 million tonnes of iron ore estimated for the state of Karnataka were from the
Bellary district.
High grade haematite has been mined in Karnataka since 1952.
Table 4 shows the production data recorded for the latest two statistical years in Karnataka.
Table 4
IRON ORE PRODUCTION IN KARNATAKA
Year to March 2006 Year to March 2007
Lump iron ore
Iron ore fines
Total production
14.0 million tonnes
22.9 million tonnes
36.9 million tonnes
14.4 million tonnes
21.8 million tonnes
36.2 million tonnes
For the latest available year, iron ore was produced from 6 of the total of 18 districts in
Karnataka, with 88 per cent of production from the Bellary district in the central eastern part of
the state, some 250 kilometres north of the state capital city of Bangalore.
There are three types of exploration and mining tenements available in India, identified as mining
leases, prospecting licences and reconnaissance permits. Data for Karnataka for the year to
March 2006 show the following:
• 35 mining leases were granted or executed, of which 9 were in the district of Bellary, for
iron ore, manganese and red oxide, with an average size of 52.7 hectares; one much larger
lease of 4605 hectares was executed in the district of Chickmagalur for iron ore. Of the
total of 35, 19 were renewals.
• 2 prospecting licences were granted, of average size 3.3 hectares, from 220 applications.
• 3 reconnaissance permits were granted, of average size 1278 square kilometres from 14
applications.
The total of 40 tenements granted is from a total shown of 1216 applications. From a government
report, “….. existing administrative procedures for the grant of mining leases are extremely
tedious and tardy ………. It has been placed on record that an application has to pass through 77
desks that require 485 to 765 days to cover.”
As at late 2006, there were 147 mining leases in force in Karnataka with an average area of 321
hectares. 101 or 69 per cent of these are in the Bellary district with an average area of 220
hectares.
The iron ore industry in Karnataka is very poorly served in terms of infrastructure, with most
transport of ore being done in old trucks with 13 tonne payload limits on roads that are fairly
described as in poor to very poor condition, with some sections having been heavily damaged.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 7
The main iron ore export ports now in use are Belekere, New Mangalore and Karwar, on the
western coast of India. There was nothing in any way suggested during the time of the recent
field visit that there were plans for any improvement in roads or transport services.
In the Bellary/Hospet/Sandur iron ore mining belt, recent work has shown that dust from mining
and trucking movements has led to environmental exceedances for suspended particulate matter
and for respirable suspended particulate matters. Spillages of iron ore fines from the transport
trucks are quite common.
4. GEOLOGY AND MINERALISATION
The haematite iron ores of Karnataka occur mainly in the Sandur schist belt in two prominent
bands, the western Sandur belt and the eastern Copper Mountain belt. All are associated with
prominent hills and mountains, the origins of which are from the hard-standing erosion-resistant
vertical to sub-vertical banded iron formations (“BIF”). The BIFs are characterised by alternating
bands of iron oxides and silica, formed by volcano-sedimentary processes. Iron oxides and silica
from submarine volcanic sources have been precipitated in Early Precambrian depositional basins
in alternating layers, due to specific seasonal and chemical variations. Some of the Precambrians
of Karnataka have been metamorphosed with the resulting fine grained magnetites with 45 per
cent to 55 per cent iron, similar to the well known fine grained very hard taconite iron ores of the
Minnesota Lake Superior region of the United States.
The weathering, alteration and enrichment of Precambrian BIFs under surface conditions, either
through the replacement of silica by iron or by the leaching of silica, during Tertiary and
Quaternary periods have produced commercially valuable haematite rich supergene iron ores in
the Sandur and Chitradurga schist belts. Such processes over a long period of time have given
rise to massive orebodies occupying the crest of mountains, hills and elevated plateaus.
The ores are friable and powdery with 62 per cent to 68 per cent iron content.
