COPPER ARM WHERE WE OPERATE DIVISIONAL STRUCTURE THE COPPER PRODUCTION PROCESS ZAMBIA LUBAMBE. Copper Mine LUBAMBE. Extension Area CATHODE COPPER

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1 106 Integrated Annual Report 2015 ARM COPPER WHERE WE OPERATE ZAMBIA LUBAMBE Copper Mine LUBAMBE Extension Area Thando Mkatshana Chief Executive: ARM Copper and ARM Coal ZCCM-IH 20% DIVISIONAL STRUCTURE 80% Lubambe Copper 100% Vale/ARM 50% 100% joint venture Lusaka and Kabwe 50% Vale S.A. THE COPPER PRODUCTION PROCESS CATHODE COPPER Ore extraction Crushing & milling Fines Froth flotation Concentrate Flash/ Isa Smelt Smelting Matte Refining Blister Copper Refining Anode Copper Electrorefining Tailings Slag

2 107 Operational review: ARM Copper SCORECARD Lubambe Copper Mine F2015 OBJECTIVES F2015 PERFORMANCE F2016 OBJECTIVES Continue the ramp up to full production by producing tonnes of copper in F2015. Improve the understanding of the complex ore body and ramp up to full production on a monthly basis towards the end of F2015. Lubambe Extension Area Access development at the mine has been slower than planned due to poor ground conditions. Lubambe Mine has implemented a revised mine plan to improve grade and unit production costs. Major improvements have been made in dilution control and extraction improvements. Continuous improvement in mining methodology is delivering good results. Continue to mine the East Limb at full production and evaluate mine design alternatives to access the South Limb ore and prepare the mine for ramp up to full production in F2019. Continue with the implementation of lessons learnt and operational improvements. F2015 OBJECTIVES F2015 PERFORMANCE F2016 OBJECTIVES Continue with the drilling of the large hole in the vicinity of the anticipated new vertical shaft complex to conduct a hydrogeological study Due to a decline in the short-term copper price outlook, drilling in the extension area has been temporarily suspended. The extension area remains an integral part of Lubambe s future development. Continue to hold off further drilling until conditions in the copper market improve.

3 108 Integrated Annual Report 2015 Operational review: ARM Copper continued OVERVIEW OPERATIONAL OVERVIEW (100% BASIS) F2015 F2014 % change Operational target F2016 Tonnes milled 000t Mill head grade % copper Concentrator recovery % Copper concentrate produced tonnes Copper concentrate sold tonnes (25) Contained metal Copper produced tonnes Copper sold tonnes (22) Refer to pages 240 to 241 for the ARM Copper segmental information. IAR FINANCIAL OVERVIEW (ATTRIBUTABLE BASIS) F2015 F2014 % change EBITDA R million (125) (70) (79) Headline earnings/(loss) R million (430) (309) (39) Cash (outflow) from operating activities R million (95) (158) 40 Capital expenditure R million SUSTAINABILITY OVERVIEW (100% BASIS) F2015 F2014 % change LTIFR* CSR spend** R million 2 95 (98) Electricity consumption 000 MWh (3) Water consumption million m Total: Scope 1 and 2 emissions (attributable) # tco 2 e * LTIFR: Lost Time Injury Frequency Rate (per man hours). ** CSR: Corporate Social Responsibility. # Please note that the F2014 emissions changed slightly during the CDP external data verification process and have been restated accordingly. All figures are stated on 100% basis except tco 2 e, which is attributable (as per the CDP submission). For discussion on the ARM Copper sustainability performance refer to the Sustainability review on pages 38 to 71. IAR OPERATIONAL AND FINANCIAL REVIEW The ARM Copper attributable headline loss increased by R121 million to R430 million in F2015 primarily due to a decline in the copper price and lower sales volumes. The average realised copper price in F2015 of US$6 355 per tonne was US$679 per tonne lower than the F2014 average realised price. The lower copper price had a negative impact of R119 million on attributable headline earnings. Copper sales volumes in F2014 included tonnes of untreated concentrate which were carried over from the 2013 financial year. The Government of the Republic of Zambia increased the mineral royalty tax from 6% to 8% during the latter half of F2015 and treatment and refining charges escalated by 16% during the same period. Tonnes mined, tonnes milled, head grade delivered to the concentrator plant and concentrator recoveries were all better than the F2014 period. These improvements, especially the head grade and plant recoveries, were more pronounced in the second half of the financial year. C1 unit cash costs declined by 14% to US2.80/lb of copper produced. In the last quarter of F2015, the C1 unit cash costs were US$2.48/lb of copper produced. Access development at the mine has been slower than planned due to poor ground conditions associated with the traversing of the sand zone on the South Limb and earlier than expected water intersection in the East Limb. This inflow is related to a flooded mine in the Democratic Republic of the Congo. Further to the changes announced at the interim results for the six months ending 31 December 2015, Lubambe Copper Mine has implemented revised plans to improve head grade delivered to the concentrator plant and counter the effects of the slower

