1

Palabora Mining Company Limited (“PMC”)

The effect of suspending section 45 on PMC’s BEE transaction21 June 2011

Key points

• PMC’s BEE transaction enables meaningful economic benefits

to HDSA’s, including 20% equity participation by communities

and employees

• The transaction structure is in place for sound commercial

reasons, is not an avoidance scheme and is fully taxable

– no tax loss to SA

• The suspension of section 45 will result in a tax charge which

is not financially feasible for the transaction.

3

1. Introduction- The business

• PMC is a South African company located in the

Limpopo Province and listed on the JSE

• The company extracts and beneficiates copper,

vermiculite and magnetite

– It is South Africa’s major producer of

refined copper

• PMC employs around 2,500 people, of which

79% are HDSAs

• PMC has a market capitalisation of c.$6.1

billion (as at 20 June 2011) and its FY2010

Revenue was R7 billion realising a profit after

tax of R595 million.

4

1. Introduction (contd)

• HDSA equity participation is a requirement of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry (Mining Charter).

• It is a business imperative for PMC to secure conversion of its mining rights under the Minerals and Petroleum Resources Development Act, 2002.

• PMC therefore entered into an empowerment transaction in June 2010, which is to be implemented in the near future on fulfillment of certain conditions.

• This followed an intensive consultation process which commenced in 2008 with multiple stakeholders, including communities, trade unions and other BEE partners.

5

BEE equity participation structure

Loan

PMC

BEEConsortium

Palabora Copper(new company)

74%

10% 6% 10%

BEE Employee Trust

BEECommunity Trust

Sale of business and

shares in foreign

subsidiaries

6

Transaction steps

• Empowerment partners obtain their 26% shares in Palabora

Copper for a negligible price.

• PMC transfers its business and assets to Palabora Copper.

• Consideration is left outstanding as a inter-company loan.

• The loan will be repaid out of cash flow.

• Based on current consensus pricing, the loan will be repaid in

approximately 2 years.

7

No loss of tax to the country

Interest income

taxed at 28%

PMC

BEEConsortium

Palabora Copper

74%

10% 6% 10%

BEE Employee Trust

BEE

Community Trust

28% tax relief

on interest

expense

8

Benefits of the structure

• As Palabora Copper will be fully geared, it can issue shares to the Empowerment Partners at a negligible cost

– Enables Empowerment Partners to become shareholders without having to raise funds;

– Creates a stable structure that creates real value for the Empowerment Partners.

• The Empowerment Partners get full voting rights from day 1.

• The Empowerment Partners will have the same class of shares as PMC in Palabora Copper.

• Structure not dependant on strong growth in the listed share price of PMC or interest rates.

9

Benefits of the structure (contd)

• A third party would have required the Empowerment Partners to

raise R6.1 billion of debt.

• A structure at the level of PMC was considered inappropriate as it

would have a finite term and is also dependant upon the future

share price of PMC.

• The commercial attributes of the structure favour the

Empowerment Partners and enable meaningful economic

benefits to the partners.

10

Specific attributes of the structure

• Price for business is transparent as it is based on PMC’s current share price.

• Full voting rights from day 1.

• Minimum dividend of c. 28 million (increasing each year) from day 1.

• Board representation for Empowerment Partners.

11

Community Trust

Community participation

Makhushane Community

Mashishimale Community

Maseke Community

Selwane Community

Majeje Community

Palabora Copper

• All surrounding communities are participating in the transaction.

• Dividends received from Palabora Copper used for sustainable

and meaningful community upliftment.

10%

12

Employee Trust

Employee participation

PC

10%

• All employees except CEO and expatriates.

• Dividends received from Palabora Copper flow equally to all employees.

• All employees to benefit directly as beneficiaries, not linked to union affiliation or participation.

All employees

13

Engagement Process

• Active engagement with the Communities and the Consortium from Q3 2008.

• Engagement with the main unions (NUM and Solidarity) from February 2009.

• The Communities nominated their own lawyer to represent all three Empowerment Partners.

• Financial adviser was appointed in 2008 by the Communities.

• From 2009 the transaction agreements have been prepared, and negotiated.

• The transaction agreements were signed by all of the parties on 10 June 2010.

14

Suspension of section 45

• The outstanding conditions should be fulfilled shortly and the transactions are about to be implemented.

• The suspension will result in the business transfer being fully subject to tax.

• Tax will therefore be payable on R6 billion in terms of a transaction that will have no loss to the SA’s tax revenues and is aimed at broad-based empowerment.

• This tax charge is not financially feasible for the company or its Empowerment Partners.

• Our shareholders are gravely concerned with the proposed suspension

– PMC’s share price has dropped 20% last week on the news of the potential impact of the proposals on PMC.

Suspension of section 45 (contd)

• PMC has incurred significant costs and time in putting the

structure in place.

• The proposal will set PMC back significantly and could put its

mining rights in jeopardy.

15