scheme booklet supplement - oz minerals...nature of this document this scheme booklet supplement...

THIS BOOKLET CONTAINS A COPY OF THE INDEPENDENT EXPERT’S REPORT BY GRANT SAMUEL & ASSOCIATES PTY LTD (INCLUDING THE TECHNICAL EXPERT’S REPORT OF AMC CONSULTANTS PTY LTD REFERRED TO IN THE INDEPENDENT EXPERT’S REPORT).

Zinifex Limited (ABn 29 101 657 309)

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scheme booklet supplementFOR THE SCHEME OF ARRANGEMENT IN RELATION TO THE PROPOSED MERGER OF ZINIFEX LIMITED AND OXIANA LIMITED

Nature of this documeNtThis Scheme Booklet Supplement contains additional information relating to the proposed merger of Zinifex and Oxiana by way of a scheme of arrangement between Zinifex and its shareholders.

This additional information is in addition to the Scheme Booklet dated 9 May 2008. Zinifex Shareholders can obtain a copy of the Scheme Booklet by contacting the Zinifex Information Line on 1300 659 062 (within Australia, toll free) or +61 2 8986 9350 (from outside Australia), or from Zinifex’s website at www.zinifex.com.au.

Zinifex Shareholders should read the Scheme Booklet in its entirety before deciding on whether to vote in favour of the Scheme.

defiNed termsDefined terms in this Scheme Booklet Supplement have the same meaning as in section 16 of the Scheme Booklet.

Privacy aNd PersoNal iNformatioNZinifex and Oxiana and their respective share registries may collect personal information in the process of implementing the Scheme and the Merger. The personal information may include the names, addresses, other contact details and details of the shareholdings of Zinifex Shareholders, and the names of individuals appointed by Zinifex Shareholders as proxies, corporate representatives or attorneys at the Scheme Meeting.

Zinifex Shareholders who are individuals and the other individuals in respect of whom personal information is collected as outlined above have certain rights to access the personal information collected in relation to them. Such individuals should contact Computershare Investor Services Pty Limited on 1300 659 062 (within Australia, toll free) or +61 2 8986 9350 (from outside Australia) in the first instance if they wish to request access to that personal information.

The personal information is collected for the primary purpose of implementing the Scheme and the Merger. The personal information may be disclosed to Zinifex’s and Oxiana’s share registries, to securities brokers and to print and mail service providers.

The main consequence of not collecting the personal information outlined above would be that Zinifex may be hindered in, or prevented from, conducting the Scheme Meeting and implementing the Merger.

Zinifex Shareholders who appoint an individual as their proxy, corporate representative or attorney to vote at the Scheme Meeting should inform such an individual of the matters outlined above.

imPortaNt Notices

corPorate directory

ZiNifex limitedregistered office Freshwater Place Level 29 2 Southbank Boulevard Southbank Victoria 3006 Australia

information line(Australia) 1300 659 062(Overseas) +61 2 8986 9350

ZiNifex share registrycomputershare investor services Pty limited Yarra Falls452 Johnston StreetAbbotsford Victoria 3067AustraliaPhone: 1300 850 505Fax: (03) 9473 2500

fiNaNcial advisersuBs ag, australia BranchLevel 168 Exhibition StreetMelbourne Victoria 3000Australia

lazard carnegie Wylie Pty ltdLevel 33101 Collins StreetMelbourne Victoria 3000Australia

legal adviserallens arthur robinsonLevel 27530 Collins StreetMelbourne Victoria 3000Australia

iNvestigatiNg accouNtaNtKPmg transaction services (australia) Pty ltd147 Collins StreetMelbourne Victoria 3000Australia

Cert no. XXX-XXX-XXXX

Financial Services Guide and

Independent Expert’s Report in relation to the Proposed Merger with

Oxiana Limited

Grant Samuel & Associates Pty Limited

(ACN 050 036 372)

6 May 2008

Financial Services Guide Grant Samuel & Associates Pty Limited (“Grant Samuel”) carries on business at Level 6, 1 Collins Street, Melbourne Vic 3000. Grant Samuel holds Australian Financial Services Licence No. 240985 authorising it to provide financial product advice on securities and interests in managed investments schemes to wholesale and retail clients. The Corporations Act 2001 requires Grant Samuel to provide this Financial Services Guide (“FSG”) in connection with its provision of an independent expert’s report (“Report”) which is included in a document (“Disclosure Document”) provided to members by the company or other entity (“Entity”) for which Grant Samuel prepares the Report. Grant Samuel does not accept instructions from retail clients. Grant Samuel provides no financial services directly to retail clients and receives no remuneration from retail clients for financial services. Grant Samuel does not provide any personal retail financial product advice to retail investors nor does it provide market-related advice to retail investors. When providing Reports, Grant Samuel’s client is the Entity to which it provides the Report. Grant Samuel receives its remuneration from the Entity. In respect of the Report for Zinifex Limited (“Zinifex”) in relation to the proposed merger with Oxiana Limited (the “Zinifex Report”), Grant Samuel will receive a fixed fee of A$1.5 million plus reimbursement of out-of-pocket expenses for the preparation of the Report (as stated in Section 12.3 of the Zinifex Report). No related body corporate of Grant Samuel, or any of the directors or employees of Grant Samuel or of any of those related bodies or any associate receives any remuneration or other benefit attributable to the preparation and provision of the Report. Grant Samuel is required to be independent of the Entity in order to provide a Report. The guidelines for independence in the preparation of Reports are set out in Regulatory Guide 112 issued by the Australian Securities & Investments Commission on 30 October 2007. The following information in relation to the independence of Grant Samuel is stated in Section 12.3 of the Zinifex Report:

“Prior to the announcement of the Merger, Grant Samuel had been engaged separately by Zinifex and Oxiana Limited (“Oxiana”) to conduct preliminary work, to allow Grant Samuel to prepare an independent expert’s report for either Zinifex or Oxiana should such a report be required. These engagements did not affect Grant Samuel’s independence or its ability to prepare an independent expert’s report in relation to the Merger. Grant Samuel and its related entities do not have any shareholding in or other relationship with Zinifex or Oxiana that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposal. No executives of Grant Samuel and its related entities hold any shares in either Zinifex or Oxiana. Grant Samuel had no part in the formulation of the Scheme. Its only role has been the preparation of this report. Grant Samuel will receive a fee of A$1.5 million for the preparation of this report. This fee is not contingent on the outcome of the Proposal. Grant Samuel will receive no other benefit for the preparation of this report. Grant Samuel considers itself to be independent in terms of Regulatory Guide 112 issued by the ASIC on 30 October 2007.”

Grant Samuel has internal complaints-handling mechanisms and is a member of the Financial Industry Complaints Services’ Complaints Handling Tribunal, No. F 4197. Grant Samuel is only responsible for the Report and this FSG. Complaints or questions about the Disclosure Document should not be directed to Grant Samuel which is not responsible for that document. Grant Samuel will not respond in any way that might involve any provision of financial product advice to any retail investor.

Table of Contents

1 Details of the Proposal...................................................................................................................................1

2 Nature and Scope of the Report ...................................................................................................................2 2.1 Nature and Purpose of the Report ....................................................................................................2 2.2 Basis of the Assessment......................................................................................................................2 2.3 Sources of Information ......................................................................................................................3 2.4 Limitations and Reliance on Information ........................................................................................4

3 Profile of Zinifex Limited..............................................................................................................................6 3.1 Overview .............................................................................................................................................6 3.2 Operating Performance ...................................................................................................................10 3.3 Financial Position .............................................................................................................................12 3.4 Cash flow...........................................................................................................................................13 3.5 Group Hedging .................................................................................................................................13 3.6 Tax Position ......................................................................................................................................13 3.7 Capital Structure and Ownership...................................................................................................13 3.8 Share Market Performance.............................................................................................................15

4 Profile of Zinifex Assets ..............................................................................................................................18 4.1 Overview ...........................................................................................................................................18 4.2 Century..............................................................................................................................................18 4.3 Rosebery............................................................................................................................................25 4.4 Dugald River.....................................................................................................................................29 4.5 Nunavut Territory............................................................................................................................31 4.6 Profile of Exploration Activities......................................................................................................32 4.7 Other Assets ......................................................................................................................................33

5 Profile of Oxiana Limited ...........................................................................................................................35 5.1 Overview ...........................................................................................................................................35 5.2 Operating Performance ...................................................................................................................37 5.3 Financial Position .............................................................................................................................39 5.4 Cash flow...........................................................................................................................................40 5.5 Group Hedging .................................................................................................................................40 5.6 Tax Position ......................................................................................................................................41 5.7 Capital Structure and Ownership...................................................................................................41 5.8 Share Market Performance.............................................................................................................43

6 Profile of Oxiana Assets ..............................................................................................................................46 6.1 Overview ...........................................................................................................................................46 6.2 Sepon .................................................................................................................................................47 6.3 Golden Grove....................................................................................................................................53 6.4 Profile of Projects .............................................................................................................................57 6.5 Profile of Exploration activities.......................................................................................................62 6.6 Other Assets ......................................................................................................................................64

7 Profile of the Merged Group ......................................................................................................................65 7.1 Overview ...........................................................................................................................................65 7.2 Resources, Reserves and Production ..............................................................................................66 7.3 Pro Forma Financial Information ..................................................................................................67

8 Valuation Approach ....................................................................................................................................69 8.1 Valuation Methodology....................................................................................................................69 8.2 Valuation Assumptions ....................................................................................................................70 8.3 Valuation of Gold Assets..................................................................................................................73 8.4 Resources Projects and Optionality................................................................................................74

9 Valuation of Zinifex.....................................................................................................................................76 9.1 Summary...........................................................................................................................................76 9.2 Century..............................................................................................................................................76 9.3 Rosebery............................................................................................................................................77 9.4 Dugald River.....................................................................................................................................79 9.5 Nunavut.............................................................................................................................................80 9.6 Allegiance Mining.............................................................................................................................80 9.7 Other..................................................................................................................................................81

10 Valuation of Oxiana.....................................................................................................................................82 10.1 Summary...........................................................................................................................................82 10.2 Sepon .................................................................................................................................................82 10.3 Golden Grove....................................................................................................................................86 10.4 Prominent Hill ..................................................................................................................................88 10.5 Martabe.............................................................................................................................................91 10.6 Other..................................................................................................................................................93

11 Evaluation of the Merger ............................................................................................................................95 11.1 Summary...........................................................................................................................................95 11.2 Relative Contributions – Sharemarket values ...............................................................................96 11.3 Relative Contributions – Underlying Value...................................................................................97 11.4 Merger Benefits ................................................................................................................................98 11.5 Control Issues ...................................................................................................................................99 11.6 Disadvantages ...................................................................................................................................99 11.7 Other................................................................................................................................................100

12 Qualifications, Declarations and Consents ..............................................................................................102 12.1 Qualifications..................................................................................................................................102 12.2 Disclaimers......................................................................................................................................102 12.3 Independence ..................................................................................................................................102 12.4 Declarations ....................................................................................................................................103 12.5 Consents ..........................................................................................................................................103 12.6 Other................................................................................................................................................103

Appendices Appendix 1 – Selection of Discount Rates Appendix 2 – Zinc and Copper Markets Appendix 3 – Valuation Concepts for Gold Projects Appendix 4 – Report of AMC Consultants Pty Ltd

1 Details of the Proposal

On 3 March 2008, the directors of Zinifex Limited (“Zinifex”) and Oxiana Limited (“Oxiana”) announced that they had reached an agreement for the merger of Zinifex and Oxiana (“the Merger”). The Merger is to be implemented by way of a Scheme of Arrangement between Zinifex and its shareholders. Under the terms of the Merger, Zinifex shareholders will receive 3.1931 Oxiana ordinary shares for each Zinifex ordinary share held. If the Merger is approved, it will result in Zinifex shareholders receiving ordinary shares in Oxiana equivalent to approximately a 50% interest in the merged company (“MergeCo”). Zinifex is an Australian zinc mining and exploration company. Its operating assets are the Century zinc mine located in Queensland and the Rosebery zinc/lead mine located in Tasmania. Zinifex also has development projects and exploration interests in Australia, Canada, China, Mexico, Sweden and Tunisia. For the year ended 30 June 2007, Zinifex produced 584,976 tonnes of zinc and 61,335 tonnes of lead. Following a successful takeover offer (which remained open at the date of this report), Zinifex held 97% of the shares in Allegiance Mining N.L. (“Allegiance”) as at 5 May 2008. As a result, in accordance with the Corporations Act 2001, Zinifex can compulsorily acquire the remaining 3% interest in Allegiance. Allegiance owns the Avebury nickel project in Tasmania. Zinifex shares are traded on the Australian Stock Exchange (“ASX”). Zinifex had a market capitalisation of approximately $5.42 billion as at 29 February 2008, immediately before the announcement of the Merger. Oxiana is an Australian mining and exploration company headquartered in Melbourne, with operations in Asia and Australia. Oxiana owns and operates the Sepon gold and copper mines in Laos and the Golden Grove base and precious metals mine in Western Australia. Oxiana’s Prominent Hill copper-gold project in South Australia is currently under construction and is expected to commence production during the fourth quarter of 2008. Oxiana recently announced the decision to develop the Martabe gold project in Indonesia. For the year ended 31 December 2007, Oxiana produced 77,945 tonnes of copper (cathode and concentrate), 131,954 tonnes of zinc, 8,119 tonnes of lead, 151,197 ounces of gold and 3,310,056 ounces of silver. Also listed on the ASX, Oxiana had a market capitalisation of approximately $6.22 billion as at 29 February 2008, immediately before the announcement of the Merger. The Scheme of Arrangement is subject to a number of conditions including:

Zinifex shareholder approval and subsequent court approval;

all relevant regulatory approvals;

no material adverse change affecting the assets of either party; and

no prescribed occurrences occurring, as agreed by the parties.

Zinifex and Oxiana have entered into agreements in connection with the proposed Merger under which each has agreed not to solicit competing proposals unless, in relation to either party, a competing takeover bid or merger proposal is announced or its directors consider their fiduciary duties otherwise require. Zinifex and Oxiana have agreed to pay the other a break fee equal to approximately $55 million under certain circumstances, including if there is a competing transaction for either party.

2 Nature and Scope of the Report

2.1 Nature and Purpose of the Report

The Merger is subject to the Corporations Act 2001 (“Corporations Act”) and the ASX Listing Rules. The Scheme of Arrangement (“the Scheme”) will be effected pursuant to Section 411 of the Corporations Act, which governs schemes of arrangement. Under Section 411, the Scheme must be approved by a majority in number (ie. at least 50%) of each class of shareholders present and voting (either in person or by proxy) at the meeting, representing at least 75% of the votes cast on the resolution. The Scheme will then be subject to approval by the Supreme Court of Victoria. Part 3 of Schedule 8 to the Corporations Regulations prescribes the information to be sent to shareholders in relation to schemes of arrangement pursuant to Section 411. Part 3 of Schedule 8 requires an independent expert’s report in relation to a scheme of arrangement to be prepared when a party to a scheme of arrangement has a prescribed shareholding in the company subject to the scheme, or where any of its directors are also directors of the company subject to the scheme. In those circumstances, the independent expert’s report must state whether a scheme of arrangement is in the best interests of shareholders and state reasons for that opinion. Oxiana does not hold any shares in Zinifex and there are no common directors. Accordingly, there is no requirement for an independent expert’s report to be prepared for Zinifex shareholders pursuant to Section 411. Grant Samuel understands there is no other regulatory requirement for an independent expert’s report to be prepared. However, the directors of Zinifex wish Grant Samuel to prepare an independent expert’s report as if it were required under Section 411. Accordingly, the independent expert’s report will state whether the proposed Merger with Oxiana is in the best interests of Zinifex Shareholders and the reasons for that opinion. This report has been prepared by Grant Samuel for the benefit of Zinifex directors (and no other person) to assist them in making recommendations to shareholders in relation to the Scheme. It will be included in the Scheme Book Supplement, which will be available to Zinifex shareholders. A summary of this report will accompany the Notice of Meeting and Scheme Booklet to be sent to Zinifex shareholders. The sole purpose of the report is as an expression of Grant Samuel’s opinion as to whether the Merger is in the best interests of Zinifex shareholders. This report is general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of individual Zinifex shareholders. Because of that, before acting in relation to their investment, shareholders should consider the appropriateness of the advice having regard to their own objectives, financial situation or needs. Shareholders should read the Scheme Booklet issued by Zinifex in relation to the Scheme. Whether to vote in favour of the Scheme is a matter for individual Zinifex shareholders based on their expectations as to value and future market conditions and their particular circumstances including risk profile, liquidity preference, investment strategy, portfolio structure and tax position. Shareholders who are in doubt as to the action they should take in relation to the Scheme should consult their own professional adviser.

2.2 Basis of the Assessment

Schemes of arrangement pursuant to Section 411 can encompass a wide range of transactions. Accordingly, “in the best interests” must be capable of a broad interpretation to meet the particular circumstances of each transaction. However, there is no legal definition of the expression “in the best interests”. The Australian Securities & Investments Commission (“ASIC”) has issued Regulatory Guide 111 which establishes guidelines in respect of independent expert’s reports. ASIC Regulatory Guide 111 differentiates between the analysis required for control transactions and other transactions. In the context of control transactions (whether by takeover bid, by scheme of arrangement, by the issue of securities or by selective capital reduction or buyback), it comments on the meaning of “fair and reasonable” and continues earlier regulatory guidelines that created a

distinction between “fair” and “reasonable”. A proposal that, under takeover analysis, was “fair and reasonable” or “not fair but reasonable” would be in the best interests of shareholders. For most other transactions the expert is to weigh up the advantages and disadvantages of the proposal for shareholders. This involves a judgement on the part of the expert as to the overall commercial effect of the transaction, the circumstances that have led to the proposal and the alternatives available. The expert must weigh up the advantages and disadvantages of the proposal and form an overall view as to whether the shareholders are likely to be better off if the proposal is implemented than if it is not. In Grant Samuel’s opinion, the Merger is not a control transaction and therefore the most appropriate basis on which to evaluate the Merger is to assess the overall impact on the shareholders of Zinifex and to form a judgement as to whether the expected benefits outweigh any disadvantages and risks that might result. In forming its opinion as to whether the Merger is in the best interests of Zinifex shareholders, Grant Samuel has considered the following:

the relative values contributed to the merged company by Zinifex and Oxiana shareholders by comparison with the relative interests they will hold in MergeCo. The relative value contributions have been assessed both on the basis of share market values and on the basis of Grant Samuel’s estimates of full underlying value;

the benefits expected to be realised as a result of the Merger;

the costs, disadvantages and risks of the Merger; and

the likelihood of alternative transactions that could realise better value.

2.3 Sources of Information

The following information was utilised and relied upon, without independent verification, in preparing this report:

Publicly Available Information

audited financial statements and Annual Reports of Zinifex and Oxiana for the three years ended 30 June 2007 and 31 December 2007 respectively;

half year report of Zinifex for the six months ended 31 December 2007;

quarterly production reports for Zinifex and Oxiana;

Zinifex’s Institutional Offering Memorandum, the Nyrstar NV Prospectus and Zinifex’s bidder’s statement and Allegiance’s target’s statement in relation to the Zinifex takeover offer for Allegiance;

press releases, public announcements, media and analyst presentation material and other public filings by Zinifex and Oxiana, including information available on company websites;

broker’s reports and recent press articles on Zinifex and Oxiana and the base metal industry; and

share market data and base metal mining industry data. Non Public Information provided by Zinifex and Oxiana

life of mine plans for the Century mine, the Rosebery mine and the Dugald River project;

life of mine plans for Golden Grove, Sepon, Prominent Hill and Martabe;

studies and technical information relating to Zinifex’s and Oxiana’s assets;

other confidential documents, board papers, presentations and working papers; and

management reports and strategy documents for Zinifex and Oxiana. In preparing this report Grant Samuel visited the corporate offices of Zinifex and Oxiana in Melbourne and held discussions with senior management of Zinifex and Oxiana. In addition, Grant Samuel representatives visited the major operations of Zinifex and Oxiana’s Prominent Hill project. Grant Samuel representatives had previously visited Golden Grove and Sepon operations. Representatives of AMC Consultants Pty Ltd (“AMC”) visited the major operations of both Zinifex and Oxiana.

2.4 Limitations and Reliance on Information

Grant Samuel believes that its opinion must be considered as a whole and that selecting portions of the analysis or factors considered by it, without considering all factors and analyses together, could create a misleading view of the process underlying the opinion. The preparation of an opinion is a complex process and is not necessarily susceptible to partial analysis or summary. Grant Samuel’s opinion is based on economic, sharemarket, business trading, financial and other conditions and expectations prevailing at the date of this report. These conditions and expectations can change significantly over relatively short periods of time. If they did change materially, subsequent to the date of this report, the opinion could be different in these changed circumstances. This report is also based upon financial and other information provided by Zinifex and Oxiana and their respective advisers. Grant Samuel has considered and relied upon this information. Zinifex and Oxiana have represented in writing to Grant Samuel that to their knowledge the information provided by them was complete and not incorrect or misleading in any material respect. Grant Samuel has no reason to believe that any material facts have been withheld. The information provided to Grant Samuel has been evaluated through analysis, inquiry and review to the extent that it considers necessary or appropriate for the purposes of forming an opinion on the values of both Zinifex and Oxiana and whether the Merger is in the best interests of Zinifex shareholders. However, Grant Samuel does not warrant that its inquiries have identified or verified all of the matters that an audit, extensive examination or “due diligence” investigation might disclose. In any event, an opinion to value is more in the nature of an overall review rather than a detailed audit or investigation. Preparation of this report does not imply that Grant Samuel has audited in any way the management accounts or other records of Zinifex or Oxiana. It is understood that the accounting information that was provided was prepared in accordance with Australian equivalents to International Financial Reporting Standards (“AIFRS”) and in a manner consistent with the method of accounting in previous years (except where noted). An important part of the information used in forming an opinion of the kind expressed in this report is comprised of the opinions and judgement of management. This type of information was also evaluated through analysis, enquiry and review to the extent practical. However, such information is often not capable of external verification or valuation. Grant Samuel appointed AMC as technical specialist to review the mineral assets of Zinifex and Oxiana. AMC’s role included a review of resources, development plans, production schedules, operating costs, capital costs, potential reserve and resource extensions and exploration. AMC also prepared valuations of Zinifex’s and Oxiana’s exploration interests. Reports prepared by AMC are attached to and form part of this report. The information provided to Grant Samuel and AMC included mine development plans, forecasts and feasibility studies for Zinifex’s and Oxiana’s key assets. Zinifex and Oxiana are responsible for the information contained in the mine development plans, forecasts and feasibility studies (“the forward looking information”). Grant Samuel and AMC have considered and, to the extent deemed appropriate, relied on this information for the purpose of their analysis. In the case of certain assets, AMC has recommended that Grant Samuel adopt assumptions regarding production

costs, operating costs, mine life and other matters that are different from those used in the forward looking information provided by Zinifex and Oxiana. Subject to these adjustments, Grant Samuel and AMC have assumed that the forward looking information was prepared appropriately and accurately based on the information available to management at the time and within the practical constraints and limitations of such forward looking information. Grant Samuel and AMC have assumed that the forward looking information does not reflect any material bias, either positive or negative. Grant Samuel has no reason to believe otherwise. However, the achievability of the forward looking information is not warranted or guaranteed by Grant Samuel. Future profits and cash flows are inherently uncertain. They are predictions by management of future events that cannot be assured and are not necessarily based on assumptions, many of which are beyond the control of the company or its management. Actual results may be significantly more or less favourable. As part of its analysis, Grant Samuel has developed cash flow models which use the forward looking information, amended as deemed appropriate by AMC, as a starting point. Grant Samuel has reviewed the sensitivity of cash flow models to changes in key variables. The sensitivity analysis isolates a limited number of assumptions which are inputs to the cash flow model and shows the impact of the expressed variations occurring. Actual variations may be greater or less than those modelled. In addition to not representing best and worst case outcomes, the sensitivity analysis does not, and does not purport to, show all the possible variations to the business model. The actual performance of the business may be negatively or positively impacted by a range of factors including, but not limited to:

changes to the assumptions other than those considered in the sensitivity analysis;

greater or lesser variations to the assumptions considered in the sensitivity analysis than those modelled; and

combinations of different variations to a number of different assumptions that may produce outcomes different to the combinations modelled.

In preparing its valuation, Grant Samuel has also assumed that:

matters such as title, compliance with laws and regulations and contracts in place are in good standing and will remain so and that there are no material legal proceedings, other than as publicly disclosed;

the publicly available information relied on by Grant Samuel in its analysis was accurate and not misleading; and

the Merger will be implemented in accordance with its terms. To the extent that there are legal issues relating to assets, properties, or business interests or issues relating to compliance with applicable laws, regulations, and policies, Grant Samuel assumes no responsibility and offers no legal opinion or interpretation on any issue.

3 Profile of Zinifex Limited

3.1 Overview

Zinifex is one of the largest zinc mining and exploration companies in the world. Its flagship operating asset is the open cut Century mine in Queensland, which is the second largest zinc mine in the world and the largest in Australia. Its other producing asset is the smaller underground Rosebery mine in Tasmania. Zinifex’s development projects include Dugald River in Queensland and the recently acquired Izok Lake and High Lake projects in the Nunavut region of Canada. In addition, Zinifex is actively exploring in Australia, Canada, China, Mexico, Sweden and Tunisia, including joint ventures with junior partners. It is estimated that Zinifex accounts for approximately 5% of the global supply of zinc concentrates and 1% of the global supply of lead concentrates. Zinifex’s main business is the discovery, development and mining of zinc and lead ore bodies and the production and marketing of zinc and lead concentrates. In August 2007, Zinifex transferred its zinc and lead smelting and alloying operations to the Nyrstar NV(“Nyrstar”) joint venture with Umicore, and achieved an effective sale of the assets through the Nyrstar initial public offer in October 2007. Following the Nyrstar transaction, Zinifex’s operational focus is on mining and exploration activities. Over the last three years, the company has consistently produced in excess of 584,000 tonnes per annum (“tpa”) of zinc in low iron concentrates, and between 61,000 and 108,000 tpa of lead in concentrates. Zinifex management has plans to vigorously grow the mining business and has budgeted approximately $100 million in financial year 2008 for exploration and development activities. Zinifex has also sought to extend and diversify its activities into other base and niche metals. The takeover offer for nickel miner Allegiance and the Proposal to merge with copper-gold miner Oxiana underline this strategy. Zinifex has its origins in Pasminco Limited, which was floated in 1989 to hold the combined zinc and lead mining and smelting assets of CRA Limited and North Broken Hill Peko Limited. An extended period of low metals prices and various operational and financing issues forced Pasminco into voluntary administration in September 2001. Zinifex listed on the ASX in April 2004 when the administrators floated Zinifex as the new owner of some of Pasminco’s former assets. Since listing, Zinifex has been profitable in each year of its operations. Reflecting strong zinc and lead prices, the company reported record profits of over $1.3 billion1 for the year ended 30 June 2007.

Listed below are some significant events in Zinifex’s history:

listed on the ASX on 5 April 2004 and raised $960 million of new equity;

entered into several global exploration joint ventures with ASX listed companies including Terramin Australia Limited in 2004, and Albidon Limited and Drake Resources in 2007;

included in the S&P/ASX 100 index in June 2005 and in the S&P/ASX 50 index in December 2006;

embarked on a three year development and exploration program at Rosebery mine in May 2006. One year into the program, Zinifex reported a 65% increase in Rosebery’s resources to 11.7 million tonnes (“Mt”);

completed a pre-feasibility study for the Dugald River project in December 2006. The study indicated the viability of developing a project producing 200,000 tonnes per annum of zinc in concentrates;

completed the acquisition of Wolfden Resources Inc (“Wolfden”) for approximately $388 million in June 2007. Wolfden is a Canadian-based mineral exploration and development company that owns projects in the Nunavut Territory of Canada. The projects include the high grade polymetallic deposits at Izok Lake and High Lake;

1 Including profit from discontinued operations.

divested its smelter operations through the formation of the Nyrstar joint venture in August 2007. Zinifex’s share of the proceeds from the Nyrstar initial public offer in October 2007 was approximately $1.8 billion. Zinifex retains a 7.8% shareholding in Nyrstar;

launched a cash takeover offer for Allegiance in December 2007. The initial offer was $0.90 per Allegiance share, increasing to $1.00 per Allegiance share if Zinifex acquired more than 30% of Allegiance shares during the offer period or if the Allegiance Board recommended the offer. The offer was subsequently increased to $1.10 cash per Allegiance share, valuing Allegiance at around $888 million. Zinifex had acquired approximately 97% of the Allegiance shares on issue by 5 May 2008 and can now move to compulsorily acquire the remaining 3% outstanding;

in January 2008, reported an initial inferred resource of 3.8 million tonnes at 4% zinc at the Menninnie Dam project in South Australia. Zinifex has a 76% interest in Menninnie Dam and has become the manager of this project from 30 March 2008; and

in March 2008, announced a definitive agreement to merge with Oxiana in a merger of equals to create a diversified base and precious metals company. The proposed transaction will result in Zinifex shareholders owning approximately 50% of MergeCo.

Zinifex’s portfolio of operations and development projects is summarised as follows:

Zinifex Reserves, Resources and Production1

Asset/Project

Resources2

As at March 2007

Reserves2

As at March 2007

Production Year ended 30

June 2007 Zinc

(Mt) Lead (Mt)

Silver (Moz)

Gold (Moz)

Zinc (Mt)

Lead (Mt)

Zinc (Kt)

Lead (Kt)

Operating Assets Century Mine 6.8 0.8 58.7 - 5.2 0.5 502 38 Rosebery Mine 1.6 0.5 55.4 0.8 0.5 0.1 83 23 Total Operating Assets 8.4 1.3 114.1 0.8 5.7 0.6 585 61 Development Projects Dugald River 5.8 1.0 67.8 - - - - - Izok Lake3 1.9 0.2 33.8 - - - - - High Lake3 0.6 0.1 38.9 0.4 - - - - Nunavut Gold Project 3 - - - 0.6 - - - - Total Development Projects4 5.8 1.0 67.8 - - - Total Assets4 14.0 2.3 181.9 0.8 5.7 0.6 585 61

Source: Zinifex 1. Numbers may not add up due to rounding. Does not include Allegiance. 2. Reserves and resources denote estimated contained metal. 3. Conforms to CIM standards, the Canadian equivalent of the JORC Code. The acquisition of Wolfden was completed

in June 2007. 4. Includes JORC Code compliant resources but excludes CIM standard compliant resources.

The following map shows the location of Zinifex’s operations, development projects and exploration activity in Australia and overseas:

Source: Zinifex The following chart shows movements in Zinifex’s mineral resources and ore reserves over the last three years:

Zinifex Ore Reserves & Resources

0

20

40

60

80

100

120

140

2005 2006 2007

Year ended 31 March

Tonn

es (m

illio

ns)

Resources Reserves

Source: Zinifex Note: Does not include Allegiance. At 31 March 2007, Zinifex’s total resources stood at 14.0Mt of contained zinc and 2.3Mt of contained lead. Around 40% of zinc resources were classified as reserves. Resources and reserves have declined over the last three years, with mining depletion at Century and Rosebery only marginally offset by the delineation of additional resources and reserves at Rosebery. The above resources include JORC Code compliant resources only (excluding Zinifex’s Canadian tenements).