4 109 development progress and the decline in the copper price. The changes include: The South Limb mining area (vertical shaft area) has been placed on temporary care and maintenance to re-evaluate the development and optimise layout and extraction. All capital expenditure relating to the optimisation of the vertical shaft has been put on hold. Ore drive development was repositioned to reduce waste dilution. Change from contractor to owner development crews which in the last quarter of the financial year resulted in an im provement in efficiencies and a reduction in cost. The workforce complement has been reduced to align with the revised mining plan. The revised mine plan together with a decline in the short-term copper price outlook resulted in an attributable impairment of R784 million. During the last quarter of the 2015 financial year, the mine reduced the C1 unit cash cost by 27% compared to the full financial year of This unit cash costs for the last quarter were US$2.48/lb of copper produced and management is confident that further operational and mine design improvements will improve unit cost performance further. The Lubambe Mine continues to target full production of tonnes per annum and a steady state unit cost of US$2.00/lb is envisaged when this target is reached in F2019. The Lubambe Copper Mine Lubambe Copper Mine is still ramping up production albeit at a slower rate than initially planned. The slow-down of the ramp up was mainly due to poor ground conditions associated with the sand zone. Mining through the sand zone in the South Limb required additional specialised support resulting in higher costs and slower advance rates. This, together with the sharp decline in the copper price, resulted in a decision to stop production from the South Limb area in the short-term. The slow-down in ramp up will also enable the mine to review and re-plan the approach to the sand zone with emphasis of reducing the frequency of traversing through this structure. The decision to return to production at the South Limb will be based on the revised layout and copper prices. Further enhancements to stope methodology, mine design and extraction optimisation is underway and will be fully implemented by the end of the 2016 financial year. The East Limb has been producing at its planned rate of tonnes of ore per month since the last quarter of F2015. The results of the last quarter indicate that it is possible to mine at a head grade of more than 2.10% from underground. The mine has successfully completed transition from contractor to owner operator and costs have reduced accordingly. In F2017 a decision will be made on the South Limb mining layout and ramp up programme. The mine expects to achieve tonnes contained copper per annum from F2019. PROJECTS Lubambe Extension Area During the year under review, a new hydrogeological hole was drilled to better understand the hydrogeology of the target area. This hole reached a depth of 756 metres after the planned casing was installed and the hole prepared for the next phase of drilling to its final depth of metres. Due to the rapid decline in the copper price, a decision was taken to delay further drilling and planned test work. The hole has been secured and future drilling and testing will be re-commissioned at an opportune time. The high-grade Lubambe Extension Area remains an integral part of the future development of the Lubambe ore body. ARM COPPER PRODUCTION VOLUMES FROM F2013 TO F2020 (100% basis) Operational review: ARM Copper F2013a F2014a F2015a F2016e F2017e F2018e F2019e F2020e

5 110 Integrated Annual Report 2015 Operational review: ARM Copper continued MARKET REVIEW The general downward trend in copper prices has continued with prices at 30 June 43% lower since reaching a peak of over US$10 100/t in February During the 2015 financial year copper prices fell by approximately 23% from approximately US$7 000/t to approximately US$5 400/t. Over 10% of copper producers are operating at a loss at current copper prices, according to GFMS data. Falling oil prices have provided some assistance to copper producers by reducing the average production costs by approximately 5% over the last year. The recent devaluation of the Chinese Yuan and concerns about Chinese economic growth rates have caused negative sentiment amongst investors which led to a commodities sell-off on Chinese and worldwide stock markets. This negative sentiment has impacted on the commodity futures market with speculators taking short positions on copper. Consequently, there has been a significant drop in copper prices from over US$6 400/tonne in May Commodities prices have fallen due to fears of a growth slowdown in China and expectations of a US interest rate hike later this year. The recent drop in copper prices, however is viewed by most analyst as a reaction to the current negative investment sentiment and concerns about China s growth rate rather than the fundamentals of the copper market. According to Citi Group copper is currently tarnished with the same brush as other commodities and is not reflective of the underlying fundamentals which are more supportive of a higher price. During calendar year 2015 to date supply disruptions have been higher than expected and are expected to reduce the forecasted market surplus arising from new supply coming on line in 2015 and Year to date supply disruptions has reached an annualised rate of 6.6%, the highest since Reasons for the supply disruptions include Chile desert floods, price-led closures, slow project ramp-up and Zambia electricity power shortages. On the demand side China s forecasted refined demand for 2015 has been reduced from 5.3% to 4.6%. This reduction is in acknowledgement of the poor demand from China during the first quarter of These demand and supply changes translate into a market that was originally forecast to be 500 thousand tonnes in surplus in 2015 to be more or less in balance with any further demand disruptions potentially swinging the market into deficit. The current market supply balance is forecast to persist in 2017, after which analysts predict that the market will move into deficit on the back of lower copper grades, ageing mines and lack of new mining development since Based on a panel of bank forecasts consensus copper prices are expected to return to US$8 000/tonne by 2019, as either project development or demand rationalisation must be incentivised to address the growing shortfall. F2015 SPOT COPPER PRICES (US$/t) Jul 2014 Jun 2015 Source: INet Bridge Lubambe Mine Management: The mine is managed by the shareholders, via a Board of Directors. MEASURED & INDICATED RESOURCES* PROVED & PROBABLE RESERVES Mt TCu% Mt contained Cu Mt TCu% Mt contained Cu Resources and Reserves (100% basis) Refining Total labour Lubambe Mine Lubambe Extension Target Area The concentrate produced is being smelted and refined at Konkola Copper Smelter and Chambishi Copper Smelter including 387 contractors * The Measured and Indicated Mineral Resources are inclusive of those modified to produce Mineral Reserves.

6 111 Operational review: ARM Copper Ore being transported on a conveyor belt at Lubambe Copper Mine