From the recent field inspection, it is obvious that large quantities of high grade haematite ores
occur as float ore, otherwise known as scree or colluvium, which are erosional products deposited
on the faces of the hillsides or mountains which have been formed from the erosion resistant
BIFs. The most obvious evidence of this is to be seen in the quite extensive surface workings of
the unlicenced artisinal miners.
4.1 Geological Setting for the Bellary/Hospet/Sandur Mines
The haematite iron ores of the Bellary/Hospet/Sandur area occur in an associated group of
mountain ranges, taking in an historical group of at least 140 separate haematite open pit mines,
all but two with relatively small production, located at elevations from 540 metres to 980 metres.
The Bellary iron ore mines are located in three sub-parallel groups of mountain ranges, mainly
with a north-west to south-west orientation, as shown in Figure 2.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 8
Figure 2
HOSPET/BELLARY REGION IRON ORE MINES SETTING
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 9
The main line of historical and current operations strikes south-east from a distance about 4
kilometres south-east of the town of Hospet for a further distance of about 40 kilometres, taking
in the N E B, Thimmappanagodi and Donimalai mountain ranges.
Offset to the south-west by about 4 to 6 kilometres are the Ramandurga, Devadari and
Kumaraswamy ranges, over a distance of about 30 kilometres.
To the north-east by about 15 to 20 kilometres, some 10 kilometres south-west of the town of
Bellary is the further line of the Belagal Range, over about 20 kilometres.
4.2 Data from Mines near the Bellary Iron Ore Target Area
The Bellary iron ore project area described later in the Report is located at 76º41' E, 15º2' N, in a
tenement application area of about 900 acres or 360 hectares over a north-west to south-east
distance of about 2400 metres, by 1500 metres across. The elevation is from about 600 metres
ASL to about 1030 metres ASL. Though little exploration work has been undertaken to date on
this area, preliminary conclusions as to its prospectivity can be drawn from data in Table 5, for
four other quite nearby open pit operations, which are assessed as being nearby in terms of the
geological setting for the iron ore mineralisation.
Table 5
BELLARY REGION IRON ORE MINE DATA
Project Name Appenhalli Ubbalagandi A Ubbalagandi B Ubbalagandi C
Location, easting
Location, northing
Area, hectares
Elevation
Local mineralisation
Iron ore grade
76º40' E
15º0' N
520
960 m ASL
Refer Note 1
66.95% Fe
76º39' E
15º3' N
80
920 m ASL
Refer Note 2
65.66% Fe
76º39' E
15º3' N
80
950 m ASL
Refer Note 3
67.32% Fe
76º39' E
15º3' N
93
690 m ASL
Refer Note 4
65.50% Fe
Notes: 1. Three parallel iron ore reefs 300, 400 and 410 metres long, 15 to 24 metres wide;
float ore concentration on both slopes to estimated 200,000 tonnes; 4 million tonnes
of reef worked to 60 metres depth.
2. One iron ore reef, steel grey, laminated and friable of about 1 million tonnes to 60
metres depth, with float ore on the eastern slope; 30% of mined ore in powdery form.
3. Two iron ore reefs 600 and 200 metres long and 9 to 12 metres wide, described as
hard, compact and friable; estimated 1.5 million tonnes of reef ore to 60 metres
depth, and 500,000 tonnes of float ore on the eastern slope.
4. Float ore only, estimated at about 260,000 tonnes.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 10
The impurity levels in the iron ore reported for these four mining areas are reported as under:
• Silica in the range of 1.38 per cent to 1.70 per cent
• Alumina in the range of 1.28 per cent to 2.24 per cent
• Phosphorus in the range of 0.025 per cent to 0.039 per cent
• Sulphur in the range of trace to 0.009 per cent
Such impurity levels are very low by comparison for example with iron ore products exported
from the Pilbara region of Western Australia, and reflect products that would be in high demand
in the international seaborne iron ore trade, for Chinese and other markets.