Zinifex has produced in excess of 584,000 tpa of zinc in concentrate over the last three years, with minimal year on year variation. Lead production has ranged between 61,000 and 108,000 tpa, depending on the grade of the ore mined. For the year ended 30 June 2007, the Century mine

contributed 85% of total zinc production and 61% of total lead production. The balance was produced by the Rosebery mine. The following charts show the relative contributions to zinc and lead production of Century and Rosebery over the last three years:

Zinifex Zinc ProductionYear ended 30 June

0

75,000

150,000

225,000

300,000

375,000

450,000

525,000

600,000

675,000

2005 2006 2007

Tonn

es

Century Rosebery

Source: Zinifex

Zinifex Lead ProductionYear ended 30 June

0

15,000

30,000

45,000

60,000

75,000

90,000

105,000

120,000

2005 2006 2007

Tonn

es

Century Rosebery

Source: Zinifex

3.2 Operating Performance

The operating performance of Zinifex for the four years to 30 June 2007 and six months to 31 December 2007 is summarised below:

Zinifex – Financial Performance ($ million) (1)

Year ended 30 June

20042

AGAAP 2005

AIFRS 20063

AIFRS 20073

AIFRS

Six months

to 31 December

20073

Production Contained Zinc (‘000 t) 142.6 589.6 599.2 585.0 301.3 Contained Lead (‘000 t) 33.2 79.5 107.6 61.3 37.4

Realised prices Zinc price (US$/t) 1,026 1,167 2,105 3,671 2,930 Lead price (US$/t) 807 964 1,068 1,689 3,178

Sales Revenue 487 1,898 1,438 1,929 789

EBITDA 133 414 999 1,383 470 Depreciation and amortisation (50) (191) (175) (229) (128) EBIT 83 223 824 1,154 342 Net interest (expense) / income (5) (20) (13) 14 35Profit before tax from continuing operations 78 203 811 1,168 377

Income tax benefit / (expense) (25) 29 86 (340) (96)Profit after tax from discontinued operations - - 183 507 1,029

Net profit after tax before minority interests 53 232 1,080 1,335 1,310

Profit after tax attributable to Zinifex shareholders 53 232 1,080 1,335 1,310

Statistics Sales revenue growth (%) n/a 290% (24%) 34% n/a EBITDA growth (%) n/a 211% 141% 38% n/a EBIT growth (%) n/a 169% 270% 40% n/a EBITDA margin (%) 27% 22% 69% 72% 60% EBIT margin (%) 17% 12% 57% 60% 43%

Source: Zinifex 1. Numbers may not add due to rounding 2. Represents operations between 5 April 2004 to 30 June 2004 3. Excludes smelting operations Zinifex’s reported profit and loss for the 2004 financial year relates to the three month period from 5 April 2004 to 30 June 2004. The reported sales, EBITDA and EBIT for the 2006 and 2007 financial years and for the six months to 31 December 2007 exclude the contribution from Zinifex’s smelting operations, which were sold in October 2007. For those reporting periods, the contribution from the smelting operations is classified as “Profit after tax from discontinued operations”. In analysing Zinifex’s financial performance, the following should be noted:

Zinifex’s earnings for 2005 were supported by a strengthening of the zinc price, which increased from US$961/tonne at the start of the financial year to US$1,223/tonne at the end of the financial year. Given a strengthening of the Australian dollar from US$0.70-US$0.76, this resulted in an average realised zinc price for the year of A$1,544/tonne;

reported profits for the years ended 30 June 2005 and 30 June 2006 included tax credits related to the recognition/recoupment of tax assets not previously recognized;

earnings for the year ended June 2008 will include a $1,029 million gain on the sale of Zinifex’s smelting assets, subject to the revaluation of the retained shares held in Nyrstar to market values;

record production and further strength in the zinc market resulted in a substantial improvement in earnings for the 2006 financial year. The zinc price increased to US$3,239/tonne by 30 June 2006. Aided by the marginal weakening of the Australian dollar from US$0.76 to US$0.74 by year end, average realised zinc prices increased to A$2,807/tonne. Partially offsetting the increase in zinc prices were higher net treatment charges deducted by smelters from their concentrate purchases from Zinifex. The benchmark reference price used in calculating treatment charges for zinc during the 2006 calendar year was US$1,400/tonne with +14/-12% price participation. Despite the substantial increase in treatment charges, Zinifex reported an increase in net profit after tax to $1.08 billion for the year;

Zinifex’s results for the year to 30 June 2007 reflected a further strengthening in the zinc price, which ended the year at US$3,300/tonne. While the Australian dollar strengthened to end the year at US$0.90, Zinifex achieved record zinc prices averaging A$4,673/tonne for the year. As a result, the mining operations achieved record profits. While the benchmark reference rate for zinc treatment charges during the 2007 calendar year increased substantially, with the new base rate set at US$3,500/tonne with +10/-5% price participation, this resulted in a reduction in actual treatment charges relative to 2006 treatment charges. Zinifex’s smelting operations (the results of which are disclosed above as “discontinued operations”) achieved record profits as a result of the impact of higher prices on treatment charges, free metal and premiums. Overall, 2007 earnings were up around 24% relative to 2006, notwithstanding that the 2007 results incorporated a tax charge of $340 million by comparison with a tax credit for the two preceding years; and

despite increased mine production, the overall revenue from continuing operations for the six months ended 31 December 2007 declined by 27% compared with the prior half year, as a result of a combination of lower realized US$ zinc prices and the stronger Australian dollar. Zinc prices and Australian dollar ended the six month period at US$2,370/tonne and US$0.88 respectively.

Movements in earnings per share are summarised in the table below. The reduction in earnings per share for 2007 is the result of the tax charge for 2007, by contrast with the tax benefit booked in the 2006 financial year.

Zinifex – Earnings and Dividends Per Share ($ million) Year ended 30 June 20041 2005 20062 20072

Six months to 31 December 20072

Basic Earnings per share (dollars) 0.11 0.46 1.83 1.70 0.58 Dividend declared per share (cents) na 0.04 0.80 1.40 0.35 Percentage of dividends franked (%) na 100% 100% 100% 100% Payout ratio (%) na 8.5% 43.7% 82.4% 60.3%

Source: Zinifex 1. For the period 5 April 2004 to 30 June 2004 2. Excludes smelting operations.

3.3 Financial Position

The statements of financial position of Zinifex as at 30 June 2006, 30 June 2007 and 31 December 2007 are summarised in the table below. In October 2007, while retaining a 7.8% stake in Nyrstar, Zinifex sold its remaining shareholding through the Nyrstar initial public offer at the subscription price of €20 per share and raised approximately $1.8 billion (net of transaction costs). The proceeds from the sale of its Nyrstar interest were reflected in Zinifex’s cash balance of $2.2 billion as reported at 31 December 2007. A portion of this cash balance is expected to be used to fund the $888 million all cash takeover of Allegiance.

Zinifex – Statement of Financial Position ($ million) As at 30 June

2006

Reported 2007

Reported

As at 31 December 2007

Reported

Receivables and prepayments 390 81 188 Inventories 387 143 122 Payables (205) (109) (148) Net Working capital 572 115 162 Property, plant and equipment 1,254 1,005 1,062 Intangibles - 459 479 Provisions (286) (144) (146) Other net assets / (liabilities) 210 1,292 142 Total capital employed 1,750 2,727 1,699 Total debt (149) (136) (118) Cash 602 228 2,228 Net assets attributable to Zinifex shareholders 2,203 2,819 3,809 Statistics Shares on issue at year end (millions) 488.2 486.9 486.9 Net tangible assets per share ($) 4.51 4.85 6.84

Source: Zinifex

3.4 Cash flow

Zinifex generated substantial cash flows from operations during the 2006 and 2007 financial years, reflecting strong zinc prices and high levels of profitability. The operating cash flows were used to fund $588 million of investments in the 2007 financial year, including the acquisition of Wolfden Resources. Zinifex announced total dividends of $1.40 per share for the 2007 financial year and distributed $682 million in the form of dividend payments to shareholders. The cash balance of $2.2 billion at the end of 31 December 2007 includes $2.0 billion proceeds from the disposal of investments and discontinued operations (principally the divestment of Zinifex’s smelting operations through the Nyrstar IPO).

Zinifex – Cash Flow ($ 000s)1

Year ended 30 June 2005

actual AGAAP

2006 actual AIFRS

2007 actual AIFRS

6 months to 31 December 2007 AIFRS

EBITDA 414 9992 1,3832 4702

Changes in working capital and other adjustments

16 (91) 410 139

Capital expenditure (net) (289) (355) (516) (201)

Operating cash flow 141 553 1,277 408

Tax paid (8) (44) (346) (165)

Net interest received / (paid) (9) 1 21 42

Dividends (net) - (69) (682) (341)

Investments (net) (1) - (588) 2,061

Share buy backs (17) (40) (14) -

Proceeds from borrowings (27) (23) (25) (13)

Other - - (18) 8

Net cash generated (used) 80 379 (374) 2,000

Cash - opening 143 223 602 228

Cash - closing 223 602 228 2,228

Source: Zinifex 1. numbers may not add up due to rounding 2. excludes EBITDA from smelting operations

3.5 Group Hedging

As of 30 June 2007, Zinifex had derivative financial instruments hedging commodity price risks related to its smelting operations. Subsequent to the divestment of the smelting operations, as of 31 December 2007, Zinifex had no financial, currency or interest rate hedges.

3.6 Tax Position

At 31 December 2007, Zinifex had $744 million in gross carry forward revenue losses in one of its subsidiary companies.

3.7 Capital Structure and Ownership

As at 31 March 2008, Zinifex had the following securities on issue:

486,911,284 fully paid ordinary shares; and

569,565 Long Term Incentive opportunities in Zinifex issued under the long-term incentive opportunities arrangements with its executives. These opportunities which have the potential upon satisfaction of pre- determined conditions precedent, to vest into shares of an equivalent number . These shares are purchased on–market for the executives

The top 10 shareholders in Zinifex accounted for approximately 60.4% of the shares on issue as at 3 April 2007:

Zinifex – Major Shareholders

As at 3 April 2008 Shareholders Shares

(000s) Issued Capital

(%)

National Nominees Limited 87,740 18.02 HSBC Custody Nominees (Australia) Limited 82,004 16.84 JP Morgan Nominees Australia Limited 47,966 9.85 Citicorp Nominees Pty Limited 29,787 6.12 ANZ Nominees Limited 16,680 3.43 HSBC Custody Nominees 9,129 1.87 AMP Life Ltd 7,527 1.55 Cogent Nominees Pty Limited 4,980 1.02 UBS Nominees Pty Ltd 4,322 0.89 UBS Nominees Pty Ltd 4,000 0.82 Subtotal – Top 10 Shareholders 294,134 60.41 Other shareholders 192,777 39.59 Total 486,911 100.0%

Source: Zinifex

As at 3 April 2008, the following shareholders held substantial shareholdings in Zinifex ordinary shares (i.e. shareholdings of more than 5%):

Zinifex – Substantial Shareholders Number of shares

(000s) % Interest

AXA (Institutional Group) 50,792 10.43 Barclays (Institutional Group) 42,493 8.73 Blackrock Advisers (Institutional Group) 35,383 7.27

Source: Zinifex

3.8 Share Market Performance

The share price and history of trading in Zinifex ordinary shares on the ASX since Zinifex’s listing in April 2004 is set out below:

Zinifex – Share Trading History Share Price ($) Year ended 31

December High Low Close

Average Weekly Volume (000’s)

Average Weekly Transactions

2004 2.39 1.47 2.34 24,073 883

2005 7.07 2.33 6.88 20,156 2,468

2006 18.80 6.73 18.79 28,744 10,525

2007 21.60 11.80 12.40 24,450 16,158

Quarter ended:

30 June 2007 19.62 15.01 18.82 23,081 13,386

30 September 2007 21.60 13.92 17.72 21,613 16,546

31 December 2007 18.85 11.80 12.40 28,662 19,944

31 March 2008 12.57 8.03 9.98 25,908 16,848

Month ended: December 2007 16.23 11.80 12.40 27,282 18,261 January 2008 12.57 8.03 10.28 29,038 18,910 February 2008 11.16 9.00 11.13 24,419 16,416 March 2008 12.39 9.25 9.98 24,266 15,217 Week ended: 28 March 2008 10.05 9.52 10.01 14,997 11,488 4 April 2008 10.08 9.18 9.80 22,911 17,309 11 April 2008 10.27 9.55 9.68 17,707 15,231 18 April 2008 10.49 9.25 10.24 15,603 12,184

Source: IRESS

The following graph illustrates share price movements and trading volumes for Zinifex ordinary shares since April 2004.

Zinifex - Share Price & Trading Volume4 April 2004 to 18 April 2008

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

22.00

24.00

Apr 04 Jul 04 Oct 04 Jan 05 May 05 Aug 05 Nov 05 Feb 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Oct 07 Jan 08 Apr 08

Share Price ($)

0

12,000

24,000

36,000

48,000

60,000

72,000

84,000

96,000

108,000

120,000

132,000

144,000

156,000

Weekly Volume (000's)

Source: IRESS Zinifex had a market capitalisation of $960 million when its shares listed on the ASX in April 2004 at $1.95. Zinifex shares ended the calendar year moderately higher at $2.34. Supported by increases in zinc prices and consequent strong financial performance, the share price increased dramatically during the 2005 and 2006 years, closing at $6.88 at the end of calendar 2005 and $18.79 at the end of calendar 2006. The share price continued its upward trend during the first seven months of 2007 calendar year, reaching a record high of $21.60 on July 2007. The share price has since fallen in a volatile market and ended the year at $12.40 as zinc prices retreated from US$3,300/tonne at 30 June 2007 to US$2,370/tonne at 31 December 2007. The weakness in the Zinifex share price continued in the early part of 2008 and the share price reached a recent intra day low of $8.03 in January 2008. In the three months prior to the announcement of the Merger the volume weighted average price (“VWAP”) of Zinifex shares was $11.31. Since the announcement to 22 April 2008, Zinifex’s VWAP has been $10.14. The chart below shows the relative performance of Zinifex shares against the ASX All Ordinaries Index and the zinc and lead spot prices. Since the beginning of 2005, Zinifex’s shares have significantly outperformed the ASX All Ordinaries Index. The chart also shows the strong correlation between Zinifex’s share price and the spot price of zinc.

Comparative Performance

0100200300400500600700800900

100011001200

Apr-04

Jun-04

Aug-04

Oct-04

Dec-04

Feb-05

Apr-05

Jun-05

Aug-05

Oct-05

Dec-05

Feb-06

Apr-06

Jun-06

Aug-06

Oct-06

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Zinc Lead ZFX All Ords

ZFX

Lead

Zinc

All Ords

Source: Bloomberg

4 Profile of Zinifex Assets

4.1 Overview

Zinifex’s Ore Reserves and Mineral Resources as at 31 March 2007 are summarised below:

Zinifex –Resources and Reserves as at 31 March 2007

Tonnes

(million) Zinc

(% Zn) Lead

(% Pb) Silver (g/t)

Gold (g/t)

Copper (% Cu)

Australian Resources Rosebery 11.7 13.0 3.8 138 1.9 0.4 South Hercules 1.1 2.7 1.4 99 1.6 0.1 Century 53.7 12.5 1.4 33 - - Century Eastern Block 0.9 9.7 0.7 61 - - Dugald River 47.9 12.1 2.1 44 - -

Total Australian Resources 115.3 12.3 1.9 49 - - Canadian Resources1

Izok Lake 14.8 12.8 1.3 71 - 2.6 High Lake 17.3 3.3 0.3 70 1.0 2.2

Total Canadian Resources 32.0 7.7 0.8 70 - 2.4 Ore Reserves

Rosebery 3.8 11.9 3.2 115 1.7 0.4 Century 46.2 11.2 1.1 25 - -

Total Ore Reserves 50.0 11.2 1.3 32 - - Source: Zinifex 1. confirms to CIM standards, the Canadian equivalent of JORC code. The acquisition of Wolfden was completed in

June 2007.

4.2 Century

Overview

The Century mine is the largest zinc mine in Australia and the second largest in the world. It is located in northwest Queensland, approximately 250 kilometres northwest of Mt Isa. Although the area around Century has been mined (although not continuously) for zinc and lead for close to 100 years, the Century deposit was only discovered (by CRA) in 1990. The Century project was subsequently acquired by Pasminco. Development of the mine commenced in 1997 and concentrate shipments began in late 1999. The mine was operated by administrators between 2001 and 2004, while Pasminco was in voluntary administration, and formed part of the asset base of Zinifex at the time of its listing. Century is 100% owned by Zinifex and is operated on a fly-in/fly-out roster. The on-site workforce of approximately 1,000 (including contractors) is accommodated in the Darimah village, located about six kilometres from the mine site. Mining at Century is based on open pit extraction using conventional hydraulic excavators and haul trucks. A dedicated and well-equipped treatment plant, located adjacent to the mine site, employs a conventional grinding and froth flotation circuit. The resultant zinc and lead concentrates are pumped as slurry to the port facility at Karumba via a 300 kilometre pipeline. At Karumba, the slurry is dewatered, filtered, stockpiled and transported to bulk carriers moored off-shore. Smaller quantities of lead concentrate are transported to smelters at Port Pirie, in South Australia, and Mt Isa. Since 2003, Century has consistently produced more than 500,000 tpa of zinc in low iron concentrate. While Century is primarily a zinc producer, significant amounts of lead and silver are also recovered. Lead production has ranged between 30,000 and 84,000 tpa due to fluctuations in lead grade. Based on the current life of mine plan, mining and ore treatment are scheduled to be completed in 2015.

Source: Zinifex Geology and Mineralisation

The Century deposit is hosted by mid-Proterozoic rocks of the Mount Isa Inlier, which hosts a number of other major base metal deposits such as those at Mt Isa, Cannington, Dugald River and McArthur River. The Century mineralisation is stratiform, lying within a sequence of siltstones, shales and sandstones, which is overlain by a Cambrian limestone unconformity. The ore body, which extends over an area of 1.2 kilometres by 1.4 kilometres, is generally flat lying (dipping at around 5-25 degrees), although along the Western flank of the deposit it rises more steeply towards the surface at an angle of around 70 degrees. The mineralised package is divided into Upper and Lower ore zones, divided by a horizon of siltstone waste. Sulphide mineralisation principally consists of sphalerite and galena, with lesser amounts of pyrite. The Lower zone, which contributes approximately 60% of overall resources, is characterised by higher zinc grades (around 15% zinc) but lower lead and silver grades (1% lead and 20g/t silver). Lower zone ore is also typically relatively high in organic carbon and silica by comparison with the Upper zone. While the Upper zone has lower zinc grades (around 10% Zn), it has higher lead and silver grades (4% Pb and 150g/t Ag) and lower levels of organic carbon and silica. The orebody is split into southern and northern blocks by the east-west trending Pandora’s Fault. Mineralisation is constrained at the southern end of the deposit by the east-west trending Magazine Hill Fault, to the east by the Termite Range Fault and to the north by Nikki’s Fault. To the west, as the orebody rises towards the surface, it is constrained by the limestone unconformity and surface erosion. The orebody is well delineated on all four sides and there appears to be little prospect of identifying any significant mineralisation beyond the existing defined resource.

Source: Zinifex

Zinifex has recently intensified its exploration activities in the immediate vicinity of Century, with the objective of identifying satellite orebodies to extend the life of Century operations. Initial drilling results in the vicinity of the old Silver King mine, located about 2 kilometres south-east of Century, have been promising. The results suggest the presence of high grade, lead-rich mineralisation (albeit in relatively modest quantities). Mining

Mining at Century is undertaken under an alliance contract, the Century Mining Alliance, with Downer EDI. Under the agreement, Zinifex owns the operating fleet, while Downer EDI provides management, staff and mining expertise. This partnership has been in place since prior to the listing of Zinifex. Mining commenced in the relatively shallow southern block, where Stages 1 and 2 of the pit were mined. Subsequently, mining moved to Stages 3, 4 and 5 of the pit in the northern block, which extracted mineralisation along the eastern and northern flanks of the deposit. Stages 6 and 7 are currently being mined. Stage 8, which will mine to the ultimate pit limit for the northern block, will provide the majority of ore for the years 2009-2014. The deposit deepens to the north and, at its deepest point, the pit will reach a depth of around 344 metres. Mining operations will conclude with the mining of Stage 9, which will extract the remaining economic ore in the southern block. The diagram below shows a plan view of the pit and the various mining stages.

Source: Zinifex

A geotechnical review of the planned mining of Stage 7 indicated that the original mine plan involved the risk of failure of the western wall of the pit, as a result of the existence of steeply dipping shears towards the western margin of the pit. To address this risk, it was decided to accelerate the removal of overburden (including the steeply dipping shear zone) up to the ultimate western wall of the pit, where competent material will support the final pit design. The result is a substantial increase in the stripping ratio and waste ore movements for the 2007 to 2009 financial years, with waste movements increasing from around 20 million bank cubic metres (“Mbcm”) per annum prior to 2007 to a range of 39-43 Mbcm per annum for the 2007-2009 financial years. Thereafter, waste movements will fall dramatically (to around 16 million Mbcm for 2010, 13 Mbcm tonnes for 2011 and with further reductions thereafter). As a result, the stripping ratio, which prior to 2007 was around 10, will fall from around 20 for the 2007-2009 financial years to around 13 for 2010 and 3.4 for 2011, with further reductions through to the end of the mine life scheduled for 2015. To achieve the substantially higher material movements required a significant increase in the mining fleet, at a total cost of approximately $80 million. Run-of-mine (“ROM”) ore is trucked to the ROM pad, to the south-east of the pit. Ore from the Upper and Lower ore zones, as well as ore of varying grades, is stored on separate stockpiles, to allow blending for optimal plant operations. Waste dumps to the east and north of the pit have largely been completed. In-pit waste dumping in the southern block has commenced and future waste will be dumped in pit and on a new waste dump currently being developed to the west of the pit. The current mining fleet consists of 11 excavators and loaders and around 50 haul trucks, of which 43 are large 240 tonne trucks. Following the completion in 2009 of the major pre-strip for Stage 7, the mining fleet is expected to be substantially reduced, with a particular reduction in the requirement for the large 240 tonne trucks.

Processing

The concentrator was commissioned in 1999, with the first shipment of concentrate in December 1999. In recent years the plant has treated an average of 5.3 Mtpa of ore. The plant is operated to maximise zinc output. Although the plant is in general terms a conventional crush/grind/flotation design, the actual flow sheet is fairly complex, due to the need to remove organic carbon and silica minerals associated with sphalerite. In particular, the zinc flotation includes two stages of regrinding including an ultra-fine regrind of primary concentrate to liberate silica for rejection to tailings. Project PERCent was initiated in 2005 with the objective of increasing recoveries by 2.5%. To realize this objective, the plant has been expanded to incorporate an additional ball mill and a surge tank, which were commissioned in early 2008 and mid 2007 respectively. Recoveries during the 2006 and 2007 financial years ranged between 78% and 79% for zinc and 6%3 and 71% for lead. The budgeted recoveries for zinc and lead for the 2008 financial year are 78.7% and 62.5% respectively. The operating costs of the plant increased on account of the higher power costs associated with fine re-grinding required to remove silica and due to the presence of carbon in the ore, which results in high reagent consumption. The plant comprises:

a primary crusher;

a grinding section, comprising a 12 megawatt SAG mill and two ball mills;

a prefloat circuit of seven 100m3 tank cells as roughers and a Jameson cell for use as a cleaner. The prefloat circuit removes a significant portion of the organic carbon;

a lead flotation circuit of six 100m3 cells as roughers and scavengers, and five 50m3 cells as first and second cleaners;

a zinc primary flotation circuit of eight 100m3 rougher cells, followed by a scavenger circuit of one 200m3 cell and ten 100m3 cells. Scavenger concentrate is reground in stirred media detritors (“SMDs”); and

an ultra-fine zinc section in which primary flotation concentrates (rougher and cleaner concentrates) are classified using 160, 50mm cyclones, with the underflow reground in up to fifteen 355kW SMDs. The resultant concentrates are cleaned through a four stage ultra-fine cleaning process to produce zinc concentrate.

The plant configuration is diagrammatically illustrated below:

Source: Zinifex Tailings from the treatment plant are piped to a tailings storage facility approximately 3.8 kilometres from the plant Zinc and lead concentrates are transported by a 300 kilometres long pipeline to the port of Karumba. At Karumba, the concentrates are thickened, filtered and dried, before being barged to bulk carriers moored off-shore. Some lead concentrates are dried in dams at the mine site and transported by road to Australian smelters. Power for the Century site is supplied by the gas-fired Mica Creek Power Station, near Mt Isa. Water is sourced from the mine dewatering borefield and a second borefield east of the mine site.

Resources and reserves

Century resources and reserves as at 31 March 2007 are set out in the table below:

Century –Resources and Reserves as at 31 March 2007

Tonnage (Mt)

Zinc (%)

Lead (%)

Silver (g/t)

Resources Measured 45.7 12.8 1.4 32 Indicated 8.0 10.9 1.5 43 Total Resources 53.7 12.5 1.4 33 Reserves Proved 40.0 10.2 1.1 32 Probable 6.2 11.3 1.1 24 Total Reserves 46.2 11.2 1.1 25

Source: Zinifex Note: resource figures are inclusive of the ore reserves Resources are estimated on the basis of a zinc cut off grade of 3.5%, while reserves are estimated on the basis of a zinc equivalent cut off grade of 4.5%. Given the extensive drilling of the resource and mining experience, the resource is well understood (reflected by the fact that all of the resource is in the measured and indicated categories) and there are limited prospects of delineating additional reserves. Century resources and reserves have reduced over the last three years as a result of mining depletion:

Century –Resources and Reserves as at 31 March 2007 2003 2004 2005 2006 2007

Resources (Mt) 78.6 73.8 67.6 61.2 53.7 Reserves (Mt) 68.8 62.3 55.7 52.1 46.2

Source: Zinifex Operating Performance

Century’s operating performance for the last three years is summarised below:

Century – Operating Statistics Year to 30 June

2005 2006 2007

Ore treated (Mt) 5.3 5.3 5.6 Zinc (%) 11.8 12.3 11.6 Lead (%) 1.5 2.2 1.3 Zinc recovery (%) 80.0 78.7 77.8 Lead recovery (%) 62.6 71.3 63.3 Contained Zinc (‘000 t) 501.5 515.7 502.0 Contained Lead (‘000 t) 49.9 83.6 37.8

Source: Zinifex Zinc head grades have been reasonably consistent at around 12.0% while lead grades have varied between 1.5 and 2.5%. These grades have been reflected in consistent zinc production (around 500,000 tpa in concentrates) and larger fluctuations in lead production. Material movements increased significantly in the 2007 financial year, with the commencement of the Stage 7 cut-back. Zinc recoveries declined marginally in the 2007 financial year due to

increased ore hardness, more complex mineralogy and higher throughput rates but are expected to improve in the 2008 financial year, partially as the result of the installation of an additional ball mill and surge tank in the treatment plant in late 2007.

4.3 Rosebery

The Rosebery Mine is situated in north-west Tasmania, approximately 300 kilometres north-west of Hobart, 100 kilometres south of Burnie and adjacent to the Rosebery Township. Mineralisation was first discovered at Rosebery in 1893 and mining commenced in 1900. Following the construction of a flotation plant on-site, full scale production of base metal concentrates commenced in 1936. The following map shows the location of the Rosebery mine:

Source: Zinifex Rosebery was part of the package of assets of Pasminco at the time of its 1989 float on the ASX, and, following the Pasminco administration, was subsequently included in the assets of Zinifex when it was listed in 2004. Rosebery mineralisation is polymetallic, containing zinc, lead, copper, iron, silver and gold. Mining at Rosebery is by underground mining methods. While most mine production is from depths of 800-1,000 meters, it is estimated that the orebody extends to 1.5 kilometres underground. The treatment plant produces zinc, lead and copper concentrates, as well as gold dore, with zinc and lead concentrate generating the majority of mine revenue. Concentrates are transported by rail to Burnie, from where they are shipped to smelters. Over the last three years, zinc production has ranged from 82,000-89,000tpa and lead production from 23,000-30,000tpa. Following the commencement in 2006 of the Horizons project to delineate additional mineralisation, the estimated mine life for Rosebery has been extended to more than 10 years. Residual lower grade ore within the old Hercules Mine, where mining has been discontinued, and lower grade mineralisation in the South Hercules deposit, approximately 10 kilometres south-east of the Rosebery Mine, provide potential additional feed for the Rosebery plant. The on-site workforce is approximately 250, many of whom live in the Rosebery township. Power is sourced from the local power grid and water supply is principally from a pump station on the Pieman River.

Geology and Mineralisation

The Rosebery orebody is a polymetallic massive sulphide deposit, hosted in volcanic and pyroclastic rocks of the Mount Read Volcanics belt, which also hosts the Que River and Hellyer polymetallic deposits, the Mount Lyell copper deposit and the Henty gold deposit. Mineralisation is contained within a series of lenses (more than 15 have been identified), which dip to the east and plunge to the north over a north-south strike length of more than three kilometres. Early mining concentrated on the shallower lenses to the southern end of the deposit, while current and future mining will principally focus on the deeper lenses to the northern end of the deposit. The following charts show a generalised cross section and a long section view of the deposit:

Source: Zinifex

Source: Zinifex The P, K and W Lenses contain the majority of the delineated resources at Rosebery, and will be the focus of mining and exploration over the medium term. The high grade K Lens contains a substantial inferred resource and, subject to successful infill drilling, could potentially provide significant additional reserves. Rosebery ore consists mainly of sphalerite, galena and chalcopyrite. Mining

Rosebery is a conventional underground mining operation. Most of the ore production is by way of sub level open stoping of the deeper lenses to the north of the deposit, at depths of up to 1000 metres, with modest amounts of ore sourced from shallower, remnant stopes and pillars. Mined out stopes are backfilled with waste rock. Development and stope drilling are carried out by conventional drill jumbos and ring drilling rigs. Blasted ore is bogged out using large underground loaders and transported up the mine decline to the surface by haul trucks with capacities of 40-55 tonnes. As the mining has concentrated on the deeper ore lenses to the north of the deposit, haul distances have increased and are now typically over six kilometres. A variety of stoping methods are employed, including bench stoping (for the majority of the ore), transverse open stoping (where ore body widths increase up to 25 metres) and slash mining (to extract ore from pillars). The significant depth of mining operations means that ventilation and geotechnical issues require careful management. To support further mining at depth, an additional ventilation shaft will be required, at a cost of approximately $25 million. The ventilation shaft, for which feasibility, design and planning are currently in progress, will allow the operation of additional equipment in the mine and should support higher rates of ore production.

Processing

The Rosebery treatment plant features a relatively complex process flow sheet, reflecting the polymetallic nature of the ore. Sequential flotation is employed to produce copper, lead and zinc concentrates, and coarse gold dore is recovered through gravity separation. The treatment process is as follows:

two stage crushing: ore is crushed in a jaw crusher and cone crusher. High and low grade ore is separately crushed on a batch basis and blended to provide a consistent feed grade to the plant;

grinding: the crushed circuit consists of two rolls crushers, two primary ball mills, a primary cyclone, two secondary ball mills for regrinding primary cyclone underflow and a secondary cyclone;

gravity gold recovery: part of the cyclone underflow from the grinding circuit is fed to a Knelson concentrator, which recovers coarse gold. The concentrate from the Knelson concentrator is leached with cyanide and gold dore is produced;

copper flotation: the secondary cyclone overflow from the grinding circuit is thickened and the thickener underflow fed to the copper circuit. The copper feed is processed in ten rougher and four scavenger tanks, with the rougher concentrate cleaned in ten cleaning tanks to produce copper concentrate, which also includes gold and silver;

lead flotation: the copper rougher tailings are processed through a lead flotation circuit, which consists of two lines each of four rougher and eight scavenger tanks, and a cleaning line of 28 cells;

zinc flotation: the lead rougher tailings are processed in 12 rougher/scavenger cells, with the resulting concentrate cleaned in a two stage cleaner circuit employing 20 cleaning cells.

The copper, lead and zinc concentrates are pumped to a filter plant located at a nearby rail siding, where, following thickening and dewatering, the concentrates are loaded onto trains for transport to Burnie. While the majority of feed to the plant is Rosebery ore, approximately 5% of ore throughput is purchased from third parties in the region (eg. the Que River Mine). For the 2007 financial year 707,300 tonnes of ore was milled for the production of approximately 83,000 tonnes of zinc and 23,500 tonnes of lead in concentrate. Zinc recovery to the zinc concentrate generally exceeded 88%, while lead recovery to the lead concentrate has averaged around 82%. Copper recovery to the copper concentrate is projected at around 60%. Gold recovery totals approximately 60%, with about 32% recovered to the copper concentrate, 21% to dore and 7% to the lead concentrate.

Resources and Reserves

Historically, the Rosebery Mine has operated with only around three years of reserves. In 2006, Zinifex commenced a $19 million exploration project, entitled Project Horizons, with the objective of extending the life of the mine to 2020. In effect, this represented a doubling of the mine’s exploration budget over the three year period of the project.

In May 2007, Zinifex announced that successful exploration drilling from the initial stages of Horizons had increased the Rosebery resource by 65% and substantially extended the life of the mine.

Rosebery resources and reserves as of 31 March 2007 (which include the 65% increase announced in May 2007) and include South Hercules are summarised as follows:

Rosebery – Resources and Reserves as at 31 March 2007

Tonnage

(Mt) Zinc (%)

Lead (%)

Silver (g/t)

Gold (g/t)

Copper (%)

Resources Measured and Indicated 5.5 15.2 4.2 150 2.4 0.5 Inferred 6.2 11.1 3.5 128 1.4 0.3

Total Resources 11.7 13.0 3.8 138 1.9 0.4 Reserves Proved 3.8 12.0 3.3 116 1.7 0.4 Total Reserves 3.8 12.0 3.2 116 1.7 0.4 Source: Zinifex

Increases to the resource at Rosebery Mine were primarily due to successful resource infill drilling and exploration of the deeper K and PK Lenses. There remains considerable potential for further increases in resources and reserves, through exploration and delineation drilling on the deeper lenses at the northern end of the deposit.

Resources at South Hercules doubled after the completion of exploration drilling. Pre-feasibility work on South Hercules is currently being undertaken, with a view to possibly commencing mining and processing at the Rosebery concentrator in 2010.

The following table shows movements in total resources and reserves at Rosebery in recent years:

Rosebery – Resources and Reserves as at 31 March 2007 2003 2004 2005 2006 2007

Resources (Mt) 8.9 7.2 6.5 7.7 11.7 Reserves (Mt) 2.3 2.8 2.3 2.6 3.8 Source: Zinifex Operating Performance

Rosebery’s operating performance for the last three years is summarised below:

Rosebery – Operating Statistics Year ending 30 June

2005 2006 2007

Ore treated (Kt) 690 672 707 Zinc (%) 14.5 13.8 12.9 Lead (%) 5.1 4.8 4.1 Copper (%) 0.4 0.4 0.4 Silver (g/t) 145.3 142.6 157.4 Gold (g/t) 1.9 1.7 1.4 Zinc recovery (%) 88.1 89.4 90.9 Lead recovery (%) 83.9 79.4 81.0 Contained Zinc (kt) 88.1 83.5 82.9 Contained Lead (kt) 29.6 24.0 23.5

Source: Zinifex Zinc and lead head grades have declined over the last three years as mining has moved to lower grade areas of the ore body.