Such impurity levels have been reviewed in the context of assay results recorded for 97 iron ore
leases out of the total sample of 143 Bellary District mines reported in 1985. No assay results
were recorded for the other 46 iron ore leases. Those results show the following assay results:
• Minimum iron content of 64.0%, except for two much lower grade outliers
• Maximum silica content of 3.68%, except for one much higher grade outlier
• Maximum alumina content of 4.1 per cent
• Maximum phosphorus content of 0.058%2, except for six higher grade outliers over 0.1
per cent
• Highest sulphur content of 0.013 per cent, except for two higher grade outliers.
The Bellary District mines are of the highest iron ore grades known to N H Cole and Associates
Pty Ltd. However, in iron ore project development terms, the district is handicapped
• by the very small size of the diversely owned mining leases, identified in the 1985 report
as mostly 30 to 200 hectares in size, with only 4 larger than 400 hectares (and more
recently in late 2006 with an average 220 hectare size, as shown in Section 3 above), but
more particularly
• by the severe lack of adequate infrastructure access.
There are no policy moves known from government or the private sector towards amelioration of
either of these handicaps, in any moves towards a more efficient iron ore industry in the district.
2 This phosphorus level compares with the historical maximum levels of 0.08 per cent phosphorus for
premium grade haematite exports from the Pilbara region of Western Australia.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 11
5. THE FIVE IRON ORE PROJECT OPPORTUNITIES
Summary details about the five project areas being considered by Cluff for participation are
shown earlier in Figure 1 and also in Table 6 on the following page. Certain fields indicate where
the data are not available or not yet known (“n a”)
The table indicates preliminary assays from samples gathered during the recent field visits. More
detailed assays for deleterious elements in these samples have not yet been received.
Location No. 1 2A (NE front face) 2B (SW back face) 3 4 5
Project Name Elladakere Rajapur Doddapura Holalkere n a
Approximate location 47 km SSE of Chitradurga 16 km ESE of Sandur 15 km SE of Holalkere 32 kms SW of Chitradurga 20 kms W of Hiriyur
Site visits pm 20 June 2008 noon 21 June 2008 pm 21 June 2008 not seen not seen
Application for Mining Lease 2511AML07 2318AML07 374AML08 802AML05 503AML05 44AML02
AML date 3 September 2007 16 August 2007 10 March 2008 16 June 2005 15 April 2005 27 March 2002
Applicant T K Chandrappa T K Chandrappa T K Chandrappa Sri Shiridi Sai Baba Sri Shiridi Sai Baba Indus Mines &
Mines & Minerals Mines & Minerals Minerals
District Chitradurga Bellary Chitradurga Chitradurga Chitradurga
Taluk (headquarters) Hiriyur/Hosdurga Sandur Chitradurga Holalkere Hosdurga
Villages Elladakere, Ittegehalli Rajapur Ubbalagundi Ramapura Chudenahalli Lakihalli
Nerlakere, Kasapanahalli Doddapura Thenegehalli
Lakshmidevarahalli Hirekandavadi
Easting, northing 76º31' E, 13º46' N 76º41' E, 15º2' N 76º16' E, 13º55' N 76º11' E, 14º10' N 76º26' E, 13º55' N
Approximate area (hectares) 240 160 200 120 320 55
Approximate elevation 1100 m ASL 600 - 1030 m ASL 920 m ASL 790 m ASL 700 m ASL
Other iron ore mines nearby No Yes No Yes No
Current/recent artisanal mining yes, minor yes, quite major yes, minor n a n a
Environmental sensitivity High Low Low n a n a
Samples taken 20/21 June 2008 yes – 2 yes - 3 yes - 2 no no
Preliminary assays
59.4%Fe outcrop, beneath
scree 31.2% Fe, BIF outcrop, west side
55.9% Fe, -30+15mm
colluvium
48.7% Fe, unsorted
colluviums 52.5% Fe, BIF outcrop, east side
41.0% Fe, +30mm
colluvium
66.8% Fe, colluvium, brecciated rock
Forestry status Mari Kanive State Forest Donimalai State Forest n a n a Lakihalli State Forest
forested area, not forested not forested n a n a
AML description Kamari trees no vegetation no vegetation "Busy vegetation" n a
Strike NE/SW Strike about 500' NS Float ore Strike NE to SW Reef and float ore n a
near vertical dip dipping E 80º dipping to E strike NE/SW, dip E 70º n a
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 12
Table 6
SUMMARY DETAILS, FIVE TARGET IRON ORE PROJECT AREAS
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 13
Summary comments about the five target iron ore project areas are indicated below.