4.4 Dugald River

The Dugald River project contains one of the world’s largest known undeveloped lead-zinc-silver deposits. It is located in northwest Queensland, approximately 65 kilometres north-west of Cloncurry. The project is located close to power, water and transport infrastructure. Pasminco

acquired the Dugald River project, together with the Century mine, from CRA in 1997. The project formed part of the assets acquired by Zinifex when it listed in 2004. The location of Dugald River is shown on the map below:

Source: Zinifex The Dugald River deposit was discovered in the 1870s. Notwithstanding the size and attractive zinc grades of the deposit, it was not developed by previous owners, because of marginal project economics and because the elevated manganese content of the deposit meant that Dugald River zinc concentrates would be unattractive for zinc smelters. However, expansion of the smelting industry and technological changes (allowing smelters to accept higher manganese content zinc concentrates) and much higher zinc prices have enhanced the economics of the project. Accordingly, Zinifex conducted a pre-feasibility study for Dugald River, completed in December 2006. The pre-feasibility study examined both underground and open pit mining options and a variety of mining rates, but concluded that a 2 Mtpa underground mine to produce around 200,000 tpa of zinc in concentrates is likely to be optimal. Given the narrow, steeply dipping nature of the orebody, conventional underground mining methods (potentially bench stoping) are considered

most appropriate, and high metal recovery rates are expected to be achieved with standard crushing, grinding and flotation processing (although a relatively fine grind will be required). The project has good access to infrastructure, with a sealed two-lane highway only 10 kilometres to the east and power and water availability. Zinc concentrates would be transported approximately 100 kilometres to BHP Billiton Limited’s (“BHP”) rail facility at Yurbi and then railed to Townsville. It is currently contemplated that Dugald River would be a fly-in/fly-out operation, through Cloncurry airport. Zinifex commenced a full feasibility study in 2007 with the objective of reaching a development decision in late 2008 and (assuming a positive decision) commencement of production in 2011. At a projected cost of approximately $24 million, the feasibility study will include:

50,000 metres of diamond drilling, for resource definition and metallurgical samples;

mineral resource estimates;

mining and geotechnical studies;

metallurgical test work and studies; and

review of options for tailings storage, infrastructure and services. Zinifex is currently quoting the following resources for Dugald River:

Dugald River – Resources as at 31 March 2007

Tonnage (Mt)

Zinc (%)

Lead (%)

Silver (g/t)

Indicated 31.9 12.6 2.0 44 Inferred 16.0 11.1 2.3 44 Total Resources 47.9 12.1 2.1 44 Source: Zinifex There is extensive copper mineralisation in the district, including near the Dugald River deposit, but this has not been subject to a resource estimate.

4.5 Nunavut Territory

In June 2007 Zinifex acquired Wolfden Resources, a Canadian-based mineral exploration and development company, for approximately A$388 million. Wolfden has a portfolio of development and exploration projects in the Nunavut Territory of Canada, including the polymetallic Izok Lake and High Lake deposits and the Lupin and Ulu gold resources.

4.5.1 Izok Lake

The Izok Lake property is approximately 360 kilometres north of Yellowknife in northern Canada. The Izok Lake deposit is a volcanogenic massive sulphide deposit, consisting of four separate lenses, with reported resources corresponding to indicated resources (for Australian reporting purposes) of 14.4 Mt grading 12.9% zinc and 2.5% copper, and additional lower grade inferred resources. Preliminary studies indicate that three of the four lenses could be mined by open pit and the fourth by underground mining methods. There is potential to expand the resource base by further drilling and there are additional polymetallic deposits in the area (Gondor and Hood) which could potentially provide further feed for a mill at Izok Lake. A pre-feasibility study commenced in 2008. Indicative development plans are for a mining operation that would produce around 150,000 tonnes of zinc and 30,000 tonnes of copper in concentrate per annum. Significant issues remain to be resolved, including the infrastructure required to transport concentrates to end-use customers. Options currently under consideration include the building of a road north to Coronation Gulf, where deep water port facilities would need to be constructed.

4.5.2 High Lake

High Lake is also a volcanogenic sulphide deposit, located around 190 kilometres north-north-east of Izok Lake and around 50 kilometres south of Coronation Gulf. Wolfden quoted indicated resources for the deposit of 17.2 Mt grading 2.3% copper, 3.4% zinc, 70g/t silver and 1.0g/t gold. Exploration is ongoing and there appears to be potential for the delineation of additional resources. Initial studies have suggested that open pit mining followed by underground mining could be employed. Development of the project is likely to require sharing of transport infrastructure with the Izok Lake project.

4.5.3 Nunavut Gold Project

The Nunavut Gold Project consists of the Lupin gold mine and the Ulu development project. The Lupin mine is around 70 kilometres east of Izok Lake and the Ulu project is around 125 kilometers further to the north. The Lupin deposit was discovered in 1960 and the underground mine began commercial operations in 1982. The mine produced 3.36 million ounces of gold at an average grade of 9.3 g/t before it was closed in early 2005, following which Wolfden Resources acquired it from Kinross Gold Corporation. Significant mineralisation remained unmined at the time Lupin was closed and Zinifex is considering further resource delineation work during 2008. Mine infrastructure, including mine access and an airstrip, remain in place. The Ulu deposit was discovered by BHP in 1989. The deposit has total mineral resources of 1.1Mt at 11.3g/t of gold, and Zinifex believes that there is the potential to delineate additional high grade mineralisation. Ore from the Ulu deposit could be used to supplement feed to the Lupin mill.

4.6 Profile of Exploration Activities

Zinifex’s exploration program consists of both brownfields exploration, focused on delineating new resources at or near to existing mines, and greenfields exploration. The greenfields exploration program has as it primary objective the identification of high value polymetallic deposits containing zinc, lead, copper and precious metals. Zinifex is currently exploring in six countries: Australia, Canada, China, Mexico, Sweden and Tunisia. Zinifex’s exploration activities are conducted both through joint ventures and alliances with junior partners and directly by Zinifex in its own right. Zinifex’s exploration and evaluation expenditure for the 2007 financial year was $28.4 million. Zinifex’s exploration activities in various countries are discussed below. 4.6.1 Australia

The Menninnie Dam project is the most advanced of Zinifex’s exploration programs. The project is located at the northern Eyre Peninsula in South Australia. Zinifex holds a 76% interest in the joint venture with ASX listed Terramin Australia Limited (“Terramin”). The region encompasses a large lead-zinc-silver system as well as extensive copper-gold targets. Zinifex has invested $9 million in the venture. In January 2008 Zinifex and Terramin announced a first resource for the project of 3.8 Mt grading 4.0% zinc and 3.2% lead. Zinifex assumed management of the project with effect from March 2008.

4.6.2 Tunisia

Zinifex is exploring the Nefsa licence area in north-west Tunisia in partnership with ASX listed Albidon Limited. The licence covers approximately 5,000 square kilometres containing multiple zinc, lead, copper and precious metal prospects. Zinifex can earn a project interest of up to 70% by making staged investments totalling $13 million over the next five years.

4.6.3 Mexico

Zinifex is exploring the La Corazonada prospect in partnership with a private Mexican company. The La Corazonada prospect is in the southern extension zone of the central Mexican base and precious metal skarn belt and is approximately 10 kilometres from the city of Cuautla in Morelos State. The prospect has the potential to host massive skarn mineralisation at depth. Veins containing zinc, lead and silver carbonate minerals have been identified at the surface.

4.6.4 Sweden (Drake Global Alliance)

Zinifex has partnered with ASX listed Drake Resources Limited to explore in Sweden. The exploration tenements cover an area of approximately 130 square kilometres and contain known occurrences of zinc and copper. Initial funding for exploration is provided by Zinifex, which retains a 70% interest in the projects. Drake Resources is managing the exploration program.

4.7 Other Assets

4.7.1 Allegiance Mining NL

On 17 December 2007, Zinifex announced its intention to make takeover offers for all the ordinary shares in Allegiance. Subject to achieving a prescribed level of acceptances, the offer price was $1.00 cash per share, valuing Allegiance at approximately $785 million. On 25 February 2008 Zinifex announced an increase in the offer to $1.10 cash per share, valuing Allegiance at approximately $888 million. The increased offer was recommended by the Allegiance board of directors. As at 5 May 2008, Zinifex had acquired 97% of Allegiance’s ordinary shares under the takeover offer, which means Zinifex can now move to compulsorily acquire the remaining 3% of Allegiance’s ordinary shares. Allegiance is focused on the exploration, evaluation and development of nickel sulphide deposits in Tasmania. Its primary asset is the high grade Avebury nickel mine, located approximately 8 kilometres west of Zeehan on the west coast of Tasmania. Avebury resources and reserves at a minimum cut-off grades of 0.4% Ni and 0.7% Ni respectively are summarised as follows:

Avebury Nickel Project – Reserves as at 31 December 2007

Tonnage (Mt)

Nickel (%)

Contained Metal (kt)

Probable 4.0 1.0 39.2 Proved 1.8 0.9 16.9 Total Reserves 5.8 1.0 56.1 Source: Allegiance

Avebury Nickel Project – Resources as at 31 December 2007

Tonnage (Mt)

Nickel (%)

Contained Metal (kt)

Inferred 9.8 0.9 85.9 Indicated 6.1 1.0 61.1 Measured 2.4 1.1 24.4 Total Resources 18.2 1.0 172.0 Source: Allegiance

The Avebury orebody will be mined by underground mining methods, with estimated annual mine production in the early years of the mine of around 900,000 tonnes of ore. Avebury nickel ore is believed to have metallurgically simple qualities and will be processed through a conventional concentrator plant to produce around 8,500 tonnes of

nickel per annum, in a premium concentrate containing over 20% nickel. The mine has commenced production of ore and construction of the plant is scheduled for completion and nickel concentrate shipments expected to begin in the second half of 2008. In addition to the Avebury mine, Allegiance holds approximately 87 square kilometres of tenements in the immediately vicinity of Avebury. The company has identified a smaller nickel deposit at Melba Flats. Whilst the resources identified are modest, Allegiance is actively exploring the area for larger deposits. The company also has a 10% interest in the Nymagee Mine joint venture which is managed by a subsidiary of ASX listed CBH Resources Ltd. Allegiance has an offtake agreement with Jinchuan Nickel Group of China (“Jinchuan”). Under the agreement, Jinchuan will buy all nickel concentrates produced from the Avebury mine and has the first right to enter into negotiations related to securing additional nickel concentrates produced from further resources identified in the Avebury region. Through its 100% owned subsidiary Geothermal Energy Tasmania Holdings Ltd, Allegiance is investigating the potential of deep hot rocks in western Tasmania to generate geothermal energy.

5 Profile of Oxiana Limited

5.1 Overview

Oxiana is an Australian mining and exploration company, headquartered in Melbourne, with operations in Asia and Australia. Oxiana owns 90% of the Sepon gold and copper mines in Laos and 100% of the Golden Grove base and precious metals operation in Western Australia. Oxiana’s Prominent Hill copper-gold project in South Australia is currently under construction and is expected to commence production in the fourth quarter of 2008. Oxiana recently committed to the development of the Martabe gold project in Indonesia. Oxiana has a number of investments in listed resource companies, the most significant of which is Toro Energy Limited (“Toro Energy”), a uranium exploration company. A brief outline of Oxiana’s recent history is described below: Date Event 1996 The company is renamed Oxiana Resources N.L. 2000 Oxiana acquires 80% of the Sepon project in Laos from Rio Tinto 2001 Construction of the Sepon Gold plant commences 2002 The first gold is produced at Sepon 2003 Oxiana changes its status and name to Oxiana Limited

Construction of the Sepon Copper project commences Oxiana commences a farm-in to the Prominent Hill project

2004 Oxiana acquires the remaining 20% of the Sepon project from Rio Tinto. The Laos government has the right to purchase 10% of the operating company

Expansion of the Sepon Gold mine commences Oxiana announces the acquisition of a 100% interest in the Prominent Hill project through the

acquisition Minotaur Resources Limited 2005 The first copper cathodes are produced at Sepon

Throughput at Sepon Gold is doubled following completion of the expansion Oxiana purchases the Golden Grove operations in Western Australia from Newmont Mining

Corporation for $265 million A first dividend of 1¢ per share is declared

2006 A record half year profit of $263.2 million is announced and a 3¢ per share interim dividend payment is declared

Oxiana’s Board of Directors formally approves development of the Prominent Hill copper-gold mine

Toro Energy is listed on the ASX in March. Oxiana retains 24.74%. 2007 A record full year profit for 2006 of $553.2 million is announced and a 5¢ final dividend is

declared The Government of Laos exercises its option to acquire a 10% interest in the Sepon project Oxiana acquires Agincourt Resources for $415 million. Agincourt’s assets include the

Martabe project in Indonesia and a 57% holding in Nova Energy Limited. Nova Energy is subsequently acquired by Toro Energy, giving Oxiana a 46% shareholding in Toro Energy

Oxiana announces a 2007 half year profit of $172.7 million and a 4¢ per share interim dividend

The expected capital costs of Prominent Hill are revised to $1,080 million Oxiana’s Board formally approves development of the Martabe gold project Oxiana’s Board formally approves expansion of the Sepon Copper operation from 60,000

tonnes per annum to 80,000 tonnes per annum by 2010 2008 Oxiana announces a profit for 2007 of $318.2 million and a 4¢ per share final dividend

Oxiana and Zinifex announce the Merger

Oxiana’s portfolio of operations and development projects and the Reserves and Resources as at 30 June 2007, published in February 2008, are summarised as follows:

Oxiana Operations and Development Projects

Assets/Projects Resources As at 30 June 2007

Reserves As at 30 June 2007

Gold (Moz)

Silver(Moz)

Copper(Mt)

Zinc(Mt)

Lead(Mt)

Nickel(Mt)

Cobalt(Mt)

Gold(Moz)

Silver (Moz)

Copper (Mt)

Zinc (Mt)

Lead(Mt)

Operating Assets

Sepon Gold 3.4 12.5 - - - - - 0.2 0.35 - -

Sepon Copper 0.4 26.1 1.6 - - - - - - 0.79 - -

Golden Grove 0.8 38.9 0.6 1.2 0.1 - - 0.3 14.62 0.19 0.61 0.07

Development Projects

Prominent Hill 3.7 15.8 1.9 - - - - 1.29 7.06 0.88 - -

Martabe 5.9 60.0 - - - - - 2.26 30.14 - - -

Wiluna Nickel Laterite - - - - - 0.6 0.05 - - - - -

Total Oxiana 14.3 153.2 4.0 1.2 0.1 0.6 0.05 4.05 52.17 1.86 0.61 0.07

Source: Oxiana Notes: 1. Significant figures do not imply precision. Figures are rounded according to JORC Code Guidelines. 2. Includes 100% of all resources and resources include reserves. The following map shows the location of Oxiana’s operations, development projects and exploration activity in Asia and Australia.

Source: Oxiana

5.2 Operating Performance

The operating and financial performance of Oxiana for the four years ended 31 December 2007 is summarised below:

Oxiana Financial Performance (A$ million unless otherwise stated) Year Ended 31 December

2004

AGAAP 2005

AIFRS 2006

AIFRS 2007

AIFRS Production Sepon Copper Copper (‘000 t) - 30.5¹ 60.8 62.5 Sepon Gold Gold (‘000 ozs) 141.2 200.4 173.5 102.4 Silver (‘000 ozs) 87.9 109.5 203.5 144.6 Golden Grove Zinc (‘000 t) - 70.5² 138.8 132.0 Copper (‘000 t) - 21.8² 10.8 15.4 Gold (‘000 ozs) - 25.3² 50.2 48.8

Silver (‘000 ozs) - 2,174.6² 3,064.3 3,165.4 Lead (‘000 t) 4.9² 11.6 8.1 Total Cash Costs

Sepon Copper (US$/lb cu) - 0.71¹ 0.73 0.76 Sepon Gold (US$/oz) 189 260 330 445 Golden Grove (US$/lb Zn) - 0.29² 0.43 0.30

Revenue 73.6 389.2 1,275.2 1,097.4

EBITDA 13.8 168.1 827.2 595.1 Depreciation and amortisation (13.9) (52.1) (105.4) (101.2) EBIT (0.2) 116.0 721.8 493.9 Net interest expense (5.7) (34.5) (26.5) (18.2) Profit before tax from continuing operations (5.9) 81.5 695.3 475.7 Income tax benefit / (expense) (2.9) (11.2) (145.3) (151.3) Profit / (loss) from discontinued operations 0.9 3.1 (6.3) Net profit / (loss) attributable to outside equity interests 0.0 - - - Profit after tax attributable to Oxiana shareholders (8.8) 71.2 553.2 318.2 Statistics Revenue growth n/a 428.8% 227.7% (13.9)% EBITDA growth n/a 1,118.2% 392.1% (28.1)% EBIT growth n/a n/m 522.2% (31.6)% EBITDA margin 22.5% 43.2% 64.9% 54.2% EBIT margin n/m 29.8% 56.6% 45.0%

Source: Oxiana Note: numbers may not add up due to rounding 1. Copper production commenced March 2005 2. Assumes full 12 months production for Golden Grove in 2005. Oxiana‘s ownership commenced 1 July 2005. Revenue in 2005 was substantially higher than for 2004. This was due to the inclusion of revenue from the first full year of production from Sepon Gold, Sepon Copper revenue from mid March 2005 and a contribution from Golden Grove following its acquisition effective on 1 July 2005. Net interest expense increased as a result of the drawdown on debt facilities for the acquisition of Golden Grove and to fund feasibility studies to investigate the potential of expanding both the Sepon Gold and Sepon Copper operations. The strong increase in revenue and profitability in 2006 was the result of a full year of production from both Golden Grove and Sepon Copper, improved operational performance at Golden Grove and a strengthening of the copper, zinc and gold prices.

Oxiana’s revenue and profit fell in 2007 as a result of the appreciation of the Australian dollar, weaker commodity prices (particularly for zinc) and a higher effective tax rate payable by Oxiana as it commenced paying tax in Laos at the full corporate rate. Over 80% of Oxiana’s revenues are from zinc and copper sales, and both zinc and copper prices in Australian dollar terms were lower in 2007 than in 2006.

Gross Revenue by Commodity¹

Copper53%

Zinc30%

Gold10%

Silver4%

Lead3%

Gross Revenue by Operation¹

Sepon Copper44%

Sepon Gold7%

Golden Gr49%

Source: Oxiana Notes: 1. Pre treatment and refining charges and royalty including Sepon premium. 2. For the year ending 31 December 2007. Oxiana’s earnings and dividends per share for the four years to 31 December 2007 are summarised in the table below.

Oxiana Earnings and Dividends Per Share

Year ended 31 December 2004 2005 2006 2007

Basic Earnings per share - diluted (cents) (0.70) 5.47 37.04 18.83 Dividend declared per share (cents) - 1.0 8.0 8.0

Source: Oxiana

5.3 Financial Position

The statements of financial position of Oxiana as at 31 December 2006 and 31 December 2007 are summarised in the table below.

Oxiana Statement of Financial Position (A$ million) Year ended 31 December Year ended 31 December 2006 2007

Trade and other receivable 33.3 113.3 Inventories 71.4 88.1 Payables (106.1) (141.2) Net Working Capital (1.4) 60.2 Mining assets 929.2 1,739.7 Intangible assets 2.7 46.8 Provisions (51.3) (72.6) Net other assets / liabilities (118.0) (34.1)

Capital Employed 761.2 1,740.1 Total debt (427.6) (420.8) Cash 670.9 246.1

Shareholder Funds 1,004.6 1,565.3 Source: Oxiana The increase in intangibles in 2007 is the result of the goodwill arising from the acquisition of Agincourt. The fall in net other liabilities is predominately the result of an increase in investments accounted for using the equity method, reflecting Oxiana’s acquisition of a 46% shareholding in Toro Energy in November 2007. Oxiana held a 24.74% shareholding in Toro Energy following its listing in March 2006. With the acquisition of Agincourt Resources in 2007, Oxiana also acquired a 57% shareholding in Nova Energy Limited (“Nova”). Toro Energy made a successful takeover bid for Nova in 2007 which resulted in Oxiana holding a 46% shareholding in Toro Energy. Property, plant and equipment increased in 2007 as a result of ongoing construction at Prominent Hill and exploration and evaluation activity at the Martabe gold project. Non-current interest bearing liabilities in 2007 include US$105 million Senior Subordinated Convertible Notes issued in April 2005 (due in 2012), at an interest rate of 5.25% and with a conversion price of US$0.9570 subject to adjustment upon certain events such as the declaration of a dividend. Holders of the Notes have the option to convert the Notes into ordinary shares of the Company until 9 April 2012, while Oxiana has the right to redeem the Convertible Notes from 29 April 2009. Unless previously redeemed, converted or purchased and cancelled, the convertible bonds will be redeemed at their principal amount on 15 April 2012.

5.4 Cash flow

Oxiana’s cash flow statements for the three years ending 31 December 2007 are summarised in the table below.

Oxiana Cash Flow ($ millions) Year ended 31 December 2005 2006 2007

Cash flows from operating activities Receipts from customers (inclusive of GST) 425.1 1,268.6 1,132.7 Payments to suppliers and employees (inclusive of GST) (212.7) (443.4) (533.2) Interest received 1.7 18.8 21.6 Interest paid (35.9) (36.6) (33.9) Income tax paid - (14.4) (120.5) Net cash inflow / (outflow) from operating activities 178.2 793.0 466.7 Cash flows from investing activities Payments for capitalised exploration and evaluation (26.0) (32.1) (17.2) Payments for property, plant and equipment, and development (133.1) (189.4) (696.3) Payment for purchase of subsidiaries net of cash acquired (220.9) - (8.6) Payments for purchase of investments (2.0) (3.2) (3.3) Other net investing activities - - 10.0 Net cash inflow / (outflow) from investing activities (382.0) (224.8) (715.3) Cash flows from financing activities Gross proceeds from issues of shares 3.7 3.7 3.9 Proceeds from borrowings 526.0 - 228.1 Transaction costs – borrowings (8.5) - - Finance lease payments (0.6) (0.7) Repayment of borrowings (159.8) (22.1) (220.0) Payments for capitalised finance costs - - (10.7) Payments for derivative financial instruments - - (18.3) Dividends paid to Company’s shareholders - (38.6) (96.5) Net cash inflow / (outflow) from financing activities 361.4 (57.6) (114.3) Net increase / (decrease) in cash and cash equivalents 157.6 510.6 (362.8)

Source: Oxiana Payments for property, plant and equipment and development in 2007 include payments for development and construction at Prominent Hill and exploration at Martabe.

5.5 Group Hedging

Oxiana does not make use of derivative financial instruments to hedge foreign exchange risk arising from normal operations, but does hedge certain development costs against appreciation of the Australian dollar by purchasing currency options. Similarly, Oxiana does not make use of derivative financial instruments to hedge commodity price exposure. However, Sepon’s Lao holding company, Lane Xang Minerals Limited (“LXML”), was required to hedge 35% of its forecast gold price exposure out to June 2009 in accordance with the conditions of its debt funding facility. This hedging was achieved by purchasing put options. Oxiana’s interest rate hedging policy does not require a fixed and pre-determined proportion of its interest rate exposure to be hedged. Any decision to hedge interest rate risk will be assessed at the

inception of each floating rate debt facility in light of Oxiana’s overall exposure, the prevailing interest rate market and any funding counterparty requirements. LXML was required to hedge 75% of its floating rate debt exposure in accordance with the conditions of its debt funding facility at the inception of that debt facility.

5.6 Tax Position

At 31 December 2007, Oxiana had no carried forward income tax losses. The balance on its franking account at year end was $22.1 million. A tax refund of approximately $40 million is expected in June 2008.

5.7 Capital Structure and Ownership

As at 31 March 2008, Oxiana had the following securities on issue:

1,545,129,536 fully paid ordinary shares;

29,444,280 unlisted options issued and outstanding under the Oxiana Executive Option Plan;

4,235,907 performance rights issued and outstanding under the Oxiana Performance Rights Plan; and

US$105 million of senior subordinated convertible notes issued under the Oxiana Convertible Bonds Trust Deed. Refer to Section 5.3 for further detail on these notes.

The top 10 shareholders in Oxiana accounted for approximately 42% of the shares on issue at 31 March 2008.

Oxiana Major Shareholders

As at 31 March 2008 Shareholders Shares (million)

Issued Capital

(%)

National Nominees Limited 205.8 13.32 HSBC Custody Nominees (Australia) Limited 145.2 9.40 J P Morgan Nominees Australia Limited 83.0 5.37 ANZ Nominees Limited 68.7 4.45 Citicorp Nominees Pty Limited 48.6 3.15 Romadak Pty Ltd 27.5 1.78 Warbont Nominees Pty Ltd 21.9 1.42 Cogent Nominees Pty Limited 14.3 0.93 Yarraandoo Pty Ltd 14.2 0.92 HSBC Custody Nominees (Australia) Limited 13.3 0.86 Subtotal – Top 10 Shareholders 642.5 41.60 Other shareholders 902.6 58.40

Total 1,545.1 100.00 Source: Oxiana As at 20 February 2008, the only substantial shareholder in Oxiana (i.e. with a shareholding of more than 5%) was Merrill Lynch & Co, Inc, with a holding of 158.8 million shares representing 10.28% of the total shares on issue.

At 31 March 2008, the following options were on issue pursuant to the Oxiana Executive Share Option Plan:

Oxiana – Details of Options

Expiry date Exercise Price

Per Share Options Over

Ordinary Shares (000s)

28-Aug-08 0.86 500 27-Feb-09 1.20 1,000 06-Apr-09 1.20 2,000 17-Dec-09 1.25 1,000 28-Jan-10 1.25 1,000

01-Mar-10 1.25 4,600 20-Apr-10 1.25 2,000 13-Oct-10 1.60 1,000 27-Jan-11 2.60 1,000 21-Apr-11 2.50 2,000 24-Apr-11 4.65 1,000 19-Jun-11 3.80 1,000

21-Aug-11 3.80 1,000 03-Oct-11 3.90 1,000 01-Mar-12 3.98 1,800 01-May-12 4.14 1,250 02-May-12 4.36 2,000 14-May-12 4.60 250 18-Jun-12 4.60 1,000 01-Sep-12 4.51 600 28-Feb-13 4.93 2,444

Total 29,444 Source: Oxiana

Oxiana has a performance rights plan in place whereby rights are granted to employees at no cost to the employee. The rights, which at the discretion of the company may extend for up to 10 years, may be exercised into shares twelve months after the grant date providing specified non-market performance conditions have been met by the employee. As at 31 March 2008 there were 4,235,907 performance rights outstanding.

5.8 Share Market Performance

The history of trading in Oxiana ordinary shares on the ASX over the last four years is set out below:

Oxiana – Share Trading History

Share Price ($) High Low Close

Average Weekly Volume (000’s)

Average Weekly Transactions

Year ended 31 December:

2004 1.10 0.73 0.99 30,747 1,403

2005 1.77 0.80 1.74 43,784 2,235

2006 3.82 1.69 3.17 62,155 6,637

2007 4.32 2.60 3.48 84,650 9,858

Quarter ended:

30 June 2007 3.71 2.80 3.53 81,578 8,148

30 September 2007 4.05 2.84 3.88 84,031 11,344

31 December 2007 4.32 3.30 3.48 81,896 11,799

31 March 2008 3.97 2.53 3.18 81,284 12,809

Month ended: 31 December 2007 4.01 3.30 3.48 59,347 10,021 31 January 2008 3.83 2.53 3.00 75,504 12,842 29 February 2008 3.97 2.96 3.97 85,518 12,312 31 March 2008 3.94 2.97 3.18 81,772 13,399 Week ended: 28 March 2008 3.24 3.02 3.19 60,662 10,072 4 April 2008 3.23 3.05 3.21 55,485 13,074 11 April 2008 3.38 3.15 3.19 63,593 12,988 18 April 2008 3.47 3.02 3.33 77,463 15,809

Source: IRESS

The following graph illustrates share price movements and trading volumes for Oxiana’s ordinary shares since January 2004.

Oxiana Share Price & Trading VolumeJanuary 2004 to 18 April 2008

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Oxiana’s share price strengthened substantially during early 2006, reaching $3.82 on 12 May 2006. This share price outperformance appeared to be in large part a reflection of the strength of the copper and zinc markets and increases in zinc and copper production. The Oxiana share price reached a record high of $4.32 in November 2007, but had fallen to an intra day low of $2.75 on 31 January 2008, prior to the announcement of the Merger, reflecting declining zinc prices, Australian dollar strength and overall share market weakness. In the three months prior to the announcement of the proposed Merger the volume weighted average price (VWAP) for Oxiana shares was $3.48. Since the announcement on 3 March 2008 to 22 April 2008, Oxiana’s VWAP has been $3.30. The large trading volumes in November 2005 were due to the sale by Newmont Capital Pty Ltd of 81.5 million Oxiana shares, which had been issued to Newmont as part consideration for the Golden Grove acquisition.

The chart below shows the relative performance of Oxiana shares against the ASX All Ordinaries Index. The chart shows the strong correlation between Oxiana’s share price and the spot price of copper.

Comparative Performance

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Oxiana All Ords Index Copper

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Source: Bloomberg

6 Profile of Oxiana Assets

6.1 Overview

Oxiana’s Ore Reserves and Mineral Resources as at 30 June 2007, as published in February 2008, are summarised below:

Oxiana Resources and Reserves as at 30 June 2007

Gold Silver Copper Zinc Lead Nickel Cobalt (Moz) (Moz) (Mt) (Mt) (Mt) (Mt) (Mt)

Resources Sepon Gold 3.4 12.5 - - - - - Sepon Copper 0.4 26.1 1.6 - - - - Golden Grove 0.8 38.9 0.6 1.2 0.1 - - Prominent Hill 3.7 15.8 1.9 - - - - Martabe 5.9 60.0 - - - - - Wiluna Nickel Laterite - - - - - 0.6 0.05 Total Resources 14.3 153.2 4.0 1.2 0.1 0.6 0.05 Ore Reserves Sepon Gold 0.20 0.35 - - - - - Sepon Copper - - 0.79 - - - - Golden Grove 0.30 14.62 0.19 0.61 0.07 - - Prominent Hill 1.29 7.06 0.88 - - - - Martabe 2.26 30.14 - - - - - Total Ore Reserves 4.05 52.17 1.86 0.61 0.07 - -

Source: Oxiana Notes: 1. Significant figures do not imply precision. Figures are rounded according to JORC Code Guidelines. 2. Includes 100% of all resources and resources include reserves. Resources at 30 June 2007 increased significantly relative to resources at 30 June 2006 as a result of further exploration and resource drilling across Oxiana’s operations and projects and the acquisition of the Martabe project. Total gold resources increased by 98%, silver resources by 59% and copper resources by 7%. In addition to the acquisition of Martabe, successful exploration at Prominent Hill was a major contributor to the increase in resources. Prominent Hill gold and copper resources increased by 44% (1.14 million ounces of gold) and 25% (371,000 tonnes contained copper) respectively.

6.2 Sepon

The Sepon copper and gold operations are located 40 kilometres north of Sepon in south-central Laos, within an overall project area of 1,247 square kilometres. Oxiana acquired 80% of the Sepon project from Rio Tinto in 2000. Gold was first produced in December 2002 and in early 2004 Oxiana acquired the remaining 20% interest in Sepon. The first production of copper occurred in early 2005. The Government of Laos exercised its right to purchase 10% of Oxiana’s Lao operating company, LXML, on 30 June 2007. The location of Sepon in Laos is illustrated below.

Source: Oxiana

The location of the major ore bodies that support Sepon’s current and future gold and copper operations is depicted on the map below.

Source: Oxiana 6.2.1 Sepon Gold

Exploration by CRA Ltd (now Rio Tinto Limited) between 1993 and 1999 resulted in the delineation of approximately three million ounces of gold resources in various deposits at Sepon. Following further exploration and development, and Oxiana’s acquisition of the project, production commenced in December 2002 and since then the Sepon Gold operation has produced almost 800,000 ounces of gold. The project mines and treats oxide gold ore and continues to have exploration success which has extended the mine life beyond 2009. There are significant, although moderate grade, sulphide gold resources beneath or adjacent to many of the oxide pits. Development of these sulphide resources is under review given their grade, refractory nature and the need to delineate additional mineralisation to justify the capital cost of improvements to the gold process plant. However, subject to exploration success, there is the potential for a development of these sulphide resources and a material extension to the life of the Sepon Gold operations.

Geology and Mineralisation The currently defined gold deposits at Sepon are Discovery, Discovery West-Colluvial, Nalou, Nam Kok West, Nam Kok East, Vang Ngang and Luang. Gold mineralisation is localised in structural and stratigraphic fluid traps. Mineralisation is finely disseminated and closely associated with decalcification and variable silica replacement of calcareous rocks along structures and at lithological contacts. Geometry of the gold ore is controlled by anticlinal structures and shallow dipping stratigraphy, structure and porphyry sills.

Mining and Processing The Sepon Gold operation is a conventional open pit oxide ore operation. Ore is mined by a contractor from a number of open pits and is treated in a conventional carbon-in-leach processing plant. The plant was originally built with a capacity of 1.25 Mtpa and in 2005 this was expanded to 2.5 Mtpa.

Resources and Reserves Sepon Gold resources and reserves as at 30 June 2007, as published in February 2008, are set out in the table below:

Sepon Gold Resources and Reserves as at 30 June 2007

Tonnes

(Mt) Gold (g/t)

Silver (g/t)

Resources Measured 14.7 1.83 5.9 Indicated 25.3 2.10 7.4 Inferred 20.2 1.26 5.6

Reserves Proved deposit 1.00 1.25 1.38 Proved stockpile 0.87 1.46 4.8 Probable 2.04 1.76 2.56 Source: Oxiana Notes: 1. Significant figures do not imply precision. Figures are rounded according to JORC Code Guidelines. 2. Includes 100% of all resources and resources include reserves.

Expansion and Exploration There are a number of exploration activities in areas immediately adjacent to the existing gold operations at Sepon with a focus on both oxide and primary gold. Successful exploration at the Dankoy and Houay Yeng deposits has seen additions to the Sepon resource inventory. Primary gold resources exist below the oxide resources. However, these resources would require a different treatment process than the process used to treat the oxide ore. Additional primary gold mineralisation will need to be delineated to justify the capital cost of the changes to the gold process plant that would be required to treat the primary ore.