Location 1 2511AML07
This area is located in what is assessed as an environmentally sensitive area, along a mountain
ridge, to the immediate north and south of which, along the ridge line, are located dozens of large
recently installed wind-power turbines. It is quite unlikely mining development would be possible
without some degree of interference with this power generation activity. It is also in a designated
forestry area with valuable trees that are prone to theft, so the access roads and tracks have been
blocked by the digging of several trenches that are impassable even for four wheel drive vehicles.
Samples taken from one of the obvious earlier artisanal mining areas included an elevated iron
ore assay. In the opinion of N H Cole and Associates Pty Ltd, any expenditure on this area would
be of a high risk nature, with little indication available that mining development could ever be
permitted.
Locations 2A 2318AML07 and 2B 374AML08 (contiguous)
This area is assessed by N H Cole and Associates Pty Ltd very encouraging. It is considered in
greater detail in Section 6 below.
Location 3 802AML05
This area appears encouraging, with mining development potential. However, little information is
known about any nearby iron ore properties. Eventual mining development may be able to be
permitted, and in the opinion of N H Cole and Associates Pty Ltd, participation in preliminary
investigative exploration work is justified, up to the stage of assessing if the potential for float ore
warrants more serious exploration work, including costeaning, drilling and preliminary
metallurgical assessment by way of crushing and screening trials, for the determination of assays
for different size fractions. Like the earlier two locations, there is evidence of considerable
artisanal mining activity in this area.
Location 4 503AML05
This area is described as being adjacent to the existing Chitradurga John mine, but little
information has been made available. It is not known if the area lies in the same geological
setting or whether it is along strike from the adjacent area of mining activity. The extent of
artisanal mining activity, if any, is not known. In the absence of information, no observations can
be made about the potential merits of this area.
Location 5 44AML02
The same comments apply as for the prior Location 4 area.
6. THE BELLARY PROJECT AREA OPPORTUNITY
The contiguous areas in Locations 2A and 2B are assessed as quite encouraging. The two
contiguous AML areas are as shown in Figure 4.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 14
Figure 3
LEASE APPLICATION AREAS, BELLARY PROJECT
6.1 The Bellary Project Tonnage and Grade Potential
From the discussion in Section 4.2 above, it is possible to draw the inference of good potential in
this area, insofar as field inspection shows
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 15
• the obvious near vertical mountain-top outcropping of three BIF reef structures, with fine
grained slab structures sampled during the field inspection
• the presence of extensive quantities of float or scree material, a single grab sample of
which yielded an assay of 66.8 per cent iron, and
• dozens of people involved in artisanal mining of float ore, both on the north-east front
scree face of the mountain and much further away in the flat river valley area below the
mountain slope.
A broad analysis from the information in Section 4.2 above suggests the potential for
• 200,000 to 500,000 tonnes of float mineralisation, that is quite likely to be high grade by
usual iron ore standards, and
• up to 2 million tonnes of reef material to a maximum depth of about 60 metres, of more
uncertain grade, with more expensive development and mining costs, and a longer lead
time to production.
It should be noted that the potential tonnages above are well short of being classified as mineral
resources in keeping with JORC Code standards.
From the recorded information about nearby mined iron ore grades shown in Table 5 in Section
4.2, the grade to be anticipated from the float material is at least 65 per cent iron, with low levels
of silica, alumina, phosphorus and sulphur impurities.
6.2 Bellary Project Revenue Considerations
Providing exploration work confirms the existence of at least 200,000 tonnes of high grade float
material, and providing a mining lease can be obtained without the significant delays referred to in
Section 3.1 above, there appears scope for a small but economically viable operation to be
planned.
During the time of the recent site visit, the undersigned was advised verbally that, unlike the
export market, the preferred product for local sales was -10 mm iron ore fines, rather than lump.
The mine gate price for such material was currently said to be 3150 INR per tonne, at 63 per cent
iron content. This is the equivalent of A$76.83 per tonne of iron ore fines sold. A request has
been made for written confirmation of such prices, including prices for lump ore, and price trends
over the past three or four years, but this information has not yet been received.
At a grade of 65 per cent iron, there is an iron ore royalty payable to the state of Karnataka at the
rate of 15.5 INR per tonne.
From a consideration of supply/demand factors and especially in relation to keeping the growing
Chinese import demand satisfied, large new tonnages of iron ore will need to be sourced from
sources other than the low-cost high-productivity areas of Brazil and the Pilbara region of
Western Australia. Prices will need to reflect the marginal costs of the new higher cost producers
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 16
soon to be entering the market, such as magnetite concentrate imports from the MidWest region of
Western Australia. In the opinion of N H Cole and Associates, this will keep iron ore prices at
high and possible even higher levels for the next two to three years. However, the reality of a
mid-term reversal of price trends is well recognised by market commentators.
As of the date hereof, and assuming no adverse tax or other structural changes to the iron ore
industry in India, then for a two to three year view, a mine gate price assumption of at least A$70
per tonne appears reasonable, with a longer term base price of perhaps A$50 per tonne to be
assumed.
If an initial 200,000 tonne float ore project could be demonstrated to JORC Code standards and
brought to production after 12 months, ie by July/August 2009, the gross revenue prospects for all
involved are at an aggregate level of A$14 million.
6.3 Bellary Project Cost Considerations
Establishing a starter project at the target Bellary area will require exploration and feasibility
study expenditure costs, and not inconsiderable overhead, acquisition, corporate, legal and other
holding costs, for whatever time it may take to demonstrate a JORC Code mineral resource and
ore reserve, achieve a mining lease and prepare to commission a project, initially involving a
potential threshold target of 200,000 tonnes of high grade float ore, to be mined if possible over a
two year period. These initial high risk capital costs would perhaps be at a minimum of
A$500,000 but could prove to be as high as A$2 million.
For a threshold-level starter float iron ore project however, direct operating costs should be quite
low. Based on the recent field visit evidence, once a form of JORC Code compliant ore reserve is
established and a mine plan agreed and permitted, the operation should involve nothing more than
the following:
• Surface mining of free-dig ore, with no drill and blast of overburden or ore required, by
bulldozer or similar plant.
• Loading and trucking of waste overburden or interburden, if any, to waste dumps outside
the area of the known float ore mineral resources, to a maximum distance of perhaps
1000 metres.
• Loading and trucking of ore to an in-pit ROM (run-of-mine) stockpile area, at a distance
of up to perhaps 500 metres from the mining face.
• Screening of ROM tonnages in a double-deck or triple-deck screening plant, possibly
involving the existing nearby contract operator.
• Storage of one or two finished sized products at a final products stockpile area, for later
loading into trucks provided by the purchasers of the finished product(s).
• Overhead costs, including project management, environmental monitoring, assaying and
tenement management costs.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 17
Local operating costs include wages and salaries, plus maintenance supplies and consumables, of
which the main cost would be diesel or other fuel costs for mobile plant. Given local wages rates
and employment conditions, at an initial scale of say 100,000 tonnes per annum for a two year
project, direct operating costs should not exceed A$10 per tonne of product, and could be
significantly lower if minimal waste to ore overburden ratios are involved.
Significantly higher capital and operating costs would be involved if further exploration work
leads to the conclusion that a larger project involving the exploitation of any reef ore is warranted.