Operating Performance Sepon Gold’s operating performance for the last four years is summarised below:

Sepon Gold Operating Statistics – 100% basis

Year ending 31 December

2004 2005 2006 2007

Resources (‘000 oz) 4,791.0 3,883.0 3,798.0 3,393.0 Reserves (‘000 oz) 1,234.0 404.0 267.0 197.0 Ore mined (‘000 t) 2,485.7 3,078.0 2,880.3 1,509.7 Ore milled (‘000 t) 1,379.4 2,659.9 2,909.2 2,160.6

Average head grade (g/t gold) 3.01 2.77 2.25 1.79

Production (‘000 oz gold) 141.2 200.4 173.5 102.4 Total cash costs (US$/oz) 189 260 330 445 Gold sold (‘000 oz) 137.0 198.7 179.8 104.3 Average gold price received (US$/oz) 403 446 598 699

Source: Oxiana

In 2005 Oxiana completed the expansion of the Sepon gold operation which doubled the capacity of the gold processing plant to 2.5 Mtpa, in part through the installation of additional primary and pebble crushers and a new mill operating in parallel to the existing

mill. As a result, notwithstanding declining head grades, gold production increased over 40% relative to the prior year. Cash costs increased in 2005 as a result of declining grades, higher prices for fuel, fuel based consumables and parts for plant and equipment. Ore milled increased in 2006, however, due to a further decline in the head grade, gold production was down slightly on the prior year. Cash costs increased in line with diminishing head grades. Sepon Gold production declined further in 2007 due to continuing falls in head grade and lower ore availability. Cash costs continued to increase in 2007 as a result of the declining head grade and higher operating costs, including increases in the price of diesel used in mining equipment, power costs, and costs of consumables such as vehicle tyres and reagents used in processing. Based on current oxide gold reserves, gold production at Sepon is likely to finish in 2010 unless successful exploration defines additional oxide gold mineralisation or the primary gold resources are developed.

6.2.2 Sepon Copper

Feasibility studies into the development of the Sepon copper project began in 2002 and construction commenced in 2003. The copper project was developed following the gold project as it was more complex and capital intensive. Ore was first fed into the plant in February 2005 and the first copper cathodes were produced in mid March 2005. Sepon Copper was originally developed on the basis of the Khanong ore body, which is the main deposit currently being mined. High quality copper cathode is produced on site, and sold principally into Asian countries in close proximity to Laos, including Thailand, Vietnam, Malaysia and China. Given the quality of Sepon’s copper product, proximity to customers and reliability of supply, Oxiana typically earns a premium over the London Metals Exchange (“LME”) copper price. Further exploration has resulted in the discovery of copper resources in the Thengkham North, Thengkham South and Phabing deposits, approximately seven kilometres west of the current plant. These resources, along with additional resource potential in and around the Khanong orebody, have justified a planned expansion in Sepon Copper’s capacity from the current 60,000 tpa to 80,000 tpa by 2010. Geology and Mineralisation The Khanong copper deposit is a near surface, high grade, supergene chalcocite and oxide copper body derived from the weathering of a replacement style massive sulphide deposit developed in shallow dipping, highly sheared carbonate rocks. Copper mineralisation covers a variety of primary and secondary styles. Along the contacts of the intrusive stocks, copper-gold skarns are developed, while outbound of the skarn front lower temperature silica-sulphide replacement of carbonate rocks is common. Weathering and mobilisation of the primary mineralisation give rise to a number of secondary ore types.

Mining and Processing The Khanong deposit is mined by conventional open pit truck and shovel mining methods, with mining conducted by a contractor. The Sepon copper operation is a whole of ore, atmospheric leach, solvent extraction-electro winning copper processing plant, producing cathode equivalent to LME Grade A. Plant design allows for the production of 60,000 tpa of copper cathode. Current throughput of the plant is 1.35 Mtpa and this is expected to increase to 2 Mtpa following the expansion. Lower-grade ore mined from the Thengkham deposits is expected to result in head-grade being reduced from 5.65% copper to 4.3% copper. Sepon, however, will remain one of the world’s highest grade copper mines as illustrated below.

Source: Oxiana

The ROM ore at Sepon is predominantly chalcocite, although a range of copper oxide and carbonate minerals are also present. Chalcocite and other copper minerals are leached through a two-step process to produce a copper rich liquor.

The process begins with the majority of the copper minerals extracted into solution through a sulphuric acid/ferric sulphate leach medium in a series of agitated tanks. The dissolved copper is then separated from the solid residue in a counter-current decantation thickener circuit, and the final liquor is treated in a solvent extraction circuit to extract the copper. The copper is then electrowon to produce copper cathodes.

Residues from the leaching process are processed by way of flotation to recover any remaining copper sulphide and pyrite. The sulphide concentrate is then subjected to pressure oxidation in an autoclave at elevated temperatures and pressures, which produces further copper in solution. The important by-product, acidified ferric sulphate, is used in the atmospheric leaching process.


Sepon Copper resources and reserves as at 30 June 2007, as published in February 2008, are illustrated in the table below:

Sepon Copper Resources and Reserves as at 30 June 2007

Tonnes

(Mt) Gold (g/t)

Silver (g/t)

Copper (%)

Resources Measured 21.4 0.20 19.2 3.00 Indicated 9.2 0.27 19.3 4.24 Inferred 36.9 0.19 7.2 1.5

Reserves Proved deposit 10.26 - - 4.48 Proved stockpile 2.34 2.47 Probable 4.54 - - 5.89 Source: Oxiana Notes: 1. Significant figures do not imply precision. Figures are rounded according to JORC Code Guidelines. 2. Includes 100% of all resources and resources include reserves.

Expansion and Exploration

In December 2007 Oxiana approved an expansion to the copper plant. The expansion is scheduled to be completed by 2010 and, at an estimated cost of US$178 million, will increase plant capacity to 80,000 tpa of copper cathode. The expansion will include the installation of a new larger primary crusher, an additional counter-current decantation (“CDD”) train, commensurate leaching capacity additions and new electrowinning cells. A number of debottlenecking and improvement projects will also be undertaken. Oxiana expects that overall life-of-mine cash operating costs will be reduced by around 10% as a result of the expansion.

Oxiana Board has approved the construction of a second power line and associated infrastructure to address the increased power demand from the expansion project, risk associated with the dependency on a single transmission line and to reduce line losses at increased demand. The capital cost is estimated to be US$30.6 million.

Copper resources at Sepon include the Khanong deposit and the Thengkham North and South deposits. Successful exploration in 2007 at the Pha Bing deposit has seen additions to the Sepon resource inventory. Approximately 20% of Oxiana’s near mine exploration budget in 2008 will be spent at Sepon, with the majority of that focused on copper exploration.

Operating Performance

Sepon Copper’s operating performance for the last four years is summarised below:

Sepon Copper Operating Statistics – 100% basis

Year ended 31 December

2004 2005 2006 2007

Resources (‘000 t) 1,575.0 1,955.0 1,675.0 1,587.0 Reserves (‘000 t) 812.0 801.0 766.0 786.0 Ore mined (‘000 t) - 907.8 2,320.1 1,942.0 Ore milled (‘000 t) - 643.8 1,230.6 1,225.0 Average head grade (copper) - 5.80% 5.56% 5.65% Production (‘000 t copper cathodes) - 30.5 60.8 62.5 Total cash costs (USc/lb copper) - 71 73 76 Copper cathodes sold (‘000 t) - 29.1 61.2 62.8

Source: Oxiana The first copper cathodes were produced by the Sepon copper plant on 14 March 2005. By the end of the year the plant had reached full design capacity and total production marginally exceeded design capacity in both 2006 and 2007.

Cash costs were up slightly in 2007 as a result of substantial increases in the cost of consumables, largely offset by improvement projects.

6.3 Golden Grove

Oxiana acquired Golden Grove for A$265 million in July 2005 from Newmont Mining. Golden Grove is located approximately 450 kilometres northeast of Perth and 280 kilometres east of Geraldton in Western Australia, as illustrated in the map below.

Source: Oxiana The assets acquired included Gossan Hill, a copper-zinc-lead-gold-silver underground mine, the Scuddles zinc-copper underground mine, a 1.3 Mtpa treatment plant and a surrounding tenement package covering 12,306 hectares. The mine produces zinc concentrate, copper concentrate and high precious metal concentrate (which contains gold, silver and lead). These concentrates are exported to smelters, including in China, Korea, Japan, India and Thailand, via the Port of Geraldton. A map of the Golden Grove operations is shown below.

Source: Oxiana Production at Golden Grove began with the mining of the Scuddles orebody in 1990. This was followed eight years later with the mining of ore from Gossan Hill. In July 2005 the Scuddles mine was put on care and maintenance. However, the mine was re-opened in mid-2007 and is currently supporting production on a limited scale. Geology and Mineralisation

The Scuddles and Gossan Hill volcanic hosted massive sulphide (“VHMS”) deposits are situated within the Warriedar Fold Belt which is part of the Yalgoo-Singleton greenstone belt in the southern Murchison Province of the Archean Yilgarn Block of Western Australia. The mineralisation is hosted within a thick package of predominantly felsic Archean volcanogenic sediments and volcanics.

VHMS deposits often occur in clusters. The distribution of ore bodies already discovered at Golden Grove, along with positive results from earlier drilling, suggests that there is strong potential for the delineation of further mineralisation at Golden Grove.

Mining and Processing

Underground mining at Golden Grove is by sublevel open stoping, with the majority of ore mined from the Amity and Catalpa ore bodies. Ore from Gossan Hill is trucked to the surface where it is crushed and delivered to the mill via a three kilometre overland conveyor. Zinc and copper ores are treated separately in batch process using the same process plant which consists of a two stage grinding circuit followed by sequential flotation to produce zinc, copper and high precious metal concentrates.


Golden Grove Resources and Reserves as at 30 June 2007, as published in February 2008, are set out in the table below:

Golden Grove Resources and Reserves as at 30 June 2007

Tonnes

(Mt) Zinc (%)

Copper (%)

Gold (g/t)

Silver (g/t)

Lead (%)

Resources Measured and Indicated Zinc 6.0 13.9 0.4 1.73 96.0 1.4 Copper 16.7 0.2 2.8 0.29 10.9 0.0 Gold 1.0 - - 3.10 94.0 - Inferred Zinc 3.4 10.7 0.3 1.19 87.4 1.3 Copper 2.6 0.3 2.4 0.49 17.6 0.1 Gold 0.1 - - 4.30 197.0 -

Reserves Proved Zinc 3.57 13.23 0.29 1.69 86.3 1.39 Copper 4.38 0.39 3.57 0.34 14.8 0.02 Probable Zinc 0.90 12.73 0.29 1.60 78.3 1.69 Copper 1.00 0.15 2.49 0.26 11.8 0.02

Source: Oxiana Notes: 1. Significant figures do not imply precision. Figures are rounded according to JORC Code Guidelines. 2. Includes 100% of all resources and resources include reserves.

Expansion and Exploration Current reserves support mining operations at current rates of production until around 2014. However, there is considerable potential to extend mining operations, both through mining underground resources and other mineralisation not currently in reserves, and through potential open pit mining of gold, copper and zinc ore. In addition, the immediate vicinity of current operations remains prospective for further discoveries. Drilling of the Xantho and Hougoumont prospects at depth in the Gossan Hill ore system, and the Batavia orebody and Cervantes prospect at depth below Scuddles, suggests that there is a high likelihood that underground mining will extend well beyond current reserves. Oxiana is also conducting studies of the feasibility of mining oxide gold, oxide copper and primary copper mineralisation from two separate open pits above the current Gossan Hill underground mine. Mining of the oxide copper pit could also potentially allow the subsequent recovery of ore-bearing pillar remnants from the top of the underground mining operation. An opportunity to increase the annual throughput of the Golden Grove operations to 2.0-2.5 Mt of ore has also been identified. The plan to increase production to 2.0 Mtpa has been tested using pre-crushing and one of the re-grind mills as a primary mill. Requirements for further expansion will depend on ongoing metallurgical test work and analysis. The locations of the various expansion opportunities are identified in the following long section of the Golden Grove ore bodies:

Source: Oxiana Operating Performance Golden Grove’s operating performance for the last three years is summarised below:

Golden Grove Operating Statistics

Year to 31 December

2004 2005¹ 2006 2007

Resources Zinc (‘000 t) - 903.0 1,300.0 1,196.0 Copper (‘000 t) - 289.0 587.0 565.0 Gold (‘000 oz) - 631.0 811.0 773.0 Silver (‘000 oz) - 29,000.0 41,300.0 38,856.0 Lead (‘000 t) - 126.0 412.0 130.0 Reserves Zinc (‘000 t) - 453.0 646.0 605.0 Copper (‘000 t) - 128.0 190.0 194.0 Gold (‘000 oz) - 238.0 329.0 298.0 Silver (‘000 oz) - 13,000.0 16,800.0 14,621.0 Lead (‘000 t) - 56.0 70.0 66.0 Zinc ore mined (‘000 t) - 569.7 993.6 1,042.5 Copper ore mined (‘000 t) 681.9 386.3 403.6 Average zinc head grade (%) - 12.6 15.1 14.0 Average copper head grade (%) 3.6 3.4 4.0 Zinc production (‘000 t) - 70.5 138.8 132.0 Copper production (‘000 t) - 21.8 10.8 15.4 Gold production (‘000 oz) - 25.3 50.2 48.8 Silver production (‘000 oz) - 2,174.6 3,064.3 3,165.4 Lead production (‘000 t) - 4.9 11.6 8.1 Total cash costs (USc/lb zinc)² - 29 43 30

Source: Oxiana Notes: 1. Oxiana’s ownership is from 1 July 2005. 2. Total cash costs are after treatment and refining costs, royalty costs and net of copper, zinc, gold and silver credits.

In 2006 Oxiana implemented a program to improve efficiency in various areas of the Golden Grove operations. This resulted in record rates of development, mining, milling and production of zinc concentrates. Performance also improved as the result of the mining of higher grade zinc ore from the Catalpa and Amity orebodies at Gossan Hill. Production of most metals in concentrate increased significantly in 2006, although copper production declined as the operation focussed on mining zinc-rich sections of the orebodies. The increase in cash costs in 2006 was principally due to increased treatment and refining charges and reduced by-product credits. During 2007, annualised rates of throughput reached an all time record of 1.65 Mtpa following modifications as part of a mill improvement program. Total cash costs declined, in part because of increased production of copper concentrates and a resultant increase in by-product credits, reduced treatment and refining charges and increases in realised metal prices.

6.4 Profile of Projects

6.4.1 Prominent Hill

Prominent Hill is located 650 kilometres north-west of Adelaide and 130 kilometres south-east of the town of Coober Pedy in the Gawler Craton of South Australia, as illustrated below.

Source: Oxiana

The Prominent Hill copper-gold deposit was discovered by Minotaur Resources Limited in 2001. Oxiana acquired an initial 35% interest in the project, subsequently increasing to

65%, by funding exploration and pre-feasibility and feasibility studies. Oxiana moved to 100% ownership of the project through its acquisition of Minotaur in 2005. On 25 August 2006, Oxiana’s Board formally approved development of the Prominent Hill mining operation following completion of a Bankable Feasibility Study. The project involves the development of an open pit mine, a conventional grinding and flotation processing plant with eight million tonnes per annum capacity, a permanent village to accommodate approximately 400 workers and construction of a haulage road, power line and water bore field. Production of the first commercial copper and gold concentrates is expected in the fourth quarter of 2008. The concentrates will be trucked to Wirrida on the Adelaide – Darwin railway and then railed to Darwin for export to Asian smelters. The project has access to South Australia’s road, rail, port and power infrastructure. During the fourth quarter of 2007, Oxiana reviewed the progress on the Prominent Hill project and reported an increase of approximately 30% in the expected capital cost of the project to A$1,080 million. This increase is the result of a combination of:

scope changes to ensure more robust and improved process plant and infrastructure;

current construction market conditions;

increased materials, labour and equipment costs; and

growth in site costs to accommodate a compressed construction schedule.

Thiess Pty Ltd has been engaged as the overburden removal and mining contractor and Fluor Corporation is the engineering procurement and construction management contractor. Mining of the ore body and stockpiling of ore is now underway. Oxiana expects the processing plant to be completed in the third quarter of 2008 and production to begin shortly thereafter. Mining and Processing

Mining of the Prominent Hill orebody is by conventional open pit mining methods. Removal of the substantial over-burden (approximately 100 metres in depth) is almost complete. Based on the current mine design, the final pit will be approximately 1,500 metres long and 1,200 metres wide, with an ultimate depth of 480 metres. Geotechnical analysis supports overall pit wall design angles of around 40%. The plant will produce a single copper-gold concentrate, grading around 45% copper, through a conventional crush/grind/flotation treatment process. Mining from the Prominent Hill open pit as currently designed is expected to support operations for around ten years. However there is potential to extend the life of the operation through mining ore from underground, extending the pit to the east and/or exploiting mineralisation to the west of the pit. In 2009, the first full year of production, Oxiana expects output to be approximately 117,000 tonnes of copper, 86,000 ounces of gold and 390,000 ounces of silver contained in copper concentrates.


Prominent Hill Resources and Reserves as at 30 June 2007, as published in February 2008, are set out in the table below:

Prominent Hill Resources and Reserves as at 30 June 2007

Tonnes

(Mt) Gold (g/t)

Silver (g/t)

Copper (%)

Resources Measured Copper 42.9 0.52 4.06 1.69 Gold 0.0 0.62 2.36 - Indicated Copper 46.4 0.41 2.59 1.14 Gold 16.8 1.29 1.27 - Inferred Copper 63.5 0.50 2.40 0.94 Gold 21.4 0.97 1.09 - Reserves Proved 35.70 0.50 4.0 1.67 Probable 33.10 0.67 2.3 0.87 Source: Oxiana Notes: 1. Significant figures do not imply precision. Figures are rounded according to JORC Code Guidelines. 2. Includes 100% of all resources and resources include reserves.

Expansion and Exploration Scoping studies are underway to explore the potential to use underground mining methods to mine resources immediately adjacent to and below the open pit. In addition, there is potential to mine a larger zone of mineralisation at depth below the pit using bulk underground mining methods, although ore continuity and economic feasibility are still to be demonstrated. Feasibility studies on the potential underground mining of resources immediately adjacent to and below the open pit will be undertaken in 2008 with a view to commencing development in 2009, for an underground mine to deliver approximately 1-2 Mtpa. Recent drilling has identified mineralisation to the east of the current pit outline, and the west of the pit has returned intercepts suggesting broad zones of modest grade mineralisation. Future exploration drilling will be aimed at developing a better understanding of this potential. The diagram below illustrates the ultimate pit outline as per the current pit design and the location of potential sources of ore to extend mining operations. Approximately A$26 million is expected to be spent on resource development and near mine exploration at Prominent Hill in 2008.

Source: Oxiana

6.4.2 Martabe

Oxiana acquired the Martabe project through the acquisition of Agincourt in early 2007. Martabe is located on the west coast of North Sumatra, Indonesia. The Contract of Works with the Indonesian government covers 1,648 square kilometres and is located close to existing infrastructure and facilities. Grid power and water is available and the port of Sibolga is 50 kilometres away. Local government and community interests in North Sumatra have been offered a 5% interest in Martabe.

Source: Oxiana

The Oxiana Board approved the development of the Martabe gold and silver project in December 2007. In April 2008, Oxiana received final approvals from the Government of Indonesia, allowing construction of the Martabe project to commence. The capital cost of the project is estimated by Oxiana at US$310 million (including contingency and escalation allowances of US$48 million). Mining and Processing The Martabe Definitive Feasibility Study was based on mining only the Purnama deposit, which is a silica rich high sulphidation epithermal deposit. The operation has an initially identified mine life of nine years with expected annual production of 200,000 ounces of gold and 2,000,000 ounces of silver, at average total cash costs of production estimated at US$270 per ounce (including royalties, refining charges and after silver credit). Mining of the deposit will be through open pit methods. The processing plant will treat 4.5 Mtpa using conventional carbon-in-leach technology. Due to the level of pyrite associated gold, recoveries are estimated by Oxiana to average a relatively modest 76% for gold and 55% for silver.

Subject to the receipt of the necessary approvals, it is expected that construction of the process plant will commence in July 2008 with completion and commissioning scheduled for December 2009. Resources and Reserves Martabe’s Resources and Reserves as at 30 June 2007, as published in February 2008, are set out in the table below:

Martabe Resources and Reserves as at 30 June 2007

Tonnes

(Mt) Gold (g/t)

Silver (g/t)

Resources Indicated Gold 48.8 1.8 - Silver 48.8 - 24 Inferred Gold 89.5 1.1 - Silver 79.1 - 9 Reserves Proved - - - Probable 37.70 1.90 24.9 Source: Oxiana Notes: 2. Significant figures do not imply precision. Figures are rounded according to JORC Code Guidelines. 3. Includes 100% of all resources and resources include reserves. Expansion and Exploration Although the current mine life is around nine years, there is good reason to expect that it will be extended, potentially through mining additional material in the Purnama deposit, mining ore from the Baskara and Pelangi resources, both in close proximity to Purnama, or from new mineralisation still to be delineated. In addition, a large resource (of around three million ounces) of primary gold ore below the bottom of the current planned Purnama pit is not included in the current mine plan due to elevated levels of silica and lower grades, although it is possible that a suitable treatment route for processing this ore will be developed in due course.

6.5 Profile of Exploration activities

6.5.1 Overview

Oxiana is pursuing both brownfield and greenfield exploration opportunities. Brownfield exploration activities are focused on discovering new resources in close proximity to existing mines and have been discussed above in the description of the individual assets. Oxiana is engaged in numerous greenfield exploration projects in a number of countries across Asia-Pacific and in Australia. The operations are conducted through wholly owned subsidiaries and joint ventures and alliances with junior partners. Oxiana’s exploration and evaluation expenditure for the 2007 financial year was A$37.7 million, up from A$20.8 million in 2006. The total exploration budget for 2008 is A$49.8 million. The graphs below illustrate the split of regional exploration expenditure for 2008 by commodity and country.

2008 Regional Exploration Budget by Commodity

Gold26%

Zinc17%

Other6%

Nickel4%

Copper47%

2008 Regional Exploration Budget by Country

Laos Regional1%

Other Asia5%

Thailand6%

China7%

Cambodia7%

Global7%

Indonesia13% Sepon

22%

Australia32%

Source: Oxiana 6.5.2 Australia

Prominent Hill Oxiana is exploring regionally in the Mt Woods Inlier for additional copper-gold deposits similar to Prominent Hill. Approximately A$6.3 million is being spent on this program in 2008. Mt Gibson Joint Venture with Legend Mining Limited In May 2007 Oxiana signed a joint venture agreement with Legend Mining Limited over the Mt Gibson zinc-copper-gold project. Mt Gibson is located 150 kilometres south of Golden Grove. Oxiana may earn a 75% interest by funding $10 million of exploration within seven years. A detailed geological review has been completed and drilling is due to commence shortly. Wiluna Oxiana holds the Wiluna tenements from the acquisition of Agincourt. Options for the potential development of the 81 Mt nickel laterite deposit are still being considered. Work is also continuing to assess the entire Wiluna tenement package for nickel, gold and iron.

6.5.3 Indonesia

Oxiana has established an exploration office in Jakarta and is currently exploring throughout the geological belts of the Indonesian Archipelago for copper and copper-gold opportunities. Oxiana has already identified two highly promising porphyry copper-gold systems and is in the process of applying for tenements over these areas.

6.5.4 Laos

Oxiana continues to assess opportunities for a variety of commodities and has submitted two applications for copper exploration in Southern Laos.

6.5.5 Thailand

Thai Goldfields Joint Venture Projects Oxiana holds a 75% interest (Thai Goldfields 25%) in a group of five tenements adjacent to and nearby the Chatree Gold Mine in Central Thailand. While exploration has delineated some promising mineralised epithermal veins, the scale of mineralisation is not considered sufficiently large to justify a stand alone operation and divestment is underway. Oxiana has two additional projects in joint venture with Thai Goldfields, namely the Lampang base metals project and the Palitipan gold project. Both projects comprise a suite of tenement applications.

Regional Thailand Elsewhere in Thailand, applications have been submitted covering several blocks of tenements prospective for iron ore.

6.5.6 China

Since commencing exploration in China in 2004, Oxiana has established an exploration office in Kunming, Yunnan Province, where it is pursuing a number of exploration and development partnerships with various Chinese private companies and government entities, focussed on the Yunnan and Sichuan Provinces.

6.5.7 Cambodia

Shin Ha Joint Venture Oxiana began exploration in Cambodia in 2006 and has an exploration office in Phnom Penh. Oxiana has a 80:20 joint venture with Shin Ha Company Limited at the Okvau project in eastern Cambodia, for which a promising trend of gold mineralisation has been identified. In addition to the Okvau project, further exploration is being carried out 100 kilometres west of Okvau at Phnom Chi and another area prospective for copper.

6.6 Other Assets

As at 31 March 2008 Oxiana held the following investments in listed companies:

Oxiana Investments as at 31 March 2008 Company Business No. of Shares %

Toro Energy Limited Uranium exploration in Australia and Namibia 227,518,860 46.00

Royalco Resources Limited Royalties and exploration in the Philippines 10,000,000 17.70

Beadell Resources Limited Gold Exploration in Australia 12,800,000 13.68

EMED Mining Public Limited Exploration in Southern and Eastern Europe 17,419,000 11.80

Minotaur Exploration Ltd Exploration in SA and Qld 7,000,000 10.70 Ausquest Limited Nickel exploration in WA 5,405,106 3.67

Apex Minerals NL Gold exploration and development in WA 9,536,526 3.01

Source: Oxiana

7 Profile of the Merged Group

7.1 Overview

The Merger will create a major Australian diversified mining company. Based on market capitalisation, it will be the fifth largest listed mining company in Australia and in the top 25 companies listed on the ASX.

S&P / ASX 200 - Mining Companies

0 10 20

150

175

200

225

250

BHP Billi

ton

Rio Tinto

Fortescue M

etals

Newcrest

MergeCo

Alumina Ltd

Lihir Gold

Oxiana

Zinifex

Aquaris Platin

um

Mar

ket C

apita

lisat

ion

(A$m

)

Source: IRESS

Based on the current shareholder registers of Zinifex and Oxiana, the register of the Merged Group will be open. The Merged Group will be the second largest zinc producer by mine production as well as a significant producer of copper, with expected annual production of approximately 200,000 tonnes of copper following commissioning of Oxiana’s Prominent Hill project. The Merged Group will have a portfolio of assets dominated by three large operations: Century, Sepon and Prominent Hill. Output from these operations will be supplemented by production from Golden Grove and Rosebery and, in the medium term, from projects currently under development including Avebury and Martabe. In the longer term the Merged Group will have a pipeline of projects including Dugald River, High Lake and Izok Lake, as well as expansion opportunities at Prominent Hill and Sepon. The Merged Group will have a broader geographic exposure than Zinifex on a standalone basis, with assets located not only in Australia and Canada, but also in Laos and Indonesia. The Merged Group will have an extensive exploration portfolio that includes activities in Australia, Canada, Sweden, Tunisia, China, Laos, Thailand, Indonesia and Cambodia.

Set out below is an overview of the Merged Group’s operational, development and exploration portfolio:

Operations Projects under development Project pipeline

Australia Australia Australia 1. Century (zinc/lead) 6. Prominent Hill (copper/gold) 9. Dugald River (zinc/lead/silver)

2. Golden Grove (zinc/copper/gold/silver/lead) Indonesia Canada 3. Rosebery (zinc/lead/copper/gold/silver)

Avebury (nickel) 7. Martabe (gold/silver) 10. High Lake (zinc/copper)

Laos Laos 11. Izok Lake (zinc/copper)

4. Sepon Copper (copper) 8. Sepon Copper expansion (copper) Laos 5. Sepon Gold (gold) 12. Sepon Gold primary (gold) Source:Zinifex and Oxiana

7.2 Resources, Reserves and Production

The Merged Group’s pro forma production for the year ended 31 December 2007 is set out below.

Merged Group – Pro-forma Production

Oxiana Zinifex Combined Metal Production Production Production

Zinc (Kt) 132.0 611.0 743.0

Copper (Kt) 77.9 1.7 79.6

Lead (Kt) 8.1 65.3 73.4

Gold (Moz) 151.2 31.8 183.0 Silver (Moz) 3,310.0 6,951.2 10,261.2 Nickel (Kt) - - - Cobalt (Kt) - - -

Source: Zinifex and Oxiana

The above table does not include any production from Prominent Hill or Avebury which are expected to commence production later in 2008. Oxiana expects to produce approximately 117,000 tonnes of copper at Prominent Hill in 2009. When in full production, Avebury is expected to produce approximately 8,500 tonnes of nickel per annum. The Merged Group pro forma Reserves and Resources are set out below:

Merged Group – Reserves and Resources

Oxiana Zinifex Combined Metal Reserves Resources Reserves Resources Reserves Resources

Zinc (Kt) 606.0 1,196.2 5,629.0 16,611.4 6,235.0 17,807.6 Copper (Kt) 1862.7 4,002.6 15.3 813.1 1,878.0 4,815.7 Lead (Kt) 66.0 130.8 630.4 2,468.3 696.4 2,599.1 Gold (Moz) 4.1 14.3 0.2 1.7 4.3 16.0 Silver (Moz) 52.1 153.2 51.3 254.6 103.4 407.8 Nickel (Kt) - 620.0 56.1 172.0 56.1 792.0 Cobalt (Kt) - 47.0 - - - 47.0 Source: Zinifex and Oxiana

7.3 Pro Forma Financial Information

The Merged Group pro forma statement of financial performance for the year ended 31 December 2007 is set out below.

Merged Entity – Pro forma Financial Performance (A$ millions) Year ended 31 December 2007

Zinifex Pro forma

Oxiana Actual

Merged Group Pro forma

Revenue 1,575.4 1,097.4 2,672.8 EBITDA 945.8 595.1 1,540.9 Depreciation and amortisation (256.1) (101.2) (357.3) EBIT 689.7 493.9 1,183.6 Net interest income/(cost) 34.5 (18.1) 16.4 Income tax expense (199.0) (151.3) (350.3) Net profit after tax from continuing operations 525.2 324.5 849.7

Source: Zinifex and Oxiana

The pro forma balance sheet for the Merged Group as at 31 December 2007 is summarised below:

Merged Group – Pro forma Financial Position ($ millions) 31 December 2007

Zinifex

Pro forma Oxiana Actual

Merged Group Pro forma

Trade and other receivables 190.2 113.3 303.5 Inventories 121.9 88.1 295.8 Trade and other payables (177.1) (141.2) (293.8)

Net working capital 135.0 60.2 305.5 Property, plant and equipment 1,969.1 1,739.7 4,235.4 Intangible assets 698.8 46.8 898.1 Provisions (146.7) (72.6) (219.3) Net other assets/(liabilities) (80.7) (34.1) 229.5

Total funds employed 2,575.5 1,740.0 5,449.2 Cash and cash equivalents 1,373.7 246.1 1,576.8 Borrowings (140.2) (420.8) (561.0) Net cash / (borrowings) 1,233.5 (174.7) 1,015.8 Net assets 3,809.0 1,565.3 6,465.0 Outside equity interests - 42.3 42.3 Equity attributable to shareholders of the Merged Group

3,809.0 1,523.0 6,422.7

Source: Zinifex

Details of the assumptions used in preparing the pro forma financial information are set out in section 8.8 of the Scheme Booklet.

8 Valuation Approach

8.1 Valuation Methodology

Grant Samuel’s valuation of Zinifex and Oxiana has been assessed by aggregating the estimated market values of each company’s mineral and other assets and adjusting for net cash or net debt. The valuation of each of the company’s mineral assets has been made on the basis of fair market value defined as the maximum price that could be realised in an open market over a reasonable period of time given current market conditions and currently available information, assuming that potential buyers have full information. Other assets have been valued on the basis of the net realisable value of those assets. There are four primary methodologies commonly used for valuing operating businesses:

capitalisation of earnings or cash flow,

discounting projected cash flows,

industry rules of thumb, and

estimation of the aggregate proceeds from an orderly realisation of assets. Each of these valuation methodologies has application in different circumstances. The primary factor in determining which methodology is appropriate is the actual practice adopted by purchasers of the type of businesses and assets involved. Grant Samuel’s primary approach to the valuation of the mineral assets of Zinifex and Oxiana has involved the application of the discounted cash flow (“DCF”) methodology and (for gold assets) the gold futures methodology. The discounted cash flow methodology involves the calculation of net present values by discounting expected future cash flows. Projected cash flows are discounted to a present value using discount rates that take into account the time value of money and risks associated with the cash flows. The discounted cash flows methodology is particularly appropriate for assets such as mineral assets where reserves are depleted over time and where significant capital expenditure is required. It is the primary method of valuation in the mining industry. The gold futures methodology is a variation of the discounted cash flow methodology. It involves the valuation of future gold production by reference to the gold futures market. The present value of future gold production is estimated by discounting at discount rates that reflect the time value of money only. In addition, Grant Samuel has considered the option value inherent in mining operations, having regard to the cost structure, mine life and other characteristics of each of the mining operations of both Zinifex and Oxiana. Grant Samuel developed cash flow models for each of the key mineral assets of Zinifex and Oxiana. The financial models were developed by Grant Samuel on the basis of operating models developed by AMC based on life of mine plans provided by Zinifex and Oxiana. AMC reviewed each of the technical assumptions in the operating models, including those regarding reserve estimates, production profiles, operating costs, capital costs and the potential for reserve extensions. Grant Samuel determined the economic and financial assumptions used in the cash flow models. The balance sheets for Zinifex and Oxiana at 31 December 2007 have been taken as the starting point for both company’s valuations and cash flow models. Non trading assets and liabilities at that date have been recorded as adjustments to the valuation of each company’s mineral projects. The net present value of each mineral asset has been calculated on an ungeared after tax basis as at 1 January 2008. Alternative valuation methodologies have been considered as secondary evidence of value as to the value of both Zinifex’s and Oxiana’s key mineral assets. In particular, the estimates of value have been reviewed in terms of earnings multiples, reserve and resource multiples, production multiples, comparable company analysis and comparable transaction analysis. These alternative approaches to valuation are useful in determining the reasonableness of a discounted cash flow valuation since the discounted cash flow valuation is typically sensitive to the assumptions adopted.