6.4 Bellary Project Future Cash Flow Potential
If a starter project can be established for 200,000 tonnes of high grade float ore, with revenue
assumed at A$70 per tonne and costs at A$10 per tonne, the potential is for an on-site surplus of
some A$12 million over a two year operating period. The expectation would be for greater cash
flow if more float ore is defined or if further work demonstrates the economic viability of any reef
ore that may be available to be demonstrated.
Any such potential cash flows are estimated before taxation, royalties, corporate and all other
overhead costs.
6.5 Bellary Project Technical Assessment
Subject to the risk assessment considered in the following Section 6.6, the technical assessment
for the Bellary project is summarised in the following terms:
• Though without any specific indications as to JORC Code mineral resources and/or ore
reserves, the target Bellary project appears to have strong indications for a potentially
viable project in a region which has a very extensive history of high grade haematite open
pit mine operations.
• A nominal amount of exploration expenditure has been spent on the project to date. The
history of any earlier work by third parties, if any, is not known. If the prospectivity of the
two contiguous AML areas is as good as it seems to be, the issue that arises for inquiry is
why has no other party already taken a serious interest in the area, prior to the current
AML application dates of 16 August 2007 and 10 March 2008.
• Based on averages for other AML areas in Karnataka, it is possible the grant of a mining
lease could involve a considerable time delay, in the extreme to a protracted time when
iron ore prices have reduced considerably below current levels.
6.6 Bellary Project Risk Assessment
The assessment of project risk factors is covered under paragraph 103 of the 2005 Valmin Code.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 18
A technical assessment of the Bellary district target iron ore project has to be qualified with regard to
Risk Factors, with such factors needing to be considered in the context of the future contingent
impact on business viability based on three factors:
• The assessed frequency or likelihood of a future occurrence of an adverse risk event.
• The business impact or consequence of such an adverse risk event occurring.
• The scope that may or may not be available to the project owners to mitigate or remediate
the potential consequential business impact of any such adverse business events.
By way of example, a medium term limitation in overall permitted trucking tonnages in the
district, arising possibly due to inadequate infrastructure or environmental considerations, would
be likely to have a significant to severe business impact, especially for an undefined project not
yet at the feasibility study stage. At the other extreme, recurrent crushing and screening plant
shutdowns due to power failure or other reasons might be not infrequent, but the potential
business impact may be minor, with mitigation of the impact by short term increases in
production, and by the management of ROM (run-of-mine) stockpiles, crushed ore stockpiles, and
intermediate and finished product stockpiles.
Quantified risk ratings can be derived for a range of factors by reference to the diagram below.
3 4 5
2 3 4
CONSEQUENCE
1 2 3
LIKELIHOOD
In the following Table 7, risk ratings assessed for several different potentially adverse risk factors
are shown, having regard for the assessed likelihood and consequence as shown in the figure
above. The risk ratings must be read in the context that the Bellary district target iron ore project
is at an entirely preliminary stage of project definition, with a large amount of further study and
other investigative work required to determine if a JORC Code mineral resource can be estimated
and if there is a technically and economically viable project.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 19
Table 7
BELLARY IRON ORE PROJECT RISK ASSESSMENT
Potentially Adverse Risk
Factor Assessed
Likelihood Consequence Risk
Rating
Comment
Exploration
Resource estimation
Reserve estimation
Iron ore tonnages
Mine planning
Geotechnical
Feasibility study preparation
Operating costs
Capital costs
Production scheduling
Mid-term prices deterioration
Iron ore grades
Deleterious elements
Plant design, eqpt selection
Environmental limitations
Permitting and delays
Logistics and infrastructure
Weather
Seismic activity
Utilities
Project management
Labour & skills availability
low
low
low
medium
low
low
low
low
low
low
high
low
low
low
medium
high
medium
low
low
low
low
medium
moderate
moderate
moderate
moderate
slight
slight
moderate
moderate
moderate
slight
severe
slight
slight
slight
moderate
severe
moderate
slight
slight
slight
moderate
moderate
2
2
2
3
1
1
2
2
2
1
5
1
1
1
3
5
3
1
1
1
2
3
No JORC resources
Simple geometry
None yet, but simple
Speculative
Simple mine design
Good conditions
None yet complete
No information
No information
Straightforward
Significant risk
Good grades indicated
Regional information
Contingent constraints
Severe delays normal
Poor conditions
Minimal
Site generated power
Local expertise
As yet untested
Save for the permitting and medium term commodity price risks, which are high, the total lack of
any JORC Code mineral resource tonnage, and the contingency of future environmentally based
tonnage constraints, the Bellary project at the present stage of demonstration is assessed generally
at a moderate level of risk, with the mitigation of most risk factors possible as the project
progresses through initial exploration expenditures and subsequent feasibility study stages.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 20
7. TECHNICAL ASSESSMENT CONCLUSIONS
7.1 Prior Assessments and Valuations
As required under paragraph 40 of the 2005 Valmin Code, N H Cole and Associates Pty Ltd and
the undersigned hereby report that they are not aware of any prior technical assessments or
valuations that have previously been prepared for the iron ore project interests reviewed in the
foregoing sections of this report.