The valuations of the assets of both Zinifex and Oxiana represent Grant Samuel’s overall judgements as to value. They do not rely on any one particular scenario or set of economic assumptions. The valuations have been determined having regard to the sensitivity of DCF analysis to a range of technical and economic assumptions. They incorporate Grant Samuel’s judgemental assessment of the impact on value of factors such as location (and therefore exposure to sovereign risk), development status and optionality to the extent not reflected in the DCF analysis. Where appropriate, the valuations take into account direct market based evidence as to the value of broadly comparable projects. The valuation of both Zinifex and Oxiana represents Grant Samuel’s assessment of the full underlying value of each of the companies. It does not represent Grant Samuel’s view of the likely share market value of either of the companies. Shares in listed companies typically trade at a discount to full underlying value. The valuations are based on a number of important assumptions, including assumptions regarding future metal prices and the A$:US$ exchange rate. The valuations reflect the technical judgements of AMC regarding the prospects for each of the operations of Zinifex and Oxiana. Metal prices, exchange rates and expectations regarding future operating parameters can change significantly over short periods of time. Such changes can have significant impacts on underlying value. Accordingly, while the values estimated are believed to be appropriate for the purpose of assessing the Merger, they may not be appropriate for other purposes or in the context of changed economic circumstances or different operational prospects for the mining assets of Zinifex and Oxiana.

8.2 Valuation Assumptions

The valuations of the key mineral assets of both Zinifex and Oxiana have been determined by reference to discounted cash flow valuation analysis. This analysis involves making a number of general assumptions regarding future commodity prices, economic factors and discount rates. The NPV valuations for each of the mineral assets are sensitive to the assumptions used in the analysis. Relatively small changes in certain variables can cause significant changes in value. For this reason NPV valuations should be treated with caution. Key assumptions include:

spot gold prices in the range of US$900-920 per ounce, based on gold prices prevailing around 22 April 2008. For the purpose of the gold futures methodology, gold production is valued by reference to gold futures prices, estimated by escalating the current spot price at the risk free rate;

long run real zinc prices in the range US$1.00-1.20 per pound;

long run real copper prices in the range US$2.50-3.25 per pound;

long run real lead prices of US$0.80 per pound and real silver prices of US$14 per ounce;

an exchange rate of A$1.00=US$0.92 declining in line with forward market estimates;

inflation rates of 2.85% per annum;

discount rates for the discounted cash flow valuations in the range 8.0-9.0% for non-gold assets. The discount rates represent estimates of the costs of capital for non-gold producers, derived both in world markets and in the Australian market. The rates are estimates of weighted average costs of capital and have been applied to expected future ungeared after-tax US$ cash flows. The basis for the selection of the rates is set out in Appendix 1;

tax depreciation schedules determined on the basis of tax written down values for various asset categories. Accumulated carry forward expenditures that are deductible for tax

purposes have been allowed for in the financial models. The potential impact of push down values has also been considered where appropriate.

Grant Samuel has assumed long term zinc prices in the range US$1.00-1.20 per pound for valuation purposes. The zinc price assumption compared to historical zinc prices in US$ terms is shown below:

US$ Zinc PricesApril 1998 - March 2008

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2.20

Apr-98

Oct-98

Apr-99

Oct-99

Apr-00

Oct-00

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

$US/

bs

Zinc (US$/lb) GS Low (US$/lb) GS High (US$/lb)

Source: Bloomberg The zinc price assumption compared to historical zinc prices in A$ terms is shown below:

A$ Zinc PricesApril 1998 - March 2008

0.000.200.400.600.801.001.201.401.601.802.002.202.402.602.80

Apr-98

Oct-98

Apr-99

Oct-99

Apr-00

Oct-00

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

$A/lb

s

Zinc (A$/lb) GS Low (A$/lb) GS High (A$/lb)

Source: Bloomberg

Grant Samuel has assumed long term copper prices in the range US$2.50-3.25 per pound for valuation purposes. The copper price assumption compared to historical copper prices in US$ terms is shown below:

US$ Copper PricesApril 1998 - March 2008

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Apr-98

Oct-98

Apr-99

Oct-99

Apr-00

Oct-00

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

US$

/lb

Copper (US$/lb) GS Low (US$/lb) GS High (US$/lb)

Source: Bloomberg The copper price assumption compared to historical copper prices in A$ terms is shown below:

A$ Copper PricesApril 1998 - March 2008

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

Apr-98

Oct-98

Apr-99

Oct-99

Apr-00

Oct-00

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

A$/

lbs

Copper (A$) GS Low (A$/lb) GS High (A$/lb)

Source: Bloomberg

After trading for many years within a reasonably stable range of prices (in the case of zinc, approximately US$0.40-0.60/lb and in the case of copper, approximately US$0.70-0.90/lb), zinc and copper commenced substantial strengthening in late 2004/early 2005 and late 2003 respectively. Since that time there has been little consensus regarding future zinc and copper prices, both for the short and the longer term. Industry analysts have consistently forecast a decline in commodity prices, although their expectations of long run prices have generally been progressively revised upwards as commodity prices have continued at much stronger levels than expected. Most industry analysts and commentators continue to forecast significant falls in long run zinc and copper prices (although a growing number are now adopting more positive views on long term prices, supported by the views of producers). However, it appears that industry participants (both investors and corporate participants) have for some time had significantly more optimistic views on future zinc and copper prices than those of most industry analysts. Resources company values (both in terms of share market trading and in the context of change of control transactions) have been much higher than can be justified by most industry analysts’ commodity price forecasts. The assumptions regarding long run zinc and copper prices adopted for the purposes of the valuation of Zinifex and Oxiana are significantly higher than the long term price forecasts of many industry analysts. However, in Grant Samuel’s view, they are broadly consistent with the range of assumptions implicit in the pricing decisions of resources sector investors and corporate participants (who for some years have paid prices much higher than those supportable by analysts’ commodity price forecasts). The zinc and copper price assumptions adopted for the valuation reflect a view that in the long run zinc and copper prices will continue to be supported by a number of factors, including:

continued strong growth in demand for zinc and copper as a result of strong economic growth in China, India and other developing nations;

substantially higher capital and operating costs than those that applied in previous years; and

continued depletion of existing resources and an increasing need to source new production from ore bodies that are of lower grade, higher cost and in more remote locations.

Given the volatility in commodity markets, the current elevated levels of zinc and copper prices relative to historical long run prices, and the widely varying views of industry analysts, commentators and corporate participants, assumptions regarding future zinc and copper prices are inherently subject to considerable uncertainty. It should be noted that the value of Zinifex and Oxiana could vary, perhaps significantly, with significant changes in commodity prices and price expectations. The assumptions in relation to long run zinc and copper prices adopted by Grant Samuel do not represent forecasts by Grant Samuel but are intended to reflect the range of assumptions that could reasonably be adopted by industry participants in their pricing of resources assets and companies.

8.3 Valuation of Gold Assets Grant Samuel’s preferred approach to valuing gold assets is through the application of the gold futures methodology. The gold futures methodology involves the valuation of future gold production by reference to the gold futures market. The present value of future gold production is estimated by discounting at discount rates that reflect the time value of money only (ie risk free rates). Similarly, future extraction costs (both capital and operating) are discounted to a present value using discount rates approximating risk free rates. The use of risk free rates is consistent with a view that there is limited systematic riskiness associated with variability in production profiles or extraction costs. Any systematic riskiness associated with the gold price is effectively reflected in the market-based gold futures prices used to value future gold production. Further information on the Gold Futures Methodology is set out in Appendix 3.

While the gold futures methodology is Grant Samuel’s preferred approach to valuing gold projects, many valuations of gold assets use discount rates and gold price assumptions different to those adopted by Grant Samuel. North American analysts sometimes use a zero discount rate when valuing gold assets. Accordingly, for illustrative purposes, Grant Samuel has calculated net present values for the gold assets of Oxiana on the basis of constant real gold prices in the range of US$900-920 per ounce and a real discount rate of 0%. Many Australian analysts employ conventional DCF analysis in their assessment of gold companies (although gold companies and gold projects are then commonly valued at some multiple of estimated NPV, which in Grant Samuel’s view fundamentally undermines the reliability and utility of the DCF analysis). If discount rates are estimated using the Capital Asset Pricing Model (“CAPM”) on the assumption that costs of capital for gold companies are set in international capital markets, then evidence suggests that betas for gold assets are close to zero. This would imply that discount rates should be around the risk free rate. If discount rates are estimated on the basis that costs of capital are set in (for example) the Australian market place, then much higher beta estimates are supportable. Accordingly, Grant Samuel has also set out, for illustrative purposes only, the results of DCF analysis using discount rates of 5% and 10%, which reflect rates that could be adopted depending on assumptions as to whether discount rates for gold assets are set in international or Australian capital markets.

8.4 Resources Projects and Optionality

The conventional discounted cash flow methodology (and the gold futures methodology) both implicitly assume that the rate of output from a mining operation is pre-determined. These methodologies ignore the value inherent in management’s ability to vary production and other operating parameters in reaction to changes in commodity prices or other circumstances. Management may change the rate of production of a mine, close or re-open the mine or in certain circumstances even abandon it. Accordingly, a mine may be regarded as an option (or series of options) over the resources it contains. The value of management flexibility is illustrated by the example of a marginal mine, where the marginal cash production cost is equal to expected revenue. Application of the conventional discounted cash flow methodology would result in the estimate of a zero value for the mine. In reality, however, the mine will have some value, because management is able to reduce or cease production if marginal revenue falls below the marginal cash cost of production and to resume or increase production if commodity prices rise. Similarly, the designs and long term development alternatives for many mines allow management to change operating plans in the light of future commodity prices and operating costs. Life of mine plans frequently involve mining marginal ore, making additional cut backs or making other operational decisions at some point in the future. However, management is commonly not required to commit to such decisions at the commencement of the mining project. Firm commitments are only required much later in the project, at which time management will be able to make decisions on the basis of the commodity prices and other circumstances then prevailing. The mining operations as they relate to (for example) the mining of marginal ore or a final cut back may be thought of as a series of call options exercisable at the marginal mining costs to be incurred at the time. These options represent additional value not captured by the conventional discounted cash flow methodology or the gold futures methodology. An alternative perspective is that management flexibility results in changes in commodity prices having an asymmetric impact on the value of a mining operation. If commodity prices rise unexpectedly, the mine will earn greater revenue (and may be able to mine additional mineralization not originally scheduled for production). If commodity prices fall unexpectedly, production will be curtailed or, in the worst case, stopped. The mine will not continue, in the long term, to be operated at a cash operating loss. By contrast, deterministic valuation models implicitly assume that there is some possibility of the mine operating on a long term basis at a cash operating loss, in the same way

that it implicitly assumes that the mine may earn “super profits” as a result of a persistent increase in commodity prices. Grant Samuel is aware of valuation methodologies which attempt to incorporate the option value associated with management flexibility, using a combination of conventional discounted cash flow analysis and option theory. However, the application of these methodologies is impractical in the context of the complex and unpredictable nature of mining operations. In making judgments on value, Grant Samuel has given general consideration as to the characteristics of the various mining operations and the value of management flexibility or underlying option value implicit in those characteristics. In particular, Grant Samuel has considered the extent to which:

operations are marginal or incorporate significant resources, not currently planned for mining, of marginal economics (ie. the operations represent or incorporate options “close to the money”); and

length of mine life or other characteristics give management flexibility over the conduct of mining operations.

The valuation of each project includes a subjective assessment of the real option value inherent in the project.

9 Valuation of Zinifex

9.1 Summary Grant Samuel has valued Zinifex in the range A$6,193 – 6,939 million. The valuation represents the full underlying value of Zinifex. The value exceeds the price at which, based on current market conditions, Grant Samuel would expect Zinifex shares to trade on the ASX in the normal course of trading. Zinifex has been valued by estimating the market value of its assets and adjusting for net debt and the capitalized value of corporate overheads. The valuation is summarised below:

Zinifex – Valuation Summary Section Valuation (US$ million) Valuation (A$ million) Reference Low High Low High

Century 9.2 2,600 2,900 2,826 3,152 Rosebery 9.3 500 600 543 652 Dugald River 9.4 500 600 543 652 Nunavut 9.5 330 360 359 391 Shareholding in Allegiance 9.6 850 950 Shareholding in Nyrstar 9.7 170 180 Exploration 9.7 10 20 Corporate Costs 9.7 (150) (100)

Enterprise Value 5,151 5,897 Adjusted net cash at 31 December 2007 9.7 1,042 1,042

Equity Value 6,193 6,939

The valuation of Zinifex’s assets was based on discounted cash flow analysis and, where appropriate, analysis of comparable projects and companies. Valuation scenarios were developed for Zinifex’s major assets. The production rates and operating and capital costs assumed in each scenario were reviewed in detail by independent technical specialists, AMC. The discounted cash flow models project cash flows from 1 January 2008 onwards. AMC valued Zinifex’s exploration interests. Zinifex achieved record earnings for the year to 30 June 2007 and its share price reached an all time high of $21.60 in July 2007. Since then, however, the zinc price has fallen substantially. Zinifex’s share price fell to as low as $8.03 in January 2008 before recovering to current levels around $10.00. Zinifex’s share price volatility highlights the extent to which its earnings are leveraged to the zinc price. Similarly, estimates of value for its operating assets are highly sensitive to relatively small changes in expectations of future zinc prices. A wide range of values could reasonably be estimated and valuations in this context are inevitably subjective.

9.2 Century

Grant Samuel has valued Century in the range US$2,600-2,900 million, which equates to A$2,826-3,152 million at an exchange rate of A$1.00 = US$0.92. The valuation is based on a detailed financial model for Century, incorporating production, capital and operating costs projections developed by AMC using information provided by Zinifex. The model assumes that, while there may be opportunities to mine small high grade deposits outside the current Century deposit, these will not have a material impact on project life. Accordingly, mining operations will effectively be limited to current reserves and will continue to 2015. Total ore production over the life of the project (from 1 July 2007) is expected to be approximately 44.8 million tonnes at average grades of 12.2% zinc and 1.2% lead, for life of mine production of 4.4 million tonnes of zinc and 326,800 tonnes of lead in concentrate. Cash costs are

projected to decline progressively as the mine stripping ratio decreases. Zinc concentrate treatment charges are projected to fall from recent levels and, depending on assumed zinc prices, to average around US$250-280 per tonne of payable zinc. Rehabilitation costs at the end of the life of mine are estimated at approximately $67 million. The following table summarises projected production and costs for the Century operation:

Century Mine – Model Parameters

2008 2009 2010 2011 2012

Total Life of Mine

Ore milled (Mt) 5.6 5.6 5.6 5.6 5.6 44.8 Zinc milled grade (%) 10.8 13.0 12.1 12.3 12.0 12.2 Zinc production (000’s tonnes) 511 589 549 557 543 4,391 Lead milled grade (%) 1.1 1.2 1.0 1.1 1.2 1.2 Lead production (000’s tonnes) 40 41 36 39 41 327 Total cash costs (US¢ / lb zinc) 78 64 60 47 45 52 Capital expenditure (US$ million) 88 42 5 8 17 158

Commodity price and exchange rate assumptions are set out in section 8.2. The results of the NPV analysis are set out below:

Century – NPV Analysis (US$ million)

Zinc Price Scenario Low Mid High

Discount Rate Zinc US$1.00 Zinc US$1.10 Zinc US$1.20

8.0% 2,228 2,632 3,036 8.5% 2,187 2,584 2,981 9.0% 2,146 2,537 2,927

Grant Samuel’s valuation of Century in the range US$2,600-2,900 million reflects the NPV analysis summarised above and takes into account the following factors: Century’s status as one of the world’s largest zinc mines and its low sovereign risk location;

AMC’s view that prospectivity in the immediate vicinity of Century is modest and that it is

reasonable to assume that the project life will not be extended materially beyond 2015; and

the tax benefits potentially available to an acquirer of Century. These benefits relate in part to the potential opportunity for an acquirer of Century to reset asset values for tax purposes to current replacement costs. In addition, there are tax losses of around $800 million within the Zinifex subsidiary that owns Century. These losses would potentially be available to an acquirer of Zinifex. Taking these two tax benefits into account increases calculated NPVs by the order of A$400 million. While these benefits could be available to a number of hypothetical acquirers of Century, they are not available to Zinifex on a standalone basis. In Grant Samuel’s view it is not appropriate to include these benefits in full in the valuation of Century.

9.3 Rosebery

Grant Samuel has valued Rosebery in the range US$500–600 million, which equates to A$543-652 million at an exchange rate of A$1.00 = US$0.92.

Detailed financial models were developed to analyse the mining operations, based on two valuation cases incorporating production, capital and operating cost projections developed by AMC using information provided by Zinifex. Case 1 includes reported reserves and additional ore not currently included in reserves. AMC assumes that 50% of inferred resource tonnes will be recovered. As a result, total contained zinc mined over the life of the project exceeds current reserves by approximately 68%. Over the life of the project, a total of 7.7 million tonnes of ore grading an average of 10.9% zinc and 2.6% lead is treated, to produce 765,330 tonnes of zinc and 163,800 tonnes of lead in concentrate. Capital costs of $135 million are incurred between 2008-2010 in relation to mine infrastructure and operation, concentrator capacity and renewal options and new tailings dam. Cash costs of production increase in 2009 relative to 2008, reflecting the higher costs associated with increased milling. Operations continue until 2017, following which closure costs of $46 million are incurred. Case 2 builds on Case 1 and includes an additional 4.2 million tonnes of ore mined and brought into production at average grades and cost. This additional ore extends the mine life by five years and reflects AMC’s judgement that it is reasonable to expect that additional ore will be sourced from mineralisation not currently included in the resource model. Over the life of the project, a total of 11.9 million tonnes of ore grading an average of 11.0% zinc and 2.6% lead is treated, to produce 1.2 million tonnes of zinc and 250,000 tonnes of lead in concentrate. Operations continue until 2022, following which closure costs of $46 million are incurred. The following table summarises projected production and costs for the two scenarios:

Rosebery –Model Parameters

2008 2009 2010 2011 2012

Total Life of Mine

Case 1 Ore milled (Kt) 780 872 854 850 850 7,697 Zinc milled grade (%) 11.8 11.3 9.3 11.0 11.0 10.9 Zinc production (000’s tonnes) 84 90 72 85 85 765 Lead milled grade (%) 3.2 2.9 2.6 2.5 2.5 2.6 Lead production (000’s tonnes) 20 21 18 17 17 164 Total cash costs (US¢ / lb of zine) 19 30 36 35 34 34 Capital expenditure (US$ million) 54 46 36 36 36 250

Case 2 Ore milled (000’s tonnes) 780 872 854 850 850 11,947 Zinc milled grade (%) 11.8 11.3 9.3 11.0 11.0 11.0 Zinc production (000’s tonnes) 84 90 72 85 85 1,191 Lead milled grade (%) 3.2 2.9 2.6 2.5 2.5 2.6 Lead production (000’s tonnes) 20 21 18 17 17 250 Total cash costs (US¢ / lb) 19 30 36 35 34 33 Capital expenditure (US$ million) 54 46 36 39 39 322

Commodity price and exchange rate assumptions are set out in section 8.2. The following table summarises the results of the NPV analysis for the two cases:

Rosebery – NPV Analysis (US$ million) Zinc Price Scenario

Low Mid High Discount Rate (%)

Zinc US$1.00 Zinc US$1.10 Zinc US$1.20 Case 1 8.00 344 408 471

8.50 337 399 462 9.00 330 391 452

Case 2 8.00 488 581 673 8.50 473 563 653 9.00 458 546 633

Grant Samuel’s valuation of Rosebery in the range US$500-600 million reflects a judgement that there are reasonable prospects that the mine life will be extended as contemplated in Case 2.

9.4 Dugald River

Grant Samuel has valued Zinifex’s Dugald River project in the range US$500-600 million, which equates to A$543-652 million at an exchange rate of A$1.00 = US$0.92. A feasibility study for the development of the Dugald River project is currently underway. In the interim, DCF analysis of the project is limited to preliminary information based on the pre-feasibility study for the project that was completed in December 2006. Very high net present values can be estimated for the project based on the pre-feasibility study estimates. However, these values are not necessarily meaningful evidence as to value, given the significant increases in capital and operating costs in recent times, the inevitable imprecision in pre-feasibility study estimates and the uncertainties left unresolved by the pre-feasibility study. Some guidance as to value is provided by an assessment of the share market values of listed companies with significant undeveloped zinc projects. Terramin Australia Ltd (“Terramin”) and Herald Resources Ltd (“Herald”) both have significant undeveloped zinc operations.

Zinc Companies Statistics – Selected Listed Companies Enterprise Resource Reserve Value A$ million Zinc ‘000 t Zinc ‘000 t

Dugald River 543 652

5,800

Terramin 351 2,068 190 Herald 505 1,640 749

Terramin has an enterprise value of approximately A$310 million. Terramin’s main asset is the 65% owned Oued Amizour Project in Algeria, which contains the Tala Hamza zinc deposit, one of the largest undeveloped zinc deposits in the world. A scoping study for the project has recently been completed. It suggests that Tala Hamza could support a 2.0 Mpta mining operation producing approximately 94,000 tonnes of payable zinc per annum at cash costs of US$0.43/lb of zinc. A pre-feasibility study is to commence immediately. Terramin also owns the Angas zinc mine in South Australia, which is expected to commence production during 2008, and has a 24% interest in the Menninnie Dam joint venture with Zinifex. Herald has an enterprise value of approximately A$500 million. Its primary asset is its 80% interest in the Dairi zinc/lead project in Indonesia, which is expected to begin production in 2010. Herald is the subject of competing takeover offers from Calipso Investment Pte. Ltd and Tango Mining Pte. Ltd, and its current share price accordingly reflects full underlying values rather than trading values. The Dairi zinc/lead project is expected to mine and treat approximately 1Mtpa of ore for annual production of around 115,000 tonnes of zinc metal in concentrate, at estimated cash

costs of US$0.45-0.62/lb of zinc. Project capital costs are estimated at $133 million and current planning is for a mine life of seven years. Valuation of Dugald River is essentially judgemental, given its development status. A feasibility study for the project has not yet been completed and, assuming a positive development decision, Dugald River is not expected to enter production before 2011. However, given Zinifex’s current understanding of the Dugald River orebody and the issues associated with its development, there would appear to be good prospects that the project will proceed (subject to future zinc prices). Dugald River would be a significant project in an environment in which few new major zinc projects are expected to come on stream. Moreover, by comparison with many other potential new zinc projects (including those of Terramin and Herald), Dugald River’s Australian location is highly attractive from a sovereign risk perspective. Having regard to these factors and the market values of the comparable companies set out above (which in the case of Terramin reflect share market values rather than full underlying value), Grant Samuel believes that its valuation of Dugald River in the range US$500-600 million is reasonable.

9.5 Nunavut

Grant Samuel has valued Zinifex’s Nunavut interests in the range US$330-360 million, which equates to A$359-391 million at an exchange rate of A$1.00 = US$0.92. Zinifex acquired its Nunavut interests through the acquisition in June 2007 of Wolfden Resources, a Canadian-based listed company, for approximately $388 million (C$345 million). The major assets acquired (the Izok Lake and High Lake projects) are polymetallic deposits with the potential to support significant operations producing, principally, zinc and copper. However, major issues are still to be resolved, including in relation to the infrastructure required to transport concentrates (potentially through a port to be constructed on Coronation Gulf). Zinifex recently commenced a pre-feasibility study on the potential development of Izok Lake. There are no current, robust estimates of likely future capital and operating costs available on which to base a meaningful DCF analysis of the Nunavut properties. In these circumstances, in Grant Samuel’s view, the best evidence as to value is the price paid by Zinifex for Wolfden. Grant Samuel’s valuation of the Nunavut interests in the range US$330-360 million reflects, at the top end of the range, the price paid by Zinifex for Wolfden and, at the bottom end of the range, the significant decline in zinc prices since May 2007.

9.6 Allegiance Mining

Grant Samuel has valued Zinifex’s shareholding in Allegiance in the range $850-950 million. On 17 December 2007, Zinifex announced its intention to make takeover offer for all the ordinary shares in Allegiance. On 25 February 2008 Zinifex announced an increase in the offer to $1.10 cash per share, valuing Allegiance at approximately $888 million. The increased offer was recommended by the Allegiance board of directors. As at 5 May 2008, Zinifex had received acceptances for 97% of Allegiance’s ordinary shares under the takeover offer and can now move to compulsorily acquire the remaining 3% ordinary shares outstanding. As of early April 2008 Zinifex’s takeover offer for Allegiance remained open. Given the timing of the offer, neither Grant Samuel nor AMC was able to undertake a detailed review of Allegiance’s major asset, the Avebury nickel mine. In these circumstances, the best evidence as to the value of Zinifex’s shareholding in Avebury is the price paid by Zinifex under the takeover offer. Grant Samuel is not aware of any evidence that suggests that the takeover terms did not reflect an arms length price. The value of 100% of Allegiance implied by the takeover offer price is around $888 million. Grant Samuel’s valuation of Allegiance reflects an assumption that the price paid by Zinifex fell approximately at the mid-point of a range of underlying values of $850-950 million for Allegiance.

9.7 Other

Grant Samuel’s valuation also takes into account the following:

AMC has valued Zinifex’s regional exploration interests in the range $10-20 million;

Zinifex holds 7.79 million Nyrstar shares, which it retained after the Nyrstar IPO. Based on recent Nyrstar share prices, Grant Samuel has attributed a value of $170-180 million to this shareholding;

Zinifex’s net cash for valuation purposes is summarised in the following table:

Zinifex – Adjusted Net Cash A$ million

Cash and cash equivalents at 31 December 2007 2,228.0 Debt at 31 December 2007 (118.1) Dividend payable (170.4)

Payments relating to Allegiance takeover offer (897.8)

Adjusted Net Cash 1,041.7

The payment of dividends assumes a 100% cash payout at a dividend rate of 35¢ per share. The cash payment of $898 million relating to the Allegiance takeover offer assumes 100% takeover of Allegiance shares for which Zinifex has received acceptances of 97% as at 5 May 2008 under the takeover and can now move to compulsorily acquire the remaining 3%, together with transaction costs; and

Zinifex incurs corporate costs that have not been incorporated in the cash flow models for the mining assets. These include costs associated with maintaining offices, the executive management team, finance and corporate administration, exploration administration and other overhead costs. It is likely that a significant proportion of these costs could be eliminated by a corporate acquirer. Costs associated with being a public listed company would also be eliminated by any acquirer of Zinifex. An allowance of $100-150 million has been made in the valuation for the capitalised value of the residual overhead costs and one off costs to achieve the savings.

10 Valuation of Oxiana 10.1 Summary

Grant Samuel has valued Oxiana in the range A$5,944 – 6,726 million. The valuation represents the full underlying value of Oxiana. The value exceeds the price at which, based on current market conditions, Grant Samuel would expect Oxiana shares to trade on the ASX in the normal course of trading. Oxiana has been valued by estimating the market value of its assets and adjusting for net debt, senior subordinated convertible notes, unlisted options and the capitalized value of corporate overheads. The valuation is summarised below:

Oxiana – Valuation Summary Section Valuation (US$ million) Valuation (A$ million) Reference Low High Low High

Sepon (90%) 10.2 2,200 2,400 2,391 2,609 Golden Grove 10.3 600 700 652 761 Prominent Hill 10.4 2,600 2,800 2,826 3,043 Martabe 10.5 650 750 707 815 Other 10.6.1-2 130 175 Corporate costs 10.6.3 (150) (100)

Enterprise Value 6,556 7,303 Adjusted net debt at 31 December 2007 10.6.4 (197) (197) Senior subordinated convertible notes 10.6.5 (370) (340) Unlisted options 10.6.6 (45) (40) Equity Value 5,944 6,726

The valuation of Oxiana’s assets was based on discounted cash flow analysis and, where appropriate, analysis of comparable projects and companies. Two different valuation scenarios were developed for each asset. The production rates and operating and capital costs assumed in each scenario were reviewed in detail by independent technical specialists, AMC. The discounted cash flow models project cash flows from 1 January 2008 onwards. AMC valued Oxiana’s exploration interests. The AMC valuation is summarised below and is set out in detail in AMC’s report in Appendix 4. The valuation reflects a positive view on copper prices, which have been at historically high levels for much longer than anticipated by almost all market analysts and commentators. It reflects a judgement that Oxiana’s Prominent Hill and Sepon copper assets would be attractive to a range of potential acquirers in these circumstances.

10.2 Sepon

Grant Samuel has valued a 100% interest in the Sepon operations in the range US$2,400–2,650 million. This implies a value for Oxiana’s 90% interest in Sepon of US$2,200-2,400 million, which equates to A$2,391-2,609 million at an exchange rate of A$1.00 = US$0.92. The valuation of Sepon is an overall judgement on value. It takes into account the value of Sepon Copper, which contributes most of the value of Sepon, and the value of the existing Sepon Gold operation. In addition, the valuation incorporates the value of resources not currently scheduled for mining and the value of exploration upside. The valuation reflects Grant Samuel’s judgemental assessment of the impact on value of sovereign risk associated with Sepon’s location in Laos and the optionality inherent in Oxiana’s position as the operator of major gold and copper processing plants in a minerals rich province.

The Sepon Copper operation contributes the majority of the value of Sepon. Grant Samuel prepared detailed financial models for the Sepon Copper operations. These models were based on two valuation cases, which incorporate production, capital and operating cost projections developed by AMC using information provided by Oxiana. Case 1 assumes the mining of both reported reserves and additional mining inventory not currently in reserves. As a result, total contained copper mined and processed exceeds current reserves by 17%. A total of 22.2 million tonnes of ore at an average copper grade of 4.2% is milled over the life of the project. It is assumed that, following the completion in 2010 of the expansion to the copper operations, the plant is able to produce 78,000 tonnes of copper per annum. Operations continue to 2019, with closure costs of US$20 million in that year. Case 2 assumes that an additional 4.7 million tonnes of ore is mined and treated at average grades and cost. This additional ore extends the mine life by two years and reflects AMC’s view that there is a reasonable prospect that ore not currently included in the resource model will be identified, mined and processed. As a result, Case 2 assumes the milling and treatment of a total of 26.8 million tonnes at an average copper grade of 4.2% over the life of the project. It is assumed that, following expansion of the copper operations, further debottlenecking results in an increase in production capacity to 81,000 tonnes of copper per annum, which is achieved in 2012. The following table summarises projected production and costs for the two scenarios:

Sepon Copper – Model Parameters

2008 2009 2010 2011 2012

Total Life of Mine

Case 1 Ore milled (000’s tonnes) 1,350 1,700 2,000 2,000 2,000 22,155 Copper milled grade (%) 5.1 4.6 4.2 4.2 4.2 4.2 Copper production (000’s tonnes) 63 71 78 78 78 846 Total cash costs (US¢ / lb cu)¹ 89 90 90 93 96 92 Capital expenditure (US$ million) 106.0 125.6 7.0 7.6 33.3 336.0

Case 2 Ore milled (000’s tonnes) 1,350 1,700 2,000 2,052 2,077 26,841 Copper milled grade (%) 5.1 4.6 4.2 4.2 4.2 4.2 Copper production (000’s tonnes) 63 71 78 80 81 1,029 Total cash costs (US¢ / lb cu)¹ 89 90 86 90 95 92 Capital expenditure (US$ million) 106.0 125.6 7.0 8.6 33.3 351.1

Note: assumes 100% interest. Notes: 1. After royalties and copper premium is taken as a credit. The NPV analysis takes into account the written down tax value of assets as at 31 December 2007. Commodity prices and exchange rate assumptions are set out in Section 8.2. The following table summarises the results of the NPV analysis for the two cases:

Sepon Copper – NPV Analysis (US$ million) Copper Price Scenario

Discount Rate

Copper US$2.50

Copper US$2.75

Copper US$3.00

Copper US$3.25

Case 1 8.0% 1,579 1,742 1,904 2,067 8.5% 1,545 1,703 1,860 2,018 9.0% 1,511 1,665 1,818 1,971

Case 2 8.0% 1,833 2,032 2,230 2,427 8.5% 1,786 1,979 2,170 2,361 9.0% 1,741 1,928 2,113 2,297

Note: assumes 100% interest. The table above illustrates the sensitivity of the calculated values to a range of valuation assumptions. Based on current reserves and oxide resources, the Sepon Gold operations have a limited remaining life. Grant Samuel has assessed the value of the current operations on the basis of two valuation scenarios prepared by AMC. The scenarios assume the treatment of 5.3-6.6 million tonnes of ore grading 1.63g/t (representing 141%-176% of current reserves), for total gold production of around 215,000-270,000 ounces at average cash costs of approximately US$650-660/ounce. DCF analysis at gold prices of US$900-920 per ounce suggests net present values in the approximate range US$25-40 million. In addition to the above, Grant Samuel has taken the following into account in its assessment of the value of Sepon: there is no definitive plan for the mining and processing of the primary gold resource at

Sepon, which totals 35 million tonnes at 2.0 g/t for 2.2 million contained ounces of gold at 0.5 g/t gold cut off. The mineralisation is refractory and cannot be treated through the current carbon-in-leach processing plant at Sepon. Additional plant, employing some alternative treatment process (for example, pressure oxidation) will be required to treat the sulphide resources. The current resources are of relatively low grade and, based on the current known resource base, the economics of developing the primary resource base appear marginal. However, the discovery of additional primary mineralisation has the potential to allow the development of a significant primary gold operation. AMC has suggested that the current primary gold resource could be valued on the basis of $/ounce values in the range A$8-12/ounce, suggesting a value for the primary gold resource of A$18-26 million;

while to date only limited primary copper mineralisation has been identified, Oxiana believes

that there may be potential for the development of a primary copper operation, treating primary ore by floatation to produce a copper concentrate. AMC has suggested that the current primary copper resource could be valued on the basis of $/tonne values in the range A$30-45/tonne, suggesting a value for the primary copper of A$5.7-8.5 million;

AMC has valued Oxiana’s exploration interests in the broader Sepon project area in the range

A$15-25 million;

because Sepon is located in Laos, there are sovereign risk issues not associated with mines in first world jurisdictions such as Australia. In Grant Samuel’s view, however, these sovereign risk issues have only a limited impact on the value of Sepon. In general, mining companies appear to be increasingly willing to develop or acquire projects in locations that would traditionally have been viewed as high risk (and which appear significantly riskier than Laos). In the case of Sepon, Oxiana has been producing from the Sepon Gold operation since 2002 and from the Sepon Copper operation since March 2005. The permitting approvals process and the determination of arrangements between mine operator and government (which are parts of the resources project development process during which projects can be particularly vulnerable to the incidence of sovereign risk) are long since completed. Oxiana believes that

it enjoys a well-established and productive relationship with the Laos government, under a 50 year agreement that sets out the rights and obligations of both parties. The experience of Pan Australian Resources Limited (“Pan”) in Laos, where Pan has successfully developed the Phu Bia gold project and is expected shortly to commence production from the significant Phu Kham copper-gold project, also suggests that Laos is a relatively benign environment from a sovereign risk perspective;

Oxiana’s position as the operator of a significant treatment facility within the minerals rich

Sepon area provides a set of valuable real options, the value of which is not captured in terms of traditional DCF analysis. Similarly, Oxiana’s position and experience in Laos generally is not capable of easy duplication and provides a further source of potential value.