7.2 Technical Assessment Conclusions
Having regard to the foregoing risk assessment in Section 6.6 of the Report and also for the lack of
JORC Code resources or reserves, it is the current opinion of N H Cole and Associates Pty Ltd
• that there are merits worthy of pursuit in the projects described in the Report as Locations 2A,
2B and 3, and
• that staged, conditional exploration expenditure participation by Cluff in those two projects is
warranted.
It is the further opinion of N H Cole and Associates Pty Ltd that it is not reasonably possible to
ascribe a fair market value to the projects at the present time, although the prospects for this in after
several months’ detailed investigative exploration work are quite encouraging.
8. VERIFICATION OF TENEMENTS AND TITLES
To meet the verification of tenements and titles requirements of paragraphs 67 to 73 of the 2005
Valmin Code, Babu Pattar Solicitiors of Bangalore have been retained to provide the necessary
independent report. That report has not yet been received, but on an interim basis N H Cole and
Associates Pty Limited has relied on the following written representations from the registered
applicants for the five AML project areas described in the report, as summarised in Table 6:
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 21
9. STATEMENT OF CAPABILITY
The undersigned is a Fellow and past Councillor of The AusIMM, and a past Fellow of the Securities
Institute of Australia with experience of more than 20 years in the technical assessment financial
analysis, valuation, and investment appraisal of resources projects. Specifically, more than 100
separate projects have been assessed or valued, the majority of which have related directly to the
determination of a consideration which could fairly or reasonably be paid by interested purchasers for
mining or mineral projects or project interests. The undersigned previously has been responsible for
the provision of independent expert reports in the assessment of takeover bids or other proposals
involving resources companies, as required under corporate regulatory guidelines and ASX Listing
Rule requirements for independent expert valuation and assessment opinions. The undersigned is
responsible for and is a contributor to all sections of this report.
The other contributor to the technical assessment of the Advanced Exploration Areas and
Exploration Areas reviewed in Sections 4, 5, 6.1, 6.5 and 7.2, in keeping with the requirements of
paragraph 22 of the 2005 Valmin Code, is geologist Mr Peter Kennewell, Managing Director of
Cluff.3.
10. PRIOR INVOLVEMENT AND INDEPENDENCE
N H Cole and Associates Pty Ltd and the undersigned are independent of and have had no prior
client relationship or any other form of involvement with Cluff. N H Cole and Associates Pty Ltd
will receive a time-based professional fee plus reimbursement for out of pocket costs for the
preparation of the Report, payment for which is not contingent on the outcome of Cluff’s potential
involvement with the iron ore projects reviewed in the Report. There is no pecuniary or other
interest which could reasonably be regarded as being capable of affecting the independence of N
H Cole and Associates Pty Ltd or the undersigned.
N H Cole and Associates Pty Ltd and the undersigned, and members of his immediate family have
no interest or entitlement in the securities of Cluff, or in the any of the project areas the subject of
the Report.