Based on the DCF analyses for Sepon Copper and Sepon Gold, and having regard to the matters set out above, Grant Samuel has attributed an overall value of US$2,400-2,650 million to a 100% interest in Sepon. The market value of Pan provides useful evidence as to the value of Sepon. Pan’s major asset is the Phu Kham copper-gold project. The Phu Kham project will mine a primary copper orebody by open pit methods and produce (by way of floatation) a copper-gold concentrate that will be trucked to ports in Thailand and then shipped to smelter customers in Asia. As at 31 December 2007, Pan expected to incur approximately A$50 million of further start up capital expenditure prior to the commencement of production. In addition Pan is expected to incur A$45 million for expansion of the operations. Production is expected to start in the near future, for initial production of around 60,000 tonnes per annum of copper in concentrate, with a planned expansion from 2010 to around 75,000 tonnes per annum in concentrates. Pan’s other assets are the Phu Bia gold project, which has mined and treated by heap leach the low grade gold cap over the Phu Kham deposit, the promising Ban Houayxai gold project, also in Laos and the Puthep copper project in Thailand.

Copper Companies Statistics – Selected Listed Companies

Resource Reserve Production

Cash Operating

Costs

Enterprise Value

A$ billion Copper ‘000 t

Copper‘000 t

Copper ‘000 t US¢/lb cu¹

Sepon Copper – Low 2.6 74

- High 2.9 1,587 786

63-78 63-81 74

Pan Australian Resources Limited² 2.0 1,481 918 60-75 91 Notes: 1. After gold and silver credits and copper premium (where applicable) which may be based on different gold and

silver prices. Cash operating costs are assumed for 2009. 2. Assumes only Pan Australian’s interest in Reserves and Resources. While Pan will produce copper concentrate by contrast to Sepon’s production of copper cathode, the location of both mines in Laos suggests that the market value of Pan provides useful evidence as to the value of Sepon. Pan’s current enterprise value based on share market trading values is approximately A$2.0 billion (including net debt and outstanding capital commitments). This suggests that on a full underlying value basis (which typically would be at a premium of, say, around 25-40% to share trading values) Pan could have an enterprise value of around A$2.5-2.8 billion or US$2.3-2.6 billion. By comparison with Pan, although Pan has slightly greater reserves, Sepon has greater resources, is currently in production, has higher expected production rates both immediately and in the longer term, and (based on publicly available information) lower cash costs of production. Accordingly, in Grant Samuel’s view, the market value of Pan provides general support for Grant Samuel’s valuation of 100% of Sepon in the range US$2,400-2,650 million.

10.3 Golden Grove

Grant Samuel has valued the Golden Grove operations in the range US$600–700 million, which equates to a value of A$652-761 million using an exchange rate of A$1.00 = US$0.92. Detailed financial models were developed to analyse the mining operations, based on two valuation cases incorporating production, capital and operating cost projections developed by AMC using information provided by Oxiana. Case 1 is primarily based on reported reserves for Scuddles and Gossan Hill with some mining of inferred resources at Xantho and Batavia. Total ore milled over the life of the project is approximately 10.4 million tonnes at grades of 12.2% zinc and 3.2% copper. Case 1 includes A$14 million of expenditure in 2008 in relation to studies for potential open pit developments at Golden Grove and associated drilling programs, although no open pit production is assumed. However, this expenditure will be required to assess the viability of the proposed open pit developments. Case 1 assumes that operations cease in 2015 and A$29 million of closure and rehabilitation costs are incurred in 2014-2015. Case 2 is based on Case 1. In addition, it assumes further underground production from Xantho Extended and Cervantes, as well as the mining of gold and copper oxide mineralisation from the proposed Gossan Hill open pits. Total ore milled over the life of the project is around 20.2 million tonnes at average grades of 12.6% zinc and 3.2% copper. Gold ore is assumed to be toll treated at a nearby plant to produce gold dore. The increase in total cash costs per pound of zinc from 2010 is the result of increased costs associated with the treatment of oxide ore. Zinc production falls away from 2012 and copper production increases substantially from 2013, such that measuring cash costs per pound of zinc becomes less meaningful. Total capital costs over the life of the project are close to double those for Case 1, reflecting the additional underground development required as well as capital expenditures associated with the open pit developments. The life of operations is assumed to extend to 2019, with A$24 million of closure costs incurred in 2018-2019. This amount is slightly less than for Case 1, reflecting an assumption that waste from the open pits will be available for rehabilitation/capping. The following table summarises projected production and costs for the two scenarios:

Golden Grove – Model Parameters

2008 2009 2010 2011 2012

Total Life of Mine

Case 1 Ore milled (‘000 tonnes) 1,750 1,801 1,870 1,798 1,328 10,405 Zinc milled grade (%) 15.8 12.6 11.1 12.2 10.8 12.2 Zinc concentrate grade (%) 54.0 53.0 53.0 53.0 53.0 53.2 Copper milled grade (%) 3.3 2.9 3.0 3.0 3.1 3.2 Copper concentrate grade (%) 23.0 23.0 22.0 22.0 22.0 22.3 Contained metal in concentrates Zinc (000’s tonnes) 139 115 89 117 71 570 Copper (‘000 tonnes) 24 21 27 20 17 157 Lead (‘000 tonnes) 12 12 11 13 9 62 Gold (‘000 ounces) 51 38 30 44 23 209 Silver (‘000 ounces) 3,198 2,580 2,191 2,630 1,752 13,664 Total cash costs (US¢ / lb zn)¹ 12 9 2 24 29 7 Capital expenditure (A$ million) 169.3 31.1 24.1 10.1 1.4 265.7

Case 2 Ore milled (‘000 tonnes) 1,754 1,823 2,003 1,998 1,989 20,154 Zinc milled grade (%) 15.4 12.8 10.9 12.1 11.3 12.6 Zinc concentrate grade (%) 53.6 53.1 52.7 52.9 52.8 53.0 Copper milled grade (%) 3.4 3.0 3.0 3.0 3.1 3.2 Copper concentrate grade (%) 22.7 22.1 22.1 22.1 22.3 22.9 Contained metal in concentrates Zinc (‘000 tonnes) 140 107 83 116 84 846 Copper (‘000 tonnes) 23 24 30 24 29 359 Lead (‘000 tonnes) 12 8 7 9 7 71 Gold (‘000 ounces) 53 27 21 32 20 367 Silver (‘000 ounces) 3,282 1,897 1,555 2,041 1,532 21,966 Total cash costs (US¢ / lb zn)¹ 14 18 31 40 35 4 Capital expenditure (A$ million) 167.3 85.3 76.6 69.9 44.2 509.3

Notes: 1. Costs are per lb of zinc produced and are after treatment and refining costs and royalties. Gold, silver, copper and

lead are taken as credits. The NPV analysis takes into account the written down tax value of assets as at 31 December 2007 and does not include the potential opportunity for an acquirer of Golden Grove to reset asset values for tax purposes to current replacement costs. Commodity prices and exchange rate assumptions are set out in Section 8.2. The following table summarises the results of the NPV analysis for the two cases:

Golden Grove – NPV Analysis (US$ million) Zinc and Copper Price Scenario

Discount Rate Zinc US$1.00 Copper US$2.50

Zinc US$1.10Copper US$2.75

Zinc US$1.20 Copper US$3.00

Zinc US$1.20 Copper US$3.25

Case 1 8.0% 429 476 523 547 8.5% 423 469 515 538 9.0% 417 462 507 530

Case 2 8.0% 594 677 759 828 8.5% 578 658 737 804 9.0% 561 639 716 781

Grant Samuel’s valuation range of US$600-700 million is based on the NPV analysis summarised above and reflects a judgement that it is likely that Golden Grove will ultimately produce more ore than is assumed in Case 1. The valuation takes into account AMC’s valuation of the regional exploration in the area.

10.4 Prominent Hill

Grant Samuel has valued the Prominent Hill operation in the range US$2,600–2,800 million, which equates to a value of A$2,826-3,043 million using an exchange rate of A$1.00 = US$0.92. The valuation of Prominent Hill takes into account DCF analysis of the mining operation. However, it also recognises that there is potentially significant value not reflected in the DCF analysis. There are substantial resources at Prominent Hill not captured within current planned mining operations, because they are uneconomic or only marginally economic at copper prices used for planning purposes. However, if current copper prices approaching US$4.00/lb were to persist, significant additional resources may ultimately become available for mining. In addition, there is considerable exploration prospectivity, both immediately adjacent to the planned open pit and in the broader tenement holding. While this prospectivity has been recognised in part in the upside case analysed in the DCF analysis, the DCF analysis cannot capture the complex and potentially very valuable real options embedded in the mining operation. Grant Samuel has not attempted to precisely identify and individually value any of these numerous real options. However, Grant Samuel’s valuation of Prominent Hill incorporates a judgemental assessment of the option value inherent in the mining operation but not captured in the DCF analysis, having regard to the extent of resources not currently in reserves, the possible value of those resources at different copper prices, the indications of further mineralisation in the immediate vicinity of the mining operation and the likely lengthy mine life. The valuation reflects an expectation that there will be no material delays or cost overruns in relation to the completion of construction and the commissioning of Prominent Hill. Based on Oxiana’s current understanding of the project progress and AMC’s review, Grant Samuel believes that this expectation is reasonable. However, Prominent Hill is not yet in production. Any significant delays, cost overruns or operational issues that resulted in the Prominent Hill operations performing at levels below those currently expected could affect value, perhaps materially. The valuation incorporates the value of regional exploration around Prominent Hill. Detailed financial models were developed to analyse the Prominent Hill mining operations, based on two valuation cases incorporating production, capital and operating cost projections developed by AMC using information provided by Oxiana. Case 1 reflects the current life of mine plan, with mining of both ore reserves and additional inferred resources not in reserves but within the current pit design. The case assumes that total ore milled over the life of the project is 79.3 million tonnes at an average copper grade of 1.2%. Production commences in the second half of 2008. Throughput rates reach 95% of design capacity in 2009 and full capacity in 2010. Total capital expenditure for 2008 is A$569 million. The life of the mine is 11 years and A$40 million of closure expenses are incurred following mine closure.

Case 2 assumes the mining of additional upper level underground ore and ore from open pit extensions. Case 2 assumes that A$10 million for minor debottlenecking of the plant is spent. Copper and gold metallurgical recoveries have been reduced by 0.5% relative to the life of mine plan to allow for reduced rougher flotation retention time. A total of 113.7 million tonnes at an average copper grade of 1.3% is milled over the life of the project. Underground production is mined in 2010, reaching an annual mining rate of one million tonnes from 2012. The underground mine adds a total of 10.6 million tones of ore at 2.03% copper grade, at an additional capital cost of A$284 million for the underground open level stoping. The open pit is assumed to be extended beyond the current ultimate pit design (both to the east and west) commencing in 2018. Approximately eight million tonnes per annum are mined from the pit extension over three years at an average grade of 1.24% copper. Total capital expenditure for 2008 is A$575 million. The mine life is 14 years and A$40 million of closure costs are incurred following mine closure. The following table summarises projected production and costs for the two scenarios:

Prominent Hill – Model Parameters

2008 2009 2010 2011 2012

Total Life of Mine

Case 1 Ore mined (‘000 tonnes) 8,246 8,276 7,235 7,333 8,156 79,289 Ore milled (‘000 tonnes) 1,450 7,579 8,000 8,000 8,000 79,289 Copper milled grade (%) 1.6 1.7 1.5 1.5 1.3 1.2 Copper concentrate grade (%) 50.6 51.2 48.0 48.2 46.4 45.0 Contained copper concentrate Copper (‘000 tonnes) 19 112 105 102 90 845 Gold (‘000 ounces) 15 85 97 110 106 1,123 Silver (‘000 ounces) 64 364 268 309 329 3,124 Total cash costs (US¢ / lb cu)¹ 588 90 87 76 89 80 Capital expenditure (A$ million) 568.6 2.0 5.4 2.0 5.4 645.2

Case 2 Ore mined (‘000 tonnes) 8,246 8,276 7,360 7,833 9,156 113,701 Ore milled (‘000 tonnes) 1,631 8,526 9,000 9,000 9,000 113,701 Copper milled grade (%) 1.6 1.7 1.5 1.5 1.3 1.3 Copper concentrate grade (%) 50.6 51.2 48.1 48.3 46.8 46.3 Contained copper concentrate Copper (‘000 tonnes) 21 126 118 116 100 1,282 Gold (‘000 ounces) 17 95 109 125 129 1,605 Silver (‘000 ounces) 72 410 290 360 377 4,601 Total cash costs (US¢ / lb cu)¹ 520 80 80 76 97 85 Capital expenditure (A$ million) 574.6 48.0 53.4 50.0 43.4 923.2

Notes: 1. Gold and silver are taken as credits and costs include treatment and refining charges and royalties. The following table summarises the results of the NPV analysis for the two cases:

Prominent Hill – NPV Analysis (US$ million) Copper Price Scenario

Discount Rate Copper US$2.50

Copper US$2.75

Copper US$3.00

Copper US$3.25

Case 1 8.0% 1,385 1,539 1,693 1,847 8.5% 1,343 1,492 1,642 1,792 9.0% 1,302 1,447 1,593 1,738

Case 2 8.0% 1,862 2,101 2,340 2,578 8.5% 1,796 2,027 2,257 2,487 9.0% 1,733 1,955 2,178 2,400

The NPV analysis takes into account the written down tax value of assets as at 31 December 2007. Commodity prices and exchange rate assumptions are set out in Section 8.2. Grant Samuel’s valuation of Prominent Hill in the range US$2,600-2,800 million reflects the NPV analysis above and also takes into account certain tax benefits potentially available to an acquirer of Oxiana. An acquirer should be able to reset tax values (including the value attributed to mining tenements) to reflect acquisition costs. On this basis, an acquirer could potentially amortise for tax purposes approximately $1.5 billion of value (in excess of current written down values) over the life of the project. These tax deductions would have a net present value (not included in the NPV summary set out above) of around $300 million. These tax benefits are not available to Oxiana on a standalone basis. Grant Samuel has also considered valuation evidence from an analysis of copper companies with significant start up projects. Pan and its Phu Kham project are discussed in more detail above. Equinox Minerals Limited (“Equinox”) is developing the Lumwana copper project in Zambia. Lumwana is a very large project with a total mine life of 37 years, expected to commence production of copper concentrates during 2008. The following table compares key characteristics of Prominent Hill, Pan and Equinox:

Copper Companies Statistics – Selected Listed Companies Resource Reserve Production Enterprise

Value A$ billion

Copper‘000 t

Gold‘000 oz

Copper‘000 t

Gold‘000 oz

Copper ‘000 t

Gold ‘000 oz

Cash Operating

Costs US¢/lb cu¹

Prominent Hill – Low² 2.8 1,850 3,711 883 1,294 78 - High² 3.0 1,850 3,711 883 1,294

112 126

85 95 68

Equinox ³ 3.3 6,278 412 2,346 - 169 - 78 Pan4 2.0 1,481 1,985 918 1,342 60-75 60-65 91

Notes: 1. After gold and silver credits and copper premium which may be based on different gold and silver prices. 2. Production and cash operating costs are assumed for 2009. 3. Production and cash operating costs are averages assumed over the initial six years of operation. 4. Assumes only Pan’s interest in Reserves and Resources. Cash operating costs for 2009. Based on share market values, Equinox has an enterprise value of approximately A$3.3 billion (including net debt and outstanding capital commitments). While considerable caution needs to be exercised in extrapolating full underlying values from market values simply by adding a premium, a premium of 25-40% to market value would imply a full underlying value for the project of around A$4.1-4.6 billion. Moreover, there is presumably some discount for sovereign risk built in to the Equinox share price: it is likely that Lumwana would be more valuable if it was located in South Australia (like Prominent Hill) rather than Zambia. Having regard to these issues, and the differences between Prominent Hill, Pan and Equinox in terms of reserve base, production rates and mine life, Grant Samuel believes that the current

market capitalisation of Equinox and Pan provides general support for Grant Samuel’s valuation of Prominent Hill in the range US$2,600-2,800 million (A$2,826-3,043 million).

10.5 Martabe

Grant Samuel has valued Martabe in the range US$650-750 million, which equates to A$707-815 million at an exchange rate of A$1.00 = US$0.92. The valuation incorporates the value of regional exploration around Martabe. Detailed financial models were developed to analyse the mining operations, based on two valuation cases incorporating production, capital and operating cost projections developed by AMC using information provided by Oxiana. Case 1 assumes that ore is sourced principally from the Purnama deposit. The mine life is extended by around two years through mining additional resources resulting in production ending in 2020. In total, 46.7 million tonnes of ore is milled over the project life at an average gold grade of 1.87 g/t, for gold production of 2.1 million ounces. Closure expenses of US$4.2 million are incurred in the last two years of mine life. Case 2 is an accelerated version of Case 1, whereby lower grade material is stockpiled allowing higher grade material to be processed first. Slightly higher recoveries are assumed in this case. It is also assumed that additional resources to support a further two years of mining are discovered through other exploration success in the area. This results in the mine life ending in 2022 with total ore milled of 55.6 million tonnes at an average gold grade of 1.85g/t, for total gold production of 2.5 million ounces of gold. Closure expenses of US$4.2 million are incurred in the last two years of mine life. The following table summarises projected production and costs for the two scenarios:

Martabe – Model Parameters

2008 2009 2010 2011 2012

Total Life of Mine

Case 1 Ore milled (000’s tonnes) - - 3,565 4,494 4,508 46,718 Gold milled grade (g/t) - - 1.73 1.83 1.85 1.87 Gold production (000’s ounces) - - 161 207 207 2,124 Total cash costs (US¢ / oz au)¹ - - 291 243 239 234 Capital expenditure (US$ million) 102.3 196.9 7.7 1.4 1.5 326.2

Case 2 Ore milled (‘000 tonnes) - - 3,565 4,494 4,508 55,593 Gold milled grade (g/t) - - 2.48 2.26 2.27 1.85 Gold production (000’s ounces) - - 230 251 243 2,527 Total cash costs (US¢ / oz au)¹ - - 207 203 186 234 Capital expenditure (US$ million) 102.3 198.0 7.9 1.4 1.5 329.2

Notes: 1. Total cash costs are per gold produced and after refining charges and royalties and net of silver credits. The results of the financial analysis for the two cases are summarised below:

Martabe – NPV Analysis (US$ million) Spot Gold Price

US$900 US$910 US$920

Case 1 Gold futures methodology 754 769 783 DCF – 0% discount rate 739 753 768 DCF – 5% discount rate 601 613 626 DCF – 10% discount rate 369 378 387

Case 2 Gold futures methodology 934 952 969 DCF – 0% discount rate 913 931 948 DCF – 5% discount rate 760 775 790 DCF – 10% discount rate 499 510 521

Grant Samuel’s preferred valuation approach for gold assets is the gold futures methodology. For illustrative purposes, Grant Samuel has also presented NPV estimates using a variety of discount rates (as discussed in Section 8.3 above). Grant Samuel’s valuation of Martabe in the range US$650-750 million takes into account the results of the financial analysis set out above. It also reflects the project’s location in Indonesia, the 5% interest that has been offered to the local government and community, and the fact that, while a bankable feasibility study has been completed and the Oxiana board and Government of Indonesia have approved development, the project remains subject to construction and commissioning risk. The value attributed to Martabe by Grant Samuel implies the following valuation parameters:

Martabe – Implied Valuation Parameters (A$/oz) Implied Multiple Multiples of

Variable (000 ozs) Low High

Gold resources 5,900 120 138 Gold reserves 2,260 313 361

Grant Samuel has estimated resource and reserve multiples for a number of companies that have substantial projects in pre-development or the early stages of their development, as follows:

Non-Producing Gold Companies Statistics – Selected Listed Companies

Location

Enterprise Value

(A$ million)

Gold Resources (‘000 ozs)

Gold Reserves (‘000 ozs)

Gold Resources (A$/ozs)

Gold Reserves (A$/ozs)

Allied Gold Limited Papua New Guinea 286 2,400 785 119 364

Andean Resources Limited Argentina 624 1,545 - 404 - Centamin Egypt Limited Egypt 1,102 5,810 1,850 190 596 Simple Average 238 480 Weighted Average 244 556

Source: Annual reports, quarterly reports, Bloomberg.

The resource multiples implied by recent transaction evidence are summarised below:

Gold Companies – Selected Transactions

Date Target Transaction Value

(A$ million) Resources

(A$/oz) Aug-07 Golden China Resources

Corporation Acquisition by Sino Gold Mining Limited 82 53

Oct-07 Bolnisi Gold NL Merger with Coeur d'Alene Mines Corporation

933 316¹

Dec-07 Kainantu Gold Mine Acquisition by Barrick Gold Corporation 161 81 Mar-08 Miramar Mining

Corporation Acquisition by Newmont Mining Corporation 1,480 139

Apr-08 Hidden Valley gold project and Wafi/Golpu gold/copper projects

Acquisition by Newcrest Mining Limited of a 50% interest in Papua New Guinea Assets of Harmony Gold Mining Company Limited

1,114² 73

Source: Bloomberg, Company reports. Notes: 1. Includes gold equivalent resources for silver resources. 2. Assumes 100% interest The valuation of 100% of Martabe in the range A$707-815 million implies multiples of A$120-138 per resource ounce and A$313-361 per reserve ounce based on resources and reserves as at 30 June 2007. The valuation takes into account the inferred resource of 3.3 million ounces below the planned Purnama pit. These resources contain elevated levels of silica and are of lower grade, and their extraction is not economic given current price parameters for mine planning purposes. However, these resources may ultimately be economic at higher gold prices or if a suitable treatment route to deal with the elevated silica can be developed. Valuation analysis based on reserve and resource ounce benchmarks is inevitably imprecise, given that these benchmarks do not take into account differential capital and operating costs, prospectivity, sovereign and development risk and other factors that potentially affect valuation judgements. Nonetheless, in Grant Samuel’s opinion, the reserve and resource ounce multiples implied by the valuation of Martabe are consistent with the trading and transaction multiple evidence set out above, having regard to the size, mine life, operating costs and location of the Martabe operations in Indonesia.

10.6 Other

10.6.1 Regional Exploration

Oxiana’s regional exploration interests have been valued by AMC in the range A$110-190 million. Of this A$78-146 million relates to exploration potential in the immediate vicinity of Prominent Hill, Golden Grove, Sepon and Martabe, and has been included in the valuations of those assets. The remainder of the exploration assets have been valued by AMC in the range A$28-46 million, which has been rounded to A$30-50 million for the purpose of the valuation. AMC’s valuation of Oxiana’s exploration interests is set out in Appendix 4. 10.6.2 Other Assets

Oxiana’s other assets, which consist of shareholdings in a number of public companies, have been valued at A$100-125 million. The majority of this value is attributable to Oxiana’s 46% holding in Toro. The range of values of $100-125 million represents a substantial premium to recent share market values. However, extreme share market volatility (including the recent financial failure of two Australian broking firms with extensive exposure to the Australian “small cap” resources sector) means that recent share prices may provide only limited evidence as to value.

10.6.3 Corporate Costs

Oxiana incurs corporate costs that have not been incorporated in the valuations of the assets. These costs include costs associated with maintaining a head office, the executive management team, finance and corporate administration, exploration administration and other overhead costs. It is likely that a significant proportion of these costs could be eliminated by a corporate acquirer. Costs associated with being a public listed company would also be eliminated by an acquirer of Oxiana. An allowance of A$100-150 million has been made in the valuation for the capitalised value of the residual overhead costs and the one off costs incurred to make the savings. 10.6.4 Net Debt

Oxiana’s net debt for valuation purposes is summarised in the following table:

Oxiana – Adjusted Net Debt A$ million

Cash and cash equivalents at 31 December 2007 246.1 Debt at 31 December 2007 (420.8) Estimated tax refund 40.0 Dividend payable (61.8)

Adjusted Net Debt (196.5)

Oxiana is expecting a tax refund of approximately A$40 million in June 2008. The adjustment for dividend payments assumes a 100% cash dividend payout at a dividend rate of 4¢ per share. 10.6.5 Senior Subordinated Convertible Notes

Grant Samuel has attributed a value to the Senior Subordinated Convertible Notes in the range A$340-370 million. This assumes that the notes, which are deep in-the-money, will be converted into Oxiana shares on or before the date on which Oxiana can redeem the notes. Accordingly the value of a note is effectively equal to the value of a share in Oxiana plus the present value of the three remaining coupon payments that are due before the redemption date. 10.6.6 Unlisted Options

Grant Samuel has adjusted the equity value of Oxiana for the 29,444,280 unlisted options on issue. Based on the Black-Scholes valuation model, Grant Samuel has attributed value in the range A$40-45 million to the unlisted options.

11 Evaluation of the Merger

11.1 Summary

In Grant Samuel’s view the terms of the Merger are fair to Zinifex shareholders. Based on both share market values and Grant Samuel’s assessment of the full underlying values of Zinifex and Oxiana, Zinifex shareholders’ collective interest in MergeCo will be approximately proportionate to Zinifex’s contribution of value to MergeCo. It should be recognised that estimates of value in relation to the Merger are subject to considerable uncertainty. The relative share market values of Zinifex and Oxiana have changed substantially in recent months (apparently reflecting the underperformance of zinc relative to copper and changing expectations of future zinc and copper prices) and, absent the Merger, could be expected to continue to change. Grant Samuel’s assessment of the underlying values of Zinifex and Oxiana implies relatively high future commodity prices (particularly for zinc and copper) and an expectation that Oxiana’s key assets have significant growth potential. Given current volatile market conditions, commodity prices and commodity price expectations could change rapidly, potentially materially. While the values of both companies are dependent on judgements regarding future commodity prices, Zinifex is less exposed to commodity markets given that it holds in excess of $1.2 billion in cash, representing more than 20% of its market value at 29 February 2008. Similarly, it is probably less exposed to overall changes in market sentiment towards the resources sector, given that (relative to Oxiana) there is little “blue sky” built into its valuation. Accordingly, while Grant Samuel believes that the terms of the Merger are fair to Zinifex shareholders, this conclusion could change for different market conditions. In particular, the Merger terms would likely become less attractive for Zinifex shareholders if commodity markets were to deteriorate or the zinc price was to rise relative to the copper price. A number of benefits are expected to accrue as a result of the Merger. MergeCo will become the fifth largest Australian miner and will be amongst the top 25 companies listed on the ASX. It will have a strong balance sheet and, following completion of the Prominent Hill project, should enjoy strong operating cash flows. It appears reasonable to expect some positive sharemarket re-rating of MergeCo, which should have enhanced access to both equity and debt capital. MergeCo will have greater diversity in terms of commodity and geographic exposure than Zinifex on a standalone basis (although some shareholders may prefer to achieve this diversification directly through their investment decisions). It may be possible for MergeCo to optimise the development of its portfolio of development assets to deliver greater value than would have been available to Zinifex and Oxiana on a standalone basis. MergeCo’s size and enhanced financial flexibility should give it the capacity to consider larger and potentially riskier acquisitions, developments or other growth initiatives than would have been appropriate for Zinifex on a standalone basis. While merger synergies are not expected to be material, it is likely that some corporate cost reductions will be achieved.

In Grant Samuel’s view the benefits of the Merger are collectively significant, although arguably none of the benefits is individually compelling. To a large extent, the benefits essentially relate to the creation within MergeCo of growth options not available to Zinifex on a standalone basis. Realisation of real value from these options will be dependent on future circumstances and management decisions, and may only be achieved over the medium term. Nonetheless, in Grant Samuel’s opinion, the benefits of the Merger are collectively material. They outweigh the disadvantages for Zinifex shareholders, which relate principally to the dilution of shareholders’ current exposure to zinc price performance and an increase in shareholders’ exposure to commodity price and exploration/development risk.

Moreover, Zinifex shareholders will not be giving up the opportunity to realise a full premium for control at some later stage. There will still be an opportunity to realise a full premium through a subsequent change of control transaction involving MergeCo. MergeCo will have an open share register and could be an attractive target for a number of large resources companies. In Grant Samuel’s view the Merger terms are fair to Zinifex shareholders. The Merger benefits are collectively significant and outweigh the disadvantages. Accordingly, Grant Samuel has concluded that the Merger is in the best interests of Zinifex shareholders.

11.2 Relative Contributions – Sharemarket values

Given that there is an active, well-informed market for shares in both Zinifex and Oxiana, it is reasonable to attribute some significance to estimates of relative value contributions based on sharemarket prices. If the Merger proceeds, Zinifex shareholders will receive 3.1931 Oxiana shares for every Zinifex share. Based on closing share prices on 29 February 2008 (the day prior to announcement of the Merger), the merger terms represent a modest premium of approximately 14% premium for Zinifex shareholders. Based on volume weighted average prices (VWAPs) for one and two months before the announcement of the Merger, the premium implied by the merger terms is negligible. The following table summarises Zinifex’s historical share of the aggregate market capitalisation of Zinifex and Oxiana, for various periods before the announcement of the Merger:

Relative Contributions – Share Market Value (%) Zinifex Oxiana

Share of the Merged Company (merger terms) 50% 50%

Volume weighted average share prices - 1 week before announcement 46.3% 53.7% - 1 months before announcement 48.0% 52.0% - 2 months before announcement 49.6% 51.4% - 3 months before announcement 51.7% 48.3%

For these periods the share of market value contributed by Zinifex is consistent with the 50% interest to be held in MergeCo by Zinifex shareholders. Given the active market for shares in both Zinifex and Oxiana, it is reasonable to conclude that recent share market values reflect the market’s consensus view on the values of both companies. In general, the most recent share prices reflect the “best” market estimates of value, because they incorporate the most recent information on commodity markets, price expectations, operational performance and other matters impacting on market assessments of value. Zinifex released its half-yearly report in late February 2008 and Oxiana released its financial results for the year to 31 December 2007 in late February and its annual report in early March 2008. Both companies released quarterly operating reports in late January 2008. There is no reason to conclude that share market values in the period immediately before the announcement of the Merger represented anything other than fully informed, objective market estimates of value. Based on share market trading over longer periods of time, the relative values of Zinifex and Oxiana are materially different. For example, based on the VWAPs for Zinifex and Oxiana for the six months prior to the announcement, Zinifex is contributing around 55% of the market value of MergeCo. However, this is not relevant to an assessment of the Merger terms. Share market prices for Zinifex six months prior to the announcement of the Merger were materially higher than at the time of the announcement, reflecting the much higher zinc prices then prevailing. Zinc prices declined approximately 12% over the six month period to 29 February 2008, while the Zinifex share price fell from approximately $17.00 to $11.13. Any analysis reflecting share market prices from six months prior to the announcement would be based on commodity prices and price expectations materially different from those that currently apply and would be misleading.

The relative share prices for Zinifex and Oxiana since the announcement of the Merger (while presumably affected by the Merger terms) are consistent with a conclusion that, based on share market values, Zinifex shareholders are contributing marginally less than 50% of the aggregate value of MergeCo. Analysis of relative contributions of value on the basis of equity market values needs to be treated with some caution. Equity market views on value can shift significantly in short periods of time. This applies particularly in the resources sector, where exploration success, revised views on mine life and reserves, movements in commodity prices, price expectations, exchange rate and other factors can result in major changes in equity market views on value in short periods of time. However, changes in these factors should also affect estimates of underlying value. Whilst share prices may be volatile, share market values (for large companies with liquid share trading) generally reflect unbiased, market consensus views on value. Accordingly, in Grant Samuel’s view, based on the relative contributions of market value by Zinifex and Oxiana, the Merger terms are fair.

11.3 Relative Contributions – Underlying Value

The following table summarises the relative value contributed by Zinifex and Oxiana to the merged company, based on the full underlying value of each company estimated in sections 9 and 10 of this report:

Relative Value Contributions – Underlying Value

Zinifex Oxiana

Value Contribution – High ($million) 6,939 6,726

Value Contribution – Low ($ million) 6,193 5,944 Relative Value Contributions – High 50.8% 49.2% Relative Value Contributions – Low 51.0% 49.0%

Zinifex shareholders will collectively hold approximately 50% of the shares in MergeCo. Based on Grant Samuel’s assessment of the underlying value of Zinifex and Oxiana, Zinifex is contributing approximately 51% of the underlying value of the merged company. Estimates of underlying value are highly sensitive to commodity price assumptions, exchange rates and judgements about future project potential. Given the various uncertainties inherent in estimates of the underlying values of Zinifex and Oxiana, in Grant Samuel’s view it is reasonable to conclude that Zinifex shareholders’ interest in MergeCo will be approximately proportionate to the underlying value to be contributed to MergeCo by Zinifex. In Grant Samuel’s view the Merger terms are fair, based on Grant Samuel’s estimate of the relative contributions of underlying value to be made by Zinifex and Oxiana.

Commodity prices (particularly for zinc) have been volatile. A strengthening in the zinc price relative to the copper price could change the relative values of Zinifex and Oxiana, potentially significantly. Grant Samuel’s valuation of Oxiana reflects a positive outlook on copper prices. A significant fall in the copper price or deterioration in the long term outlook for copper could materially reduce the value of Oxiana relative to Zinifex. To a lesser extent, a major fall in commodity prices generally or a strengthening in the A$ could also affect the relative values of Oxiana and Zinifex, because the value of the substantial cash holding of Zinifex (of the order of $1.2 billion) would not be affected, while all of Oxiana’s asset values would likely be reduced. In these circumstances the Merger terms may be unfavourable for Zinifex shareholders. On the other hand, current copper prices are significantly higher than the long term price assumptions reflected in Grant Samuel’s valuation of Oxiana’s copper assets. While analysts and other market commentators have for some time been forecasting substantial falls in copper prices, the copper price has generally remained strong. If current commodity prices (with copper around

US$4.00 per pound and zinc around US$1.05 per pound) were assumed to be maintained for the long term, the Merger terms would deliver an attractive outcome to Zinifex shareholders.

11.4 Merger Benefits

The Merger will result in the creation of a company very different from Zinifex on a standalone basis. In particular:

MergeCo will become the fifth largest Australian miner listed on the ASX and a top 25 ASX listed company by market capitalisation;

MergeCo will have a strong balance sheet, with net cash for valuation purposes of $1 billion as at 31 December 2007. Following completion and commissioning of the Prominent Hill project, MergeCo should enjoy very strong operating cash flows (assuming the continuation of a favourable commodity price environment); and

MergeCo will have a diverse portfolio of assets. The portfolio will cover a range of commodities (principally zinc and copper, but also with exposure to gold, nickel, lead and silver) and geographic locations (focussed principally on Australia but with substantial operations in Laos). In addition, the portfolio will contain a much more attractive development “pipeline” than that of Zinifex on a standalone basis, with near term developments at Prominent Hill and Martabe complementing Zinifex’s existing development assets.

The greater size, increased market capitalisation, broader shareholder base and enhanced asset portfolio should enhance MergeCo’s growth prospects (relative to the standalone Zinifex). MergeCo will have increased capacity to fund growth initiatives and acquisitions, and the ability to contemplate a larger and more expansive set of development opportunities (including by way of acquisition) than would have been prudent for Zinifex on a standalone basis:

the increased market capitalisation and greater share trading liquidity should increase Zinifex’s attractiveness to investors and lower MergeCo’s cost of equity. There is some evidence of a general correlation between company size and lower costs of equity. The ongoing consolidation in the resources sector appears to reflect a positive market view of the benefits of scale in the sector. It appears reasonable to expect some positive sharemarket re-rating of MergeCo;

given Zinifex’s strong cash position (with cash of around $1.2 billion) and limited short term funding commitments, debt capacity is not currently an issue for Zinifex. However, it is likely that over time MergeCo will have access to debt markets on better terms than Zinifex on a standalone basis, given MergeCo’s larger size, diversified asset base and expected strong free cash flows;

there are practical limits to the size of acquisitions and development opportunities that Zinifex can prudently contemplate on a standalone basis. Given MergeCo’s much larger size, it will be able to consider much larger acquisition and development opportunities, providing a broader range of growth options;

similarly, Zinifex’s current size limits the extent to which Zinifex can prudently accept exposure to additional risk in its portfolio, whether through acquisitions or development of projects in higher sovereign risk locations or through expansion into segments of the resources sector in which it does not currently operate. MergeCo will be less constrained in this regard, given that such developments would represent smaller “bets” in the context of its much larger size; and

management capacity constraints are a significant issue for the international resources sector, given the current very high demand for skilled mining personnel. The combination of the technical management teams of Zinifex and Oxiana will provide MergeCo with a broader

management capability than that available to Zinifex on a standalone basis (although the integration of the management teams will clearly not be without risk).

The increased size and scale of MergeCo may offer further benefits:

the greater diversification of MergeCo may reduce its overall risk profile relative to that of Zinifex. There seems to be a current acceptance by resources sector investors that diversification of itself brings benefits. Zinifex shareholders will certainly be less exposed to the risk of falling zinc prices (but also less exposed to zinc price upside). However, it should be recognised that investors seeking commodity exposure diversification can achieve this directly, and in theory more flexibly, through their investment decisions rather than through combinations of the underlying companies. Moreover, almost all of Zinifex’s current value is in projects in Australia. A significant part of MergeCo’s value will be contributed by projects in Laos and Indonesia. While the sovereign risk issues associated with these locations should be reflected in current market values for Oxiana, the greater geographic diversification of MergeCo may not be viewed as a benefit by Zinifex shareholders; and

it may be possible for MergeCo to optimise the development of its portfolio of development assets to deliver greater value than would have been available to Zinifex on a standalone basis.

While merger synergies are not expected to be material, it is likely that some corporate cost reductions will be achieved. These cost reductions could be of the order of $20-30 million per annum.

There are substantial tax losses within the Zinifex subsidiary that owns Century. These losses are effectively not available to Zinifex on a standalone basis. Following the Merger, it is expected that MergeCo will be able to take advantage of these losses. The benefit of these and other tax consequences of the Merger may have a net present value of around $400 million.

In Grant Samuel’s view the benefits of the Merger are collectively significant, although arguably none of the benefits is individually compelling. To a large extent, the benefits essentially relate to the creation within MergeCo of growth options not available to Zinifex on a standalone basis. Realisation of real value from these options will be dependent on future circumstances and management decisions, and may only be achieved over the medium term. Nonetheless, in Grant Samuel’s opinion, the benefits of the Merger are collectively material and outweigh the disadvantages.

11.5 Control Issues

The Merger has limited impact on ownership and control issues from the perspective of Zinifex shareholders. Shareholdings in the merged company will be widely distributed. In a broad sense the register will be comparable to Zinifex’s current share register, with no controlling shareholder or shareholder bloc. Based on share prices immediately before the announcement of the Merger, Zinifex shareholders are at best receiving a modest premium. However, given that the transaction is a genuine merger of equals they are not “losing control”. The Merger should not reduce the prospects of Zinifex shareholders receiving a fully priced takeover offer at some stage in the future. On one view, the inclusion in MergeCo of Oxiana’s copper assets could make MergeCo attractive to a broader range of potential corporate acquirers than would be interested in Zinifex, and could improve the prospects of Zinifex shareholders receiving a fully priced takeover offer through MergeCo.

11.6 Disadvantages

In assessing the Merger, Grant Samuel has also considered the following:

Zinifex shareholders’ current exposure to zinc price performance will be diluted because of the assets contributed by Oxiana (which are principally exposed to the copper price). For

shareholders seeking relatively pure exposure to zinc price performance, this may be a disadvantage. On the other hand, it should be recognised that Zinifex has already taken steps to diversify into commodities other than zinc;

following the Merger, Zinifex shareholders will have a material exposure to copper. The Merger terms effectively reflect a market expectation of significant strength in the copper market over an extended period of time. Zinifex shareholders could be worse off following the Merger if there was a substantial fall in the copper price or a deterioration in the outlook for copper;

Zinifex’s current cash balance of around $1.2 billion provides a buffer against adverse movements in commodity prices and represents a significant (and certain) component of the overall value of Zinifex. Zinifex shareholders’ effective interest in this buffer will diminish following the Merger: in the short term it will be shared with Oxiana shareholders and presumably used to fund the project development commitments of MergeCo. However, it is unlikely that Zinifex on a standalone basis would have continued to hold its current cash balance for any significant length of time, given investor expectations that the cash holding would be used to fund growth opportunities or returned to shareholders;

although there is little consensus as to long term copper and zinc prices, many industry analysts are publishing long term price forecasts significantly lower than those adopted by Grant Samuel in its valuations of Zinifex and Oxiana. In Grant Samuel’s view the long term price forecasts of industry analysts appear generally inconsistent with share market and transaction values for resources companies, which are commonly significantly higher than analysts’ estimates of value based on net present value analysis, and the relevance of those forecasts is therefore unclear. However, if zinc and copper prices were to fall significantly as foreshadowed by many analysts, Zinifex shareholders could be worse off following the Merger. However, the actual impact on Zinifex shareholders would depend on the relative performance of zinc and copper (and Zinifex shareholders could conceivably be better off);

a significant part of Oxiana’s value is contributed by assets in Laos and Indonesia. The sovereign risk associated with these assets should be reflected in Oxiana’s market value and has been taken into account in Grant Samuel’s valuation of Oxiana. Nevertheless, following the Merger Zinifex shareholders will be exposed to a greater degree of sovereign risk than is currently the case;

while Oxiana offers project development and exploration upside to Zinifex shareholders, in Grant Samuel’s view this upside is largely reflected in market values for Oxiana. Current values for Oxiana appear to assume the successful completion of development and commissioning of Prominent Hill without material delay or cost overrun, as well as asset growth through exploration success over time. Following the Merger Zinifex shareholders will be exposed to exploration and development risk to a greater degree than in Zinifex on a standalone basis;

total transaction costs related to the Merger are expected to total around $100 million (of which Zinifex shareholders will effectively be funding around half). Of the costs of $100 million, approximately $17 million will be incurred regardless of whether the Merger proceeds. The incremental merger costs of $83 million are substantial but not material having regard to the values of Zinifex and Oxiana; and

there are implementation risks in any merger, but in this case the complementary nature of the Zinifex and Oxiana businesses should substantially reduce the risk.

11.7 Other

The impact of the Merger on the tax position of Zinifex shareholders depends on the individual circumstances of each investor. Shareholders should read the taxation advice set out as Section 10

of the Scheme Booklet and should consult their own professional adviser if in any doubt as to the taxation consequence of the Merger.

12 Qualifications, Declarations and Consents

12.1 Qualifications

The Grant Samuel group of companies provide corporate advisory services (in relation to mergers and acquisitions, capital raisings, debt raisings, corporate restructurings and financial matters generally), property advisory services and manages specialist funds. The primary activity of Grant Samuel & Associates Pty Limited is the preparation of corporate and business valuations and the provision of independent advice and expert’s reports in connection with mergers and acquisitions, takeovers and capital reconstructions. Since inception in 1988, Grant Samuel and its related companies have prepared more than 360 public independent expert and appraisal reports. The persons responsible for preparing this report on behalf of Grant Samuel are Stephen Cooper BCom (Hons) CA (SA) ACMA and Cameron Stewart LLB BCom. Each has a significant number of years of experience in relevant corporate advisory matters. Tina Fendl BCom CFA and Shakeel Mohammed MSc MBA assisted in the preparation of this report. Each of the above persons is an authorised representative of Grant Samuel pursuant to its Australian Financial Services Licence under Part 7.6 of the Corporations Act.

12.2 Disclaimers

It is not intended that this report should be used or relied upon for any purpose other than as an expression of Grant Samuel’s opinion as to whether the Scheme is in the best interests of shareholders. Grant Samuel expressly disclaims any liability to any Zinifex shareholder who relies or purports to rely on the report for any other purpose and to any other party who relies or purports to rely on the report for any purpose whatsoever. This report has been prepared by Grant Samuel with care and diligence and the statements and opinions given by Grant Samuel in this report are given in good faith and in the belief on reasonable grounds that such statements and opinions are correct and not misleading. However, no responsibility is accepted by Grant Samuel or any of its officers or employees for errors or omissions however arising in the preparation of this report, provided that this shall not absolve Grant Samuel from liability arising from an opinion expressed recklessly or in bad faith. Grant Samuel has had no involvement in the preparation of the Explanatory Statement issued by Zinifex and has not verified or approved any of the contents of the Explanatory Statement. Grant Samuel does not accept any responsibility for the contents of the Explanatory Statement (except for this report).

12.3 Independence

Prior to the announcement of the Merger, Grant Samuel had been engaged separately by Zinifex and Oxiana to conduct preliminary work, to allow Grant Samuel to prepare an independent expert’s report for either Zinifex or Oxiana should such a report be required. These engagements did not affect Grant Samuel’s independence or its ability to prepare an independent expert’s report in relation to the Merger. Grant Samuel and its related entities do not have any shareholding in or other relationship with Zinifex or Oxiana that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposal. No executives of Grant Samuel and its related entities hold any shares in either Zinifex or Oxiana. Grant Samuel had no part in the formulation of the Scheme. Its only role has been the preparation of this report. Grant Samuel will receive a fixed fee of $1.5 million for the preparation of this report. This fee is not contingent on the outcome of the Merger. Grant Samuel’s out of pocket expenses in relation to the preparation of the report will be reimbursed. Grant Samuel will receive no other benefit for the preparation of this report.

Grant Samuel considers itself to be independent in terms of Regulatory Guide 112 issued by ASIC on 30 October 2007.

12.4 Declarations

Zinifex has agreed that it will indemnify Grant Samuel and its employees and officers in respect of any liability suffered or incurred as a result of or in connection with the preparation of the report. This indemnity will not apply in respect of the proportion of any liability found by a court to be primarily caused by any conduct involving gross negligence or wilful misconduct by Grant Samuel. Zinifex has also agreed to indemnify Grant Samuel and its employees and officers for time spent and reasonable legal costs and expenses incurred in relation to any inquiry or proceeding initiated by any person. Where Grant Samuel or its employees and officers are found to have been grossly negligent or engaged in wilful misconduct Grant Samuel shall bear the proportion of such costs caused by its action. Any claims by Zinifex are limited to an amount equal to the fees paid to Grant Samuel. Advance drafts of this report were provided to Zinifex and its advisers and Oxiana and its advisers. Certain changes were made to the drafting of the report as a result of the circulation of the draft report, including minor changes to the valuations of Zinifex and Oxiana. There was no alteration to the methodology, evaluation or conclusions as a result of issuing the drafts.

12.5 Consents

Grant Samuel consents to the issuing of this report in the form and context in which it is to be included in the Explanatory Statement to be sent to shareholders of Zinifex. Neither the whole nor any part of this report nor any reference thereto may be included in any other document without the prior written consent of Grant Samuel as to the form and context in which it appears.

12.6 Other

The accompanying letter dated 6 May 2008 and the Appendices form part of this report. Grant Samuel has prepared a Financial Services Guide as required by the Corporations Act. The Financial Services Guide is set out at the beginning of this report.

GRANT SAMUEL & ASSOCIATES PTY LIMITED 6 May 2008

Appendix 1

Selection of Discount Rate 1 Overview

Grant Samuel has selected discount rates of 8.0-9.0% (US dollar cash flows) to apply to the forecast nominal ungeared after-tax cash flows for Zinifex’s and Oxiana’s major businesses. The cash flows of Zinifex’s and Oxiana’s major assets have been denominated in US dollars and discounted on the basis of rates appropriate for international capital markets. Given that many of the potential acquirers of the major assets of Zinifex and Oxiana are international mining companies, the assets are likely to be priced on the basis of costs of capital established in international capital markets. Selection of the appropriate discount rate to apply to the forecast cash flows of any business enterprise is fundamentally a matter of judgement. The valuation of an asset or business involves judgements about the discount rates that may be utilised by potential acquirers of that asset. There is a body of theory which can be used to support that judgement. However, a mechanistic application of formulae derived from that theory can obscure the reality that there is no “correct” discount rate. Despite the growing acceptance and application of various theoretical models, it is Grant Samuel’s experience that many companies rely on less sophisticated approaches. Many businesses use relatively arbitrary “hurdle rates” which do not vary significantly from investment to investment or change significantly over time despite interest rate movements. Valuation is an estimate of what real world buyers and sellers of assets would pay and must therefore reflect criteria that will be applied in practice even if they are not strictly consistent with parameters based on theoretical calculations. Grant Samuel considers the rates adopted to be reasonable discount rates that acquirers would use irrespective of the outcome or shortcomings of applying any particular theoretical model. The discount rate that Grant Samuel has adopted is reasonable relative to the rates derived from theoretical models. The discount rate represents an estimate of the weighted average cost of capital (“WACC”) appropriate for these assets. Grant Samuel has calculated a WACC based on a weighted average of the cost of equity and the cost of debt. This is the relevant rate to apply to ungeared cash flows. There are three main elements to the determination of an appropriate WACC. These are:

cost of equity;

cost of debt; and

debt/equity mix. The cost of equity has been derived from application of the Capital Asset Pricing Model (“CAPM”) methodology. The CAPM is probably the most widely accepted and used methodology for determining the cost of equity capital. There are more sophisticated multivariate models which utilise additional risk factors but these models have not achieved any significant degree of usage or acceptance in practice. However, while the theory underlying the CAPM is rigorous the practical application is subject to shortcomings and limitations and the results of applying the CAPM model should only be regarded as providing a general guide. There is a tendency to regard the rates calculated using CAPM as inviolate. To do so is to misunderstand the limitations of the model. For example:

the CAPM theory is based on expectations but uses historical data as a proxy. The future is not necessarily the same as the past;

the measurement of historical data such as risk premia and beta factors is subject to very high levels of statistical error. Measurements vary widely depending on factors such as source, time period and sampling frequency;

the measurement of beta is often based on comparisons with other companies. None of these companies is likely to be directly comparable to the entity for which the discount rate is being calculated and may operate in widely varying markets;

parameters such as the debt/equity ratio and risk premium are based on subjective judgements; and

there is not unanimous agreement as to how the model should adjust for factors such as taxation. The CAPM was developed in the context of a “classical” tax system. Australia’s system of dividend imputation has a significant impact on the measurement of net returns to investors.

The cost of debt has been determined by reference to the pricing implied by the debt markets in US. The cost of debt represents an estimate of the expected future returns required by debt providers. In determining the appropriate cost of debt over this forecast period, regard was had to debt ratings of comparable companies. Selection of an appropriate debt/equity mix is a matter of judgement. The debt/equity mix represents an appropriate level of gearing, stated in market value terms, for the business over the forecast period. The relevant proportions of debt and equity have been determined having regard to the financial gearing of the industry in general and comparable companies, and judgements as to the appropriate level of gearing considering the nature and quality of the cash flow stream. The following sections set out the basis for Grant Samuel’s determination of the discount rates to be applied in valuing the assets of Zinifex and Oxiana and the factors which limit the accuracy and reliability of the estimates.

2 Definition and Limitations of the CAPM and WACC

The CAPM provides a theoretical basis for determining a discount rate that reflects the returns required by diversified investors in equities. The rate of return required by equity investors represents the cost of equity of a company and is therefore the relevant measure for estimating a company’s weighted average cost of capital. CAPM is based on the assumption that investors require a premium for investing in equities rather than in risk free investments (such as US medium to long term Treasury Bond rates). The premium is commonly known as the market risk premium and notionally represents the premium required to compensate for investment in the equity market in general. The risks relating to a company or business may be divided into specific risks and systematic risks. Specific risks are risks that are specific to a particular company or business and are unrelated to movements in equity markets generally. While specific risks will result in actual returns varying from expected returns, it is assumed that diversified investors require no additional returns to compensate for specific risk, because the net effect of specific risks across a diversified portfolio will, on average, be zero. Portfolio investors can diversify away all specific risk. However, investors cannot diversify away the systematic risk of a particular investment or business operation. Systematic risk is the risk that the return from an investment or business operation will vary with the market return in general. If the return on an investment was expected to be completely correlated with the return from the market in general, then the return required on the investment would be equal to the return required from the market in general (i.e. the risk free rate plus the market risk premium). Systematic risk is affected by the following factors:

financial leverage: additional debt will increase the impact of changes in returns on underlying assets and therefore increase systematic risk;

cyclicality of revenue: projects and companies with cyclical revenues will generally be subject to greater systematic risk than those with non-cyclical revenues; and

operating leverage: projects and companies with greater proportions of fixed costs in their cost structure will generally be subject to more systematic risk than those with lesser proportions of fixed costs.

CAPM postulates that the return required on an investment or asset can be estimated by applying to the market risk premium a measure of systematic risk described as the beta factor. The beta for an investment reflects the covariance of the return from that investment with the return from the market as a

whole. Covariance is a measure of relative volatility and correlation. The beta of an investment represents its systematic risk only. It is not a measure of the total risk of a particular investment. An investment with a beta of more than one is riskier than the market and an investment with a beta of less than one is less risky. The discount rate appropriate for an investment which involves zero systematic risk would be equal to the risk free rate. The formula for deriving the cost of equity using CAPM is as follows: Re = Rf + Beta (Rm – Rf) Where: Re = the cost of equity capital; Rf = the risk free rate; Beta = the beta factor; Rm = the expected market return; and Rm - Rf = the market risk premium. The beta for a company or business operation is normally estimated by observing the historical relationship between returns from the company or comparable companies and returns from the market in general. The market risk premium is estimated by reference to the actual long run premium earned on equity investments by comparison with the return on risk free investments. The formula conventionally used to calculate a WACC under a classical tax system is as follows: WACC = (Re x E/V) + (Rd x (1-t) x D/V) Where: E/V = the proportion of equity to total value (where V = D + E); D/V = the proportion of debt to total value; Re = the cost of equity capital; Rd = the cost of debt capital; and t = the corporate tax rate The models, while simple, are based on a sophisticated and rigorous theoretical analysis. Nevertheless, application of the theory is not straightforward and the discount rate calculated should be treated as no more than a general guide. The reliability of any estimate derived from the model is limited. Some of the issues are discussed below:

Risk Free Rate Theoretically, the risk free rate used should be an estimate of the risk free rate in each future period (i.e. the one year spot rate in that year if annual cash flows are used). There is no official “risk free” rate but rates on government securities are typically used as an acceptable substitute. More importantly, forecast rates for each future period are not readily available. In practice, the long term Commonwealth Government Bond rate is used as a substitute in Australia and medium to long term Treasury Bond rates are used in the United States. It should be recognised that the yield to maturity of a long term bond is only an average rate and where the yield curve is strongly positive (i.e. longer term rates are significantly above short term rates) the adoption of a single long term bond rate has the effect of reducing the net present value where the major positive cash flows are in the initial years. The long term bond rate is therefore only an approximation. The ten year bond rate is a widely used and accepted benchmark for the risk free rate. Where the forecast period exceeds ten years, an issue arises as to the appropriate bond to use. While longer term bond rates are available, the ten year bond market is the deepest long term bond market in Australia and is a widely used and recognised benchmark. There is a very limited market for bonds of more than ten years. In the United States, there are deeper markets for longer term bonds. The 30 year bond rate is a widely used benchmark. However, long term rates accentuate the distortions of the yield curve on cash flows in early years. In any event, a single long term bond rate matching

the term of the cash flows is no more theoretically correct than using a ten year rate. More importantly, the ten year rate is the standard benchmark used in practice. Where cash flows are less than ten years in duration the opposite issue arises. An argument could be made that shorter term, and therefore lower, bond rates should be used in determining the discount rate for there assets. While Grant Samuel believes this is a legitimate argument, an adjustment may give a misleading impression of precision for the whole methodology. In any event, the impact on valuation would usually be trivial. In practice, Grant Samuel believes acquirers would use a common rate. The ten year bond rate can be regarded as an acceptable standard risk free rate for medium to long term cash flows, particularly given its wide use.

Market Risk Premium The market risk premium (Rm - Rf) represents the “extra” return that investors require to invest in equity securities as a whole over risk free investments. This is an “ex-ante” concept. It is the expected premium and as such it is not an observable phenomenon. The historical premium is therefore used as a proxy measure. The premium earned historically by equity investments is calculated over a time period of many years, typically at least 30 years. This long time frame is used on the basis that short term numbers are highly volatile and that a long term average return would be a fair indication of what most investors would expect to earn in the future from an investment in equities with a 5-10 year time frame. In the United States it is generally believed that the premium is in the range of 5-6% but there are widely varying assessments (from 3% to 9%). Australian studies have been more limited but indicate that the long run average premium has been in the order of 6% using a geometric average (and is in the order of 8% using an arithmetic average) measured over more than 100 years of data1. Even an estimate based over a very long period such as 100 years is subject to significant statistical error. Given the volatility of equity market returns it is only possible to state that the “true” figure lies within a range of approximately 2-10% at a 95% confidence level (using the geometric average). Grant Samuel has consistently adopted a market risk premium of 6% and believes that, particularly in view of the general uncertainty, this continues to be a reasonable estimate. It is:

not statistically significantly different to the premium suggested by the historical data;

similar to that used by a wide variety of analysts and practitioners; and

the same as that adopted by most regulatory authorities in Australia.

Beta Factor The beta factor is a measure of the expected covariance (i.e. volatility and correlation of returns) between the return on an investment and the return from the market as a whole. The expected beta factor cannot be observed. The conventional practice is to calculate an historical beta from past share price data and use it as a proxy for the future but it must be recognised that the expected beta is not necessarily the same as the historical beta. A company’s relative risk does change over time. The appropriate beta is the beta of the company being acquired rather than the beta of the acquirer (which may be in a different business with different risks). Betas for the particular subject company may be utilised. However, it is also appropriate (and may be necessary if the investment is not listed) to utilise betas for comparable companies and sector averages (particularly as those may be more reliable).

1 See, for example, R.R. Officer in Ball, R., Brown, P., Finn, F. J. & Officer, R. R., “Share Market and Portfolio Theory: Readings and

Australian Evidence” (second edition), University of Queensland Press, 1989 (“Officer Study”) which was based on data for the period 1883 to 1987 and therefore was undertaken prior to the introduction of dividend imputation in Australia.

However, there are very significant measurement issues with betas which mean that only limited reliance can be placed on such statistics. Even measurement of historical betas is subject to considerable variation. There is no “correct” beta.

Debt/Equity Mix The tax deductibility of the cost of debt means that the higher the proportion of debt the lower the WACC, although this would be offset, at least in part, by an increase in the beta factor as leverage increases. The debt/equity mix assumed in calculating the discount rate should be consistent with the level implicit in the measurement of the beta factor. Typically, the debt/equity mix changes over time and there is significant diversity in the levels of leverage across companies in a sector. There is a tendency to calculate leverage at a point in time whereas the leverage should represent the average over the period the beta was measured. This can be difficult to assess with a meaningful degree of accuracy. The measured beta factors for listed companies are “equity” betas and reflect the financial leverage of the individual companies. It is possible to unleverage beta factors to derive asset betas and releverage betas to reflect a more appropriate or comparable financial structure. In Grant Samuel’s view this technique is subject to considerable estimation error. Deleveraging and releveraging betas exacerbates the estimation errors in the original beta calculation and gives a misleading impression as to the precision of the methodology. Deleveraging and releveraging is also incorrectly calculated based on debt levels at a single point in time. In addition, the actual debt and equity structures of most companies are typically relatively complex. It is necessary to simplify this for practical purposes in this kind of analysis. Finally, it should be noted that, for this purpose, the relevant measure of the debt/equity mix is based on market values not book values.

Specific Risk The WACC is designed to be applied to “expected cash flows” which are effectively a weighted average of the likely scenarios. To the extent that a business is perceived as being particularly risky, this specific risk should be dealt with by adjusting the cash flow scenarios. This avoids the need to make arbitrary adjustments to the discount rate which can dramatically affect estimated values, particularly when the cash flows are of extended duration or much of the business value reflects future growth in cash flows. In addition, risk adjusting the cash flows requires a more disciplined analysis of the risks that the valuer is trying to reflect in the valuation. It is also common in practice to allow for certain classes of specific risk (particularly sovereign and other country specific risks) by adjusting the discount rate applied to forecast cash flows. In Grant Samuel’s view this approach can be problematic, In particular, it can result in unintentional and unwarranted reductions in estimated value that do not reflect the particular circumstances and characteristics of the asset to be valued. In Grant Samuel’s view it is generally more appropriate to make a judgemental adjustment to calculated net present values (which is conceptually akin to risk adjusting cash flows) having regard to the particular circumstances and characteristics of the relevant asset. Where available, market based evidence as to value (through share trading in companies with similar assets or change of control transactions involving similar assets) can provide additional insight into the impact on value of sovereign risk.

3 Estimation of variables for Zinifex and Oxiana

Risk-Free Rate

A risk free rate of 3.5% has been selected for the US dollar denominated assets of Oxiana and Zinifex. The risk free rate is judgmentally estimated by Grant Samuel having regard to the current yield to maturity on the 10 year United States Treasury Notes.

Market Risk Premium

A market risk premium of 6% has been assumed. While recognising the uncertainties attached to this estimate, Grant Samuel believes this figure is within the range of generally accepted figures of long term market risk premiums in Australia and United States. Some research analysts and other valuers may use even lower premiums. Overall, Grant Samuel believes 6% to be a reasonable, if not conservative, estimate.

Beta Factor

Grant Samuel has adopted beta factors for the purposes of valuing Oxiana’s and Zinifex’s assets of 0.9-1.1 (US dollar cash flows). In adopting these beta factors, Grant Samuel has considered estimates of beta for a range of mining companies, estimated both by reference to each company’s home exchange index and by reference to the Morgan Stanley Capital International Developed World Index (“MSCI”), an international equities market index that is widely used as a proxy for the global stockmarket as a whole. In Grant Samuel’s view betas estimated by reference to the MSCI are generally more relevant than those estimated relative to home indices, because they represent a better measure of the systematic risk added to the portfolio of a diversified international investor as the result of investing in the resources sector. Grant Samuel has also considered betas estimated on the basis of share market data over various periods of time. Betas are, conceptually, estimates of the expected systematic risk added to a diversified portfolio by an investment (although they are estimated by reference to historical share market data). Estimates based on historical data do not necessarily reflect investor expectations. A summary of betas for selected comparable listed companies, based on share market data over the last four years, is set out in the table below:

Equity Beta Factors for Selected Listed Mining Companies

Monthly Observations over 4 years

Weekly Observations over 2 years

Bloomberg Bloomberg

Company

Market Capital-isation (USD

millions)

AGSM / LBS / Barra2

Local Index MSCI3

Local Index MSCI

Zinifex 4,367 2.66 1.63 1.63 1.96 1.63 Oxiana 4,569 2.20 2.06 1.96 1.74 1.12 Diversified Mining BHP 206,402 1.03 1.47 1.33 1.55 1.26 Rio Tinto 174,456 0.63 1.17 1.00 1.27 0.99 Anglo American 87,710 1.18 1.56 1.52 1.92 1.80 Xstrata 76,054 1.42 1.00 0.95 1.86 1.81 CVRD 167,308 n.a. 1.09 2.07 1.10 1.77 Median 1.11 1.17 1.33 1.55 1.77 Weighted average 0.98 1.27 1.41 1.45 1.44 Zinc Kagara 916 1.73 2.87 3.24 1.32 0.97 Boliden 3,149 n.a. 1.66 2.57 1.52 1.93 Lundin 3,066 3.09 3.07 3.26 2.04 1.68 Median 2.41 2.87 3.24 1.52 1.68 Weighted average 2.78 2.42 2.95 1.72 1.70 Copper Teck Cominco 20,866 2.30 1.81 1.47 2.07 1.59 Equinox 2,678 4.45 3.46 2.25 2.27 1.99 Aditya Birla 637 1.60 2.20 1.97 1.74 0.85 Pan Australian 1,443 n.a. 1.85 1.59 1.82 1.30 Antofagasta 14,949 1.16 1.33 1.54 1.81 1.93 Median 1.95 1.85 1.59 1.82 1.59 Weighted average 1.99 1.76 1.57 1.97 1.71

Source: AGSM, Bloomberg, London Business School, Barra

The beta estimates in the above table suggest that pure play zinc and copper companies have betas of well over 1.0 (indicating more systematic riskiness than the overall market), although large diversified mining companies such as BHP, Rio, Anglo American and Xstrata (which have significant exposure to copper and other base metals and bulk commodities) appear to have betas of closer to 1. However, in Grant Samuel’s view, it is not clear that beta calculations based exclusively on share market data for the last four years will provide reliable estimates of expected systematic riskiness. Resources companies over the last four years have generally significantly outperformed broader measures of equity market performance. This is largely the result of a substantial increase in prices for nearly all commodities, itself the result of the increasing impact of growing Chinese and other developing nation demand for commodities, supply shortages, significantly increased production costs and other factors. While there is little market consensus about likely long run future commodity prices, there has been a dramatic change in expectations of long run prices relative to

2 The Australian beta factors calculated by the Australian Graduate School of Management (“AGSM”) as at 31 December 2007 over a

period of 48 months using the Scholes-Williams technique. United Kingdom beta factors calculated by London Business School (“LBS”) as at March 2008 over a period of 60 months using ordinary least squares regression or the Scholes-Williams technique (including lag) where the stock is thinly traded. Canadian and European beta factors are calculated by Barra, Inc. (“Barra”) as at 31 March 2008 over a period of 60 months using ordinary least squares regression..

3 The MSCI beta factor is calculated using the MSCI Developed World Local Currency Index.

those that prevailed (say) five years ago. In effect, there has been a “paradigm shift” in the market’s view on the value of commodities and resources companies. In the context of an overall risk in stock market value, the outperformance of resources companies results in the calculation of betas of well over 1.

In Grant Samuel’s view this is potentially misleading. To the extent that the outperformance of the resources sector (and the consequent high beta measurements) reflects a one-off (although gradual) “paradigm shift”, the calculated betas may reflect a specific risk factor rather than systematic risk. This view is supported by the recent performance of many major resources stocks, which have generally performed relatively strongly in the context of significant declines in overall markets. Prima facie, this relative performance (with resources stocks declining by less than the overall market) suggests betas of less than 1. Moreover, the strong share price performance of major resources companies is not obviously consistent with high beta values and high discount rates. To the contrary, it would appear more likely that, at least implicitly, resources sector investors have factored in lower discount rates (implying lower betas) in their valuations of resources sector stocks. Accordingly, Grant Samuel has had regard to betas estimated over various time periods based on share market data over the last twelve years. These were estimated in the context of the Rio bid for North (July 2000), the Xstrata acquisition of MIM (April 2003) and the Xstrata bid for WMC (January 2005). This beta analysis is set out below:

Beta Factors for Selected Listed Resources Companies July 2000

Beta Factor

Bloomberg4 AGSM5 Company

Equity Market Value

Millions US$M

Home Exchange MSCI6 OLS Scholes-

William Base Metals MIM Limited 1,024 1.40 0.99 1.91 1.49 Pasminco Limited 612 1.32 0.98 1.76 1.73 Cominco Limited 1,144 0.91 1.20 - - Phelps Dodge 3,075 1.03 1.13 - - Grupo Mexico 2,297 0.70 0.88 - - Western Metals 49 1.06 0.82 1.15 1.02 Asturiana de Zinc 407 1.08 1.41 - - Antafagasto 1,137 0.81 1.10 - - Union Miniere 960 0.81 1.10 - - Freeport McMoran 1,412 1.23 1.48 - - Teck Corporation 691 0.99 0.85 - - Simple average 1.03 1.09 1.61 1.41 Weighted average 0.99 1.10 1.83 1.56 Median 1.03 1.10 1.76 1.49

Source: AGSM, Bloomberg

4 Betas sourced from Bloomberg are calculated over a five year period to 30 June 2000 using monthly observations. 5 Betas sourced from AGSM are calculated over a four year period to 31 March 2000 using monthly observations. They are calculated

relative to the All Ordinaries Index of the Australian Stock Exchange. 6 MSCI (Morgan Stanley Capital International All Countries World Index) calculated using the local currency of each company.