11. LIMITATIONS AND DECLARATION
This assessment has been based largely on a detailed examination of information about the iron ore
project interests, largely on the basis of reports and other information made available by or through
officers of Cluff, and from the site visit recently undertaken. The statements and opinions contained
herein are given in good faith and represent our own independent assessment of the information
provided. Much of the information reviewed has been presented in a professional manner but it is not
possible to provide the usual declaration that all such information is believed to be true, complete as to
3 Mr Kennewell has consented in writing to the form and context in which the technical assessment comments
in the sections noted have been used in deriving the technical assessment conclusions included in Section
7.2.
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 22
aterial details and not misleading.
purpose of this report in no way constitutes a technical
udit of any of the project interests reviewed.
m the circulation or use of this report other than from
roven wilful misconduct or negligence.
report. No substantive changes to this report
ave been made as a result of the review by Cluff.
ustralasian Institute of
ining and Metallurgy, and is subject to the Codes of Ethics of that body.
H Cole and Associates Pty Ltd
Principal and Managing Director
m
The assistance provided by Cluff and its officers in facilitating the preparation of this report is
acknowledged. The work undertaken for the
a
N H Cole and Associates Pty Ltd has been indemnified by Cluff in respect of any consequential
damages, costs and expenses arising fro
p
An advanced draft copy of this report was submitted to Cluff for comment as to any errors of fact
or misunderstandings or misinterpretations, or substantive disagreements as to the assumptions
made explicitly or implicitly in this report, but expressly not in relation to the valuation
methodology or valuation conclusions drawn in the
h
The undersigned hereby declares that he is a Corporate Member of The A
M
Yours faithfully
N
N H Cole
N H Cole
B E (Hons), FAusIMM, MCIM
Technical Assessment of Karnataka, India Iron Ore Projects 23 July 2008
N H Cole and Associates Pty Ltd Page 23
Appendix
PRINCIPAL INFORMATION SOURCES
For the purposes of preparation of this report, N H Cole and Associates Pty Ltd has relied on the
principal information sources listed below.
1. Geological Maps of Karnataka, 1:500,000, undated
2. Various 1:250,000 scale and 1:50,000 scale topographical plans, 1976 to 2002
3. Sudhaker, K S, Government of Karnataka, Department of Mines and Geology, Iron Ore
Leases of Bellary District, 1985
4. Radhakrsihna, B P, ed, Precambrian Banded Iron Formation of India, 1986
5. Radhakrsihna, B P, Geological Society of India, Mineral Resources of Karnataka, 1996
6. Government of India, Ministry of Mines, Indian Bureau of Mines, Mines and Minerals
(Development and Regulation) Act, 1957, as Amended up to 20th December 1999, January
2000
7. Pattabhiramaiah, N R, Government of Karnataka, Department of Mines and Geology,
Districtwise Geology and Mineral Resources of Karnataka, Geological Studies No 345,
2001
8. Government of India, Ministry of Mines, Indian Bureau of Mines, Mineral Concession
Rules, as Amended up to 5th May 2005, August 2005
9. Venugopal, T N, Government of Karnataka, Department of Mines and Geology, Mineral
Resources of Karnataka and Challenges for its Extraction, Geological Studies No 387,
February 2006
10. Baderiya, G, et al, Government of Karnataka, Department of Mines and Geology, The
Status of Iron Ore Mining in Karnataka, Geological Studies No 391, November 2006
11. Baderiya, G, Government of Karnataka, Department of Mines and Geology, Administration
Report of the Department of Mines and Geology for the Year 2005-2006, 2007
12. Government of India, Ministry of Mines, Indian Bureau of Mines, Bulletin of Mineral
Information, Vol 24, No 2, October 2006 – March 2007
13. Government of India, Ministry of Mines, Indian Bureau of Mines, Monthly Statistics of
Mineral Production, Vol 39, No 3, March 2007
14. Federation of Indian Mineral Industries, Indian Iron Ore, 2007