Beta Factors for Selected Listed Resources Companies April 2003 Beta Factor

Bloomberg7 AGSM8

Home Exchange MSCI9 Company

Equity Market Value

Millions US$M Raw Adj Raw Adj

OLS Scholes-William

Base Metals Phelps Dodge Corporation 2,961.3 1.19 1.13 1.29 1.19 na na Freeport McMoRan Copper and Gold Inc 2,467.5 1.16 1.11 1.35 1.23 na na

Xstrata plc 2,132.2 0.99 0.99 0.73 0.82 na na Antofagasta plc 2,019.9 0.73 0.82 0.73 0.82 na na Noranda Inc 2,001.2 0.59 0.72 0.69 0.80 na na MIM Holdings Limited 1,752.1 1.40 1.27 0.77 0.85 1.80 1.85 Teck Cominco Limited 1,408.5 0.61 0.74 0.59 0.73 na na Southern Peru Copper Corporation 1,231.3 0.66 0.78 0.71 0.81 na na Umicore SA 902.2 0.60 0.74 0.70 0.80 na na Grupo Mexico SA de CV 757.8 0.79 0.86 0.72 0.81 na na Boliden AB 181.3 0.78 0.85 1.42 1.28 na na

Simple average 0.86 0.91 0.88 0.92 1.80 1.85 Weighted average 0.93 0.95 0.90 0.93 1.80 1.85 Median 0.78 0.85 0.73 0.82 1.80 1.85 Diversified BHP Billiton Limited 32,917.7 1.24 1.16 0.72 0.81 1.62 1.89 Rio Tinto Limited 29,422.5 1.25 1.17 0.69 0.80 1.73 1.76 Anglo American plc 21,314.4 1.36 1.24 1.13 1.09 na na

Simple average 1.28 1.19 0.85 0.90 1.68 1.83 Weighted average 1.27 1.18 0.81 0.88 1.67 1.83 Median 1.25 1.17 0.72 0.81 1.68 1.83

Source: AGSM, Bloomberg

7 Betas sourced from Bloomberg are calculated over a five year period to 31 March 2003 using monthly observations. 8 Betas sourced from AGSM are calculated over a four year period to 31 December 2002 using monthly observations. They are calculated


Beta Factors for Selected Listed Resources Companies January 2005 Beta Factor

Bloomberg10 AGSM11 Company

Equity Market Value

Millions US$M

Home Exchange MSCI12 OLS Scholes-

William Diversified Mining BHP 70,675.8 1.17 0.60 1.38 2.02 Rio Tinto 41,265.2 0.77 0.57 0.91 1.12 Anglo American 33,042.2 1.10 1.05 na na CVRD 27,656.5 0.28 0.11 na na Xstrata 11,038.5 1.43 1.46 na na Median 1.10 0.60 1.15 1.57 Weighted Average 0.95 0.65 0.74 1.03 Copper Phelps Dodge 10,281.3 1.64 1.70 1.41¹ na Freeport McMoRan 6,749.7 1.06 1.07 na na Teck Cominco 5,682.8 1.43 1.22 na 0.63² Grupo Mexico 4,162.6 1.30 0.87 na na Antofagasta 4,046.6 0.64 0.64 na na Southern Peru Copper 3,720.0 0.79 0.81 0.59¹ na Median 1.18 0.97 1.00 0.63 Weighted Average 1.24 1.18 1.19 0.63

Source: AGSM, Bloomberg Notes: 1. Sourced from Ibbotson. 2. Sourced from the Financial Post Data Group, calculated based on 60 months of monthly data.

The evidence suggests a wide range of betas. However, for betas measured against the MSCI, the betas tend to be around 1 (and for some periods arguably appear somewhat lower than 1). Beta estimates are by their nature imprecise and judgemental, as highlighted by the shift in measured betas illustrated in the tables above. In Grant Samuel’s view, it is reasonable to adopt betas in the range 0.9-1.1. This range reflects beta estimates over a longer period of time than betas estimated over the last four years and appears broadly consistent with the views of market participants.

Cost of equity capital Using the CAPM formula of Re = Rf + Beta (Rm – Rf) and the estimates set out above, the cost of equity capital can be calculated to be in the range 8.9-10.1%.

10 Betas sourced from Bloomberg are calculated over a five year period to 30 November 2004 using monthly observations. 11 Betas sourced from AGSM are calculated over a four year period to 30 September 2004 using monthly observations. They are calculated


3.1 WACC

Grant Samuel has adopted a WACC in the range 8.0-9.0%.

Cost of Debt A cost of debt of 5.0% has been adopted. This figure represents the expected future cost of borrowing over the duration of the cash flow model. Grant Samuel believes that this would be a reasonable estimate of an average interest rate, including margin that would match the duration of the cash flows assuming that the operations were funded with a mixture of short term and long term debt. It represents a margin of 1.5% over the risk free rate.

Debt/Equity Mix The selection of the appropriate debt/equity ratio involves perhaps the most subjectivity of all the elements of discount rate selection analysis. In determining an appropriate debt/equity mix, regard was had to gearing levels of selected comparable listed Australian and international mining companies and the nature and quality of the cash flow streams from Oxiana’s and Zinifex’s businesses. Gearing levels for selected listed companies in the Australian and international mining sector over the past four years are set out below:

Gearing Levels for Selected Listed Mining Companies Net Debt/(Net Debt + Market Capitalisation)

Year Ended Company

2004 2005 2006 2007 Current13 Average

Zinifex 2.2 (2.1) (8.1) (53.7) (81.0) (28.5) Oxiana 9.2 11.5 (5.9) 3.1 3.4 4.3 Diversified Mining BHP 5.9 7.9 6.7 5.8 5.5 6.4 Rio Tinto 8.9 1.9 3.4 22.9 20.3 11.5 Anglo American 18.9 8.9 1.5 1.2 1.1 6.3 Xstrata 11.5 15.0 21.7 14.5 13.2 15.2 CVRD 8.9 8.4 21.3 10.9 10.7 12.0 Median 8.9 8.4 6.7 10.9 10.7 9.1 Weighted average 9.5 7.4 10.2 11.6 10.6 9.9

Zinc Kagara 15.4 6.2 2.2 2.9 3.9 6.1 Boliden 43.2 20.9 (1.3) 18.5 21.2 20.5 Lundin (60.1) (14.1) (11.3) (0.9) (1.1) (17.5) Median 15.4 6.2 (1.3) 2.9 3.9 5.4 Weighted average (4.0) 4.2 (5.0) 8.3 9.5 2.6 Copper Teck Cominco 1.5 (8.1) (24.8) 0.7 0.5 (6.0) Equinox 11.0 (80.5) (8.7) 6.1 7.0 (13.0) Aditya Birla(1) n/a n/a 12.3 3.5 6.3 (9.7) Pan Australian (45.7) 1.3 (24.4) 10.7 9.4 4.4 Antofagasta (7.0) (15.5) (17.3) (16.1) (15.0) (14.2) Median (2.8) (12.0) (17.3) 3.5 6.3 (3.1) Weighted average (2.8) (15.0) (20.3) (4.8) (4.5) (9.5)

Source: Bloomberg Notes: 1. Cash and debt balance as on year ended 30 September

Having regard to the above, and given the quality of the cashflow streams of the assets of Zinifex and Oxiana, Grant Samuel has adopted a debt/equity mix of 15% debt/85% equity for the purpose of the analysis.

WACC On the basis of the parameters outlined and assuming a corporate tax rate of 30%, a nominal WACC in the range 8.1-9.1% can be calculated. This is an after tax discount rate to be applied to nominal ungeared after tax cash flows. However, despite the apparent precision of the calculated WACC, tt must be recognised that the calculated is based on statistics of limited reliability and involving a number of judgemental assumptions. Having regard to these matters and the calculations and data set out above, Grant Samuel has adopted discount rates of 8.0-9.0% (US dollar cash flows) for the purpose of its DCF analysis.

13 Current gearing levels are based on the most recent balance sheet information and on sharemarket prices as at 11 April 2008.

4 Dividend Imputation

The conventional WACC formula set out above was formulated under a “classical” tax system. The CAPM model is constructed to derive returns to investors after corporate taxes but before personal taxes. Under a classical tax system, interest expense is deductible to a company but dividends are not. Investors are also taxed on dividends received. Accordingly, there is a benefit to equity investors from increased gearing. Under Australia’s dividend imputation system, domestic equity investors now receive a taxation credit (franking credit) for any tax paid by a company. The franking credit attaches to any dividends paid out by a company and the franking credit offsets personal tax. To the extent the investor can utilise the franking credit to offset personal tax, then the corporate tax is not a real impost. It is best considered as a withholding tax for personal taxes. It can therefore be argued that the benefit of dividend imputation should be added into any analysis of value. There is no generally accepted method of allowing for dividend imputation. In fact, there is considerable debate within the academic community as to the appropriate adjustment or even whether any adjustment is required at all. Some suggest that it is now appropriate to discount pre tax cash flows, with an increase in the discount rate to “gross up” the market risk premium for the benefit of franking credits that are on average received by shareholders. On this basis, the discount rate might increase by approximately 2% but it would be applied to pre tax cash flows. However, not all of the necessary conditions for this approach exist in practice:

not all shareholders can use franking credits. In particular, foreign investors gain no benefit from franking credits. If foreign investors are the marginal price setters in the Australian market there should be no adjustment for dividend imputation;

not all franking credits are distributed to shareholders; and

capital gains tax operates on a different basis to income tax. Investors with high marginal personal tax rates will prefer cash to be retained and returns to be generated by way of a capital gain.

Other have proposed a different approach involving an adjustment to the tax rate in the discount rate by a factor reflecting the effective use or value of franking credits. If the credits can be used, the tax rate is reduced towards zero. The proponents of this approach have in the past suggested a factor of up to 50% as representing the appropriate adjustment (gamma). Alternatively, the tax charge in the forecast cash flows can be decreased to incorporate the expected value of franking credits distributed. There is undoubtedly merit in the proposition that dividend imputation affects value. Over time dividend imputation will become factored into the determination of discount rates by corporations and investors. In Grant Samuel’s view, however, the evidence gathered to date as to the value the market attributes to franking credits is insufficient to rely on for valuation purposes. More importantly, Grant Samuel does not believe that such adjustments are widely used by acquirers of assets at present. While acquirers are undoubtedly attracted by franking credits there is no clear evidence that they will actually pay extra for them or build the value of franking credits into values based on long term cash flows. The studies that measure the value attributed to franking credits are based on the immediate value of franking credits distributed and do not address the risk and other issues associated with the ability to utilise them over the longer term. Moreover, to the extent that costs of capital for resources companies are effectively determined in international markets (where franking credits have limited value), there is limited basis for including the value of franking credits in valuation analysis. Accordingly it is Grant Samuel’s opinion that it is not appropriate to make any adjustments for the value of franking credits in the valuation methodology. This is a conservative approach.

Appendix 2

Overview of the Zinc and Copper Markets 1 Zinc

Overview Zinc, a hard silver-grey metal, is the third most commonly used non-ferrous metal after aluminium and copper. Zinc is chemically reactive, rapidly oxidizing when exposed to air. It alloys readily with metals such as copper and aluminium, and has a relatively low melting point. These characteristics are the basis of its major applications in corrosion protection, brass and die-casting. Zinc production is essentially a two stage process. Zinc miners mine zinc ore and treat the ore at mine site to yield zinc concentrates. Miners then sell the concentrates to smelters, which use hydrometallurgical or (less commonly) pyrometallurgical processes to produce refined zinc metal. A small amount of zinc slab (around 1% of production) is produced through recycling of scrap. Applications Corrosion Protection Zinc’s most important application is in corrosion protection, which relies on zinc’s reactive nature. Galvanising is the main method of protection against the corrosion of steel. Galvanising involves the deposition of a thin coat of zinc over steel. Galvanising provide a physical barrier to protect steel, with the galvanising process resulting in a zinc-iron compound that creates an unbreakable bond between the steel and the zinc. The surface of the zinc coating on galvanised steel rapidly oxidises, creating a dense and relatively impermeable layer of zinc oxide that protects the zinc surface and steel below from further corrosion. Moreover, the zinc and iron form an electrolytic cell, such that even if the physical zinc barrier is damaged, corrosion preferentially attacks the more chemically reactive zinc rather than the less reactive iron. Galvanising accounted for around 48% of global zinc usage in 2006. Galvanised steel is principally used in the construction and automotive industries. In construction, galvanised steel is used for steel girders and structures and smaller items such as nuts, bolts and washers. In the automotive industry, galvanized steel sheet is used extensively in the manufacture of rust-resistant car bodies. In addition, galvanized steel sheet is used in the production of consumer appliances (eg washing machines) and industrial machinery for which corrosion resistance is important. Brass Brass is a copper-zinc alloy (commonly 65% copper and 35% zinc). Brasses have good corrosion-resistance properties, are machineable and malleable. Brasses have traditionally been used in marine applications, in engineering and for household fittings. Diecasting Zinc’s relatively low melting point (420 degrees C) makes it well suited for diecasting, in which molten metal is injected under high pressure into moulds or dies. Speciality zinc alloys, with small quantities of added aluminium, copper or magnesium, are used in diecasting applications. While diecasting has lost market share in some applications to plastics, diecasting is still used to manufacture precision components, for example in the automotive industry. Approximately 10% of zinc metal consumption relates to diecasting applications.

Rolled Zinc Zinc alloys are more malleable than pure zinc and can be rolled into sheet or extruded into bars. Zinc sheet is used in the building industry, particularly in continental Europe, for roofing, gutters and other applications for which corrosion resistance is important. Rolled and extruded products account for around 10% of zinc consumption. Chemicals Zinc oxides and chemicals represent around 10% of zinc consumption. Zinc oxide is used in the vulcanization of rubber, mainly for the manufacture of car tyres. Zinc oxide is also used in applications such as paints, ceramics, animal feed and fertilizers, and in various consumer applications. The Zinc Market The overall zinc market consists of two closely related but distinct sub-markets: the market for zinc concentrates, in which zinc miners are suppliers and smelters are consumers, and the market for zinc metal, in which smelters are suppliers and end users are consumers. Short term imbalances between the supply of and demand for concentrates (ie smelting capacity vs concentrate supply), as well as fluctuations in zinc prices, affect the treatment charges levied by smelters and the sharing of value between miners and smelters. The basis on which treatment charges are levied by smelters is discussed in more detail below. In the longer term, it appears reasonable to expect that smelter capacity will adjust to, on average, approximately match concentrate supply and that smelter charges will broadly reflect the rates of return required to justify the building of new smelters. Accordingly, in the longer term the major dynamics affecting the overall zinc market will be the factors affecting mine supply and end use demand for zinc, rather than factors relating to smelter arrangements. Demand for zinc is closely related to world GDP and industrial production growth. In addition, demand growth tends to slow as economies become wealthier and a greater proportion of GDP growth is contributed by services and high value-add activities. Global zinc demand grew very slowly towards the end of the 20th century, with zinc demand growing by no more than 5% in aggregate over the period 1980-1992, and more rapidly, but still at relatively modest rates of 3.8% per annum, for the period 1993 to 2002. The result of this slow growth in demand for zinc was that zinc supply generally matched or exceeded demand and, with the exception of price spikes in 1980/1990 and 1997, zinc prices were generally subdued. However, from 2004 accelerating demand growth from developing nations (and, in particular, dramatic growth in Chinese demand) has significantly changed the overall demand/supply balance. Rapid Chinese industrialization resulted in strong Chinese demand growth. Given the relatively slow rates of growth of demand for zinc in developed economies and the absolute size of the Chinese economy, Chinese growth in demand is expected to be the major determinant of aggregate demand growth for the rest of this decade. Mine supply of zinc (to be precise, of zinc concentrates) is a function both of factors relating to the discovery and development of new zinc deposits and of zinc prices, with higher zinc prices stimulating the development of zinc ore bodies that might otherwise not be developed. The following table shows reserves and annual production data for some of the world’s largest zinc mines:

Zinc Mines

Mine

Location

Date measured

Reserves 12 months production

Zinc (Mt)

Lead (Mt)

Silver (Moz)

Gold (Moz)

Zinc (Kt)

Lead (Kt)

Red Dog Alaska / USA 31 Dec 07 11.1 3.0 - - 575.4 136.2

Century Australia 31 Mar 07 5.2 0.5 - - 502 38 Rampura Agucha

India 31 Mar 07 6.4 1.0 - - 315 40

Antamina Peru 31 Dec 07 3.2 - 74 - 291.7 - Skorpion Namibia 31 Dec 07 1.3 - - - 150.1 - Lisheen Ireland 31 Dec 07 1.2 0.2 - - 164.7 20.2 Golden Grove

Australia 31 Dec 07 0.6 0.1 14.6 0.3 132 8.1

San Cristobal

Bolivia 31 Dec 06 3.9 1.3 446 - 182¹ 85¹

Source: company reports Notes: 1. Based on production plan A steady increase in Chinese mine production during the 1990s and early 2000s resulted in China becoming the single largest producer of zinc concentrate. Much of Chinese production is believed to be from small scale artisanal mines, for which there is little accurate cost or production data. However, it appears that much of this artisanal production is relatively high cost and sensitive to changes in zinc prices. Low zinc prices for much of the 1990s and early 2000s and consequent modest investment in new zinc mine capacity meant that the industry had limited ability to respond to the China-driven growth in demand over the period 2004-2006. LME stockpiles declined significantly and the zinc price rose to record levels, reaching a high of US$4,619 per tonne (US$2.10/lb) in November 2006:

Worldwide Zinc Industry (‘000 tonnes) 2003 2004 2005 2006 2007 Mine production Europe Americas Africa Oceana Asia

1,011 3,744

258 1,447 3,057

1,006 3,577

352 1,298 3,499

1,057 3,528

414 1,329 3,821

1,037 3,497

343 1,338 4,246

856

3,165 271

1,171 3,938

Total production 9,517 9,732 10,148 10,462 9,401

Total refined 9,879 10,365 10,229 10,691 9,450

Total consumption 9,841 10,651 10,611 11,044 9,501

Worldwide stockpile 740 629 394 90

LME Cash Average US$/tonne USc/lb

$827

38

$1,047

48

$1,381

63

$3,274

149

Source: Zinifex

The historical zinc prices in US$ and A$ terms are compared to the long run zinc price assumptions adopted by Grant Samuel for valuation purposes below:

US$ Zinc PricesApril 1998 - March 2008

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2.20

Apr-98

Oct-98

Apr-99

Oct-99

Apr-00

Oct-00

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

$US/

bs

Zinc (US$/lb) GS Low (US$/lb) GS High (US$/lb)

Source: Bloomberg

A$ Zinc PricesApril 1998 - March 2008

0.000.200.400.600.801.001.201.401.601.802.002.202.402.602.80

Apr-98

Oct-98

Apr-99

Oct-99

Apr-00

Oct-00

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

$A/lb

s

Zinc (A$/lb) GS Low (A$/lb) GS High (A$/lb)

Source: Bloomberg

The dramatic increase in the zinc price during 2006 and 2007 resulted in a substantial expansion in zinc production, particularly from the Chinese small mine artisanal sector. Easing of supply pressures resulted in a sharp fall in zinc prices in late 2007 and early 2008, to prices of around US$2,300/tonne (US$1.05/lb) in early April 2008. Many analysts and other market commentators are predicting falls in the zinc price to long run prices below US$1.00/lb. In Grant Samuel’s view, however, there are good grounds to expect reasonably strong zinc price performance in the medium to longer term. Zinc stocks remain low by historical standards. Demand is expected to continue to grow and a number of major existing mines face short to medium term reserve depletion. There are few identified major resources for near term development. Cost pressures suggest that much supply (including supply from artisinal mining in China) would not be economic at significantly reduced zinc prices. In the context of continued demand growth, all these factors suggest that there are good grounds to expect zinc price strength over the medium to longer term.

2 Copper

Overview Copper is valued for its electrical and thermal conductive properties, its durability and its strength. Copper is the second most commonly used non-ferrous metal after aluminium. It readily alloys with other metals and is also resistant to corrosion. These properties allow copper to be used in a wide range of applications in building and construction, electrical applications, electronics and communication, transportation, industrial machinery and equipment, consumer and general products. Copper is mined in open pits and underground. The orebodies usually contain a percentage of copper that is generally less than 5% copper. The miners either produce a copper concentrate (which is sold to smelters or traders) or copper metal (which is sold to end users or traders). Over the past decade, the commissioning of large copper mines that produce copper metal using solvent extraction/electrowinning (SX/EW) metallurgical processes has resulted in additional, low cost copper production. Recycled copper is a significant secondary source of copper. Copper and its alloys have been recycled for hundreds of years and account for a substantial proportion of the copper produced and sold each year. Applications

Copper is one of the first metals to be used by humans though its role has evolved over time. Since the discovery of electricity and magnetism in the 18th and 19th century, copper has found widespread use in electrical goods and wires. Building and Construction The building and construction industry is the largest consumer of copper. For several centuries non-corrosive copper pipes have been used for plumbing in buildings. Copper pipes are convenient to use as they can be easily joined metallurgically by brazing or soldering. It is also safe to use copper in buildings, because, although it is an excellent thermal and electrical conductor, copper does not burn or support combustion. Copper and its alloys are extensively used in building construction for wiring, water piping, gas tubing, roofing, architectural building design, heating and air conditioning systems, interior and exterior artwork, doorknobs, lightning rods, faucets, and even fire sprinkler systems. Copper used in building products can be recovered, recycled and reused. Electrical, Electronics and Communication Copper is malleable and ductile and given its efficiency in transferring electricity at room temperature, copper is widely used in electric generators, household electrical wiring, and the wires in appliances, lights, motors, radios and TV sets. Copper wires are used extensively in telecommunication networks for high speed transfer of voice and data. In the semiconductor industry, copper is used in microprocessor chips to transfer heat from the chip circuitry.

Industrial Machinery and Equipment Copper readily forms alloys with other metals and some of these alloys are commonly used in industrial machinery and equipment. Copper and its alloys are preferred for making products such as gears, bearings, and turbine blades because of their durability, machinability, and ease of casting with high precision and tolerance. Transportation Copper is also used in the automobile, aerospace and railway industries. For many years in the automobile industry, the automotive radiator was the most important end use of copper. However, the usage of copper in automotive electrical and electronic applications has grown rapidly while its use in the heat exchanger has declined. In the aerospace industry, the mechanical properties of copper alloys including their good strength-to-weight ratios, bearing strength, and fatigue and corrosion resistance, have favored the use of these alloys in undercarriage components, aero engine bearings, bushings, display unit components, and helicopter motor spindles. A large amount of copper is used in railway systems for electrification and in the manufacture of switchgears and motor windings. General Products Copper and its alloys are commonly used in home furnishing and kitchen ware. Traditionally, copper has also been used in the manufacture of coins and medallions. It is estimated that production of copper coins across the world consumes thousands of tons of copper each year. The Copper Market Copper miners produce either copper concentrates (generally from floatation treatment of primary copper deposits) or copper metal (including by way of SX/EW treatment of copper oxide ore bodies). Copper concentrates are sold to smelters or concentrate traders. Mined copper accounts for approximately 70% of the total copper produced each year. Recycling from scrap is a secondary source of copper accounting for the remaining 30%.

Worldwide Copper Industry (‘000 tonnes)

2004 2005 2006 2007 Refined Copper Production Europe Americas Africa Oceania Asia

3,334 5,774

524 519

5,727

3,386 5,750

553 441

6,409

3,425 5,676

633 429

7,038

3,427 5,826

738 483

7,721 Total production 15,877 16,540 17,201 18,194 Total consumption 16,753 16,849 17,373 18,039

Worldwide stockpile 442 452 592 563

LME Cash Average USc/lb 130 167 305 323 Source: Oxiana Global copper production is still dominated by Chilean mines, accounting for approximately 35% of total production in 2007. Other major producing areas are Asia and Europe.

Worldwide Copper Production

-

5,000

10,000

15,000

20,000

25,000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

(F)

2009

(F)

2010

(F)

000

tonn

es

Europe North America South and Central America China Asia (excl. China) Rest of World

Source: Oxiana A large proportion of production is from mines owned by large integrated international producers. In 2006 the top 10 mining companies (in terms of quantity of copper produced) accounted for about 50% of world production, and industry consolidation continues to increase concentration. Production from many existing mines is expected to begin to decline due to falling ore grades and depletion of reserves. In addition, operating and capital costs for producers are increasing and production is being impacted by shortages of skilled labour, equipment and spare parts. A number of major new mines are planned in the next 5 years but many of these are in higher risk countries, including projects in Zambia, DR Congo and Mongolia. The growth in direct metal production (largely through SX/EW processes) means that the copper concentrate market is a less significant component of the overall copper market than previously. Concentrate stocks have declined over the past two years as concentrate production from mines has not kept pace with increased smelter capacity.

Worldwide Copper Concentrate Supply/Demand (‘000 tonnes) 2004 2005 2006 2007 2008(F) Mine Production of Conc. Smelter Production Adj. for secondary production & losses

11,849 11,840

360

12,177 12,406

423

12,141 12,856

494

12,315 13,209

408

13,123 13,594

475

World Balance 369 193 (221) (380) 4 Source: Oxiana This imbalance between the supply of and demand for concentrates has shifted smelting terms in favour of copper concentrate producers. The concentrate producers have negotiated favorable terms with the smelters which include low treatment charges and no price participation. With additional smelter capacity committed for the next couple of years, smelting terms are expected to remain favourable for miners in the short term (although rising smelter operating costs, including higher energy and other operating costs and higher capital costs, will ultimately be reflected in treatment charges). The demand for copper is heavily influenced by the level of economic activity and infrastructure development in the world. Between 1970 and 2007, the world consumption of refined copper more than

doubled from approximately 7.2 billion tonnes to 18.0 billion tonnes. During the first half of this period, Europe and North America accounted for the majority of copper consumption. Though European and North American copper consumption has increased modestly during the latter half of this period, the European and North American relative share of world copper consumption has declined significantly. Except for brief spells in 1990, 1992 and 2001, world consumption of copper has increased consistently over last two decades.

Worldwide Copper Consumption

-

5,000

10,000

15,000

20,000

25,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

(F)

2010

(F)

000

tonn

es

Europe (including former Soviet Union) Americas China Asia (excl China) Rest of World

Source: Oxiana Increased demand for copper has largely been a reflection of rising consumer demand and infrastructure development in developing nations. Most of the increase in global copper consumption can be attributed to the developing Asian nations and to China in particular. Consumption in China has grown at double digit rates in six of the last eight years. Demand has also remained strong in the industrialised nations, especially the United States. This reflects the strong growth in the use of wire and cable for telecommunications and information technology, despite substitution in some applications by improved alloys and the introduction of generally smaller, more efficient products. The recent slowing of economic growth in the United States may impact on demand. During the 1990’s, the price of copper gradually declined, falling to its lowest level in March 1999, as worldwide copper production consistently exceeded consumption. As seen in the chart below, in the period between 1993 and 1999, global production exceeded consumption in every year even though consumption increased. The growth in production of refined copper reached a plateau during 2001 to 2003. Between 2003 and 2006, driven by rapid growth in demand from China, copper consumption consistently exceeded production.

World Refined Copper

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

000

's to

nnes

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

US$

/lb

Consumption Production Average Copper Price

Source: Oxiana As a result of growth in demand relative to supply, copper stocks have declined to historically low levels and the copper price has risen dramatically. Historical copper prices in US$ and A$ terms are compared to the long run copper price assumptions adopted by Grant Samuel for valuation purposes in the charts below:

US$ Copper PricesApril 1998 - March 2008

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Apr-98

Oct-98

Apr-99

Oct-99

Apr-00

Oct-00

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

US$

/lb

Copper (US$/lb) GS Low (US$/lb) GS High (US$/lb)

Source: Bloomberg

A$ Copper PricesApril 1998 - March 2008

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

Apr-98

Oct-98

Apr-99

Oct-99

Apr-00

Oct-00

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

A$/

lbs

Copper (A$) GS Low (A$/lb) GS High (A$/lb)

Source: Bloomberg Following a long period of copper prices below US$1.00/lb, the copper market strengthened steadily through 2004 and 2006, reaching around US$2.00/lb by the end of 2005. In 2006, the copper price increased dramatically. Since then, the copper price has been very volatile, with copper trading in the broad range of $2.00-3.90 during 2006 and 2007. After weakening in late 2007, the copper market has strengthened in early 2008, with the copper price reaching US$4.00 in early April 2008. A number of

market commentators and copper producers are now projecting very strong copper prices for at least the medium term The following chart shows pricing for copper forwards contracts for various time periods. The forwards prices are generally consistent with the long run copper price assumptions adopted by Grant Samuel for valuation purposes:

Copper Forward Prices

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Apr-08

Jul-0

8

Oct-08

Jan-09

Apr-09

Jul-0

9

Oct-09

Jan-10

Apr-10

Jul-1

0

Oct-10

Jan-11

Apr-11

Jul-1

1

Oct-11

Jan-12

Apr-12

Jul-1

2

Oct-12

Jan-13

Apr-13

Jul-1

3

US$

/lb

Copper Forward Price

Source: Bloomberg

Appendix 3

Valuation Concepts for Gold Projects

1 Overview

Despite the extensive analysis of gold companies and gold projects by analysts, valuers and other market commentators, there is little consensus on an appropriate basis for the valuation of gold assets. While the discounted cash flow (“DCF”) methodology is frequently applied to valuing gold companies and gold projects, there is considerable uncertainty about the extent to which the results properly explain observed market values. This uncertainty is reflected in the reliance on rules of thumb based on quantities of gold reserves and resources and the frequent use of DCF valuations as an indicator of relative rather than absolute value. This Appendix examines some difficulties inherent in using the DCF methodology to value gold companies and gold projects and examines modifications to the DCF approach to obtain more meaningful results. In particular, the Appendix sets out the theoretical background to Grant Samuel’s adoption of the gold futures methodology as its preferred approach to the valuation of gold assets.

2 Limitations of the discounted cash flow methodology

Although the DCF methodology is widely used for valuing gold projects, it has a number of shortcomings. Most importantly, the ability of DCF valuations to explain the value of gold assets is at best limited. The value of gold assets estimated by DCF valuations is frequently substantially less than the value of the assets observable by reference to equity market values or the price at which the assets are purchased and sold. This is particularly the case with long life gold assets. DCF analysis attributes little value to the later years of production of such long life assets. Some of the difference between values estimated using the DCF methodology and market values may be explained by reference to exploration and development potential not explicitly captured by the DCF methodology. Analysts and other gold market observers frequently refer to a “gold premium” to explain the residual difference between DCF valuations and market values. In Grant Samuel’s view, this is unsatisfactory. The notion of a “gold premium” does not provide an intellectually rigorous and replicable technique for valuing gold assets. To the contrary, it represents no more than a confirmation that DCF valuations frequently fail to explain the observable value of gold assets. In summary, it appears that the DCF methodology as traditionally applied may be flawed for the valuation of gold assets. This view is supported by:

the diversity of assumptions made by valuers as to discount rates and future gold prices; and

the poor predictive power of DCF analysis when applied to the valuation of gold assets. 2.1 Selection of Discount Rates

Discount rates are normally estimated by reference to the cost of capital of a company or the industry in which it trades. The cost of capital is usually calculated as the weighted average cost of equity and debt. The cost of equity is commonly estimated on the basis of the Capital Asset Pricing Model (“CAPM”). This in turn requires an estimate of the beta to apply to the valuation process. Recently published valuations of gold assets have made a variety of assumptions regarding the betas of gold companies. The betas used have been generally in the range 0.5 to 1.5. The range of betas reflects, amongst other factors, differing assumptions regarding the appropriate share market against which to measure returns on gold stocks. Betas estimated against the Australian share market are commonly in the approximate range 1.0 to 1.5. However, if it is assumed that the marginal price setting investor in a gold company is an international investor, then the appropriate share market

against which to measure the correlation of returns on gold stocks is an international share market. Betas measured on this basis may range between 0 and 0.5. In Grant Samuel’s view the available evidence is insufficient to reach any firm conclusion as to the value of betas for Australian gold companies. There is unlikely to be any single correct beta for a company. In any event, the relevant beta is not the beta measured using historical data or a particular statistical technique but rather the beta used or implicit in the pricing decisions of investors in and acquirers of gold assets. Betas for gold companies in which domestic investors are the price setters may be in the approximate range 1.0 – 1.5. The beta of a gold company is likely to reduce as the perceived quality and expected life of its assets increase, the company is able to attract international investment and its shares are traded more deeply. For large gold companies or assets in which foreign investors are likely to be the price setters a beta in the range 0.0 - 0.5 appears reasonable.

2.2 Forecasting of Future Gold Prices

Projecting future gold prices for the purpose of calculating expected revenues from gold mining operations also involves uncertainty. The gold price has historically demonstrated considerable volatility.

Valuers use a wide variety of assumptions regarding future gold prices, including assumptions that:

the current real spot price, expressed in US dollar terms, will continue for the foreseeable future. This assumption is defensible on the basis that the current spot price should incorporate market expectations regarding the future spot price. However, DCF valuations using this assumption typically undervalue gold assets by substantial margins;

there will be real movements in gold prices. Such assumptions amount to a belief that the valuer has a better view of the gold market than the market in general;

gold prices will be realised on the basis of actual gold company hedging policies. This assumption results in the use of higher gold prices for part of the output from a gold project. While it is true that actual hedge positions will add to or subtract from value, Grant Samuel is not aware of any evidence that hedging programs increase value on a prospective basis. To the contrary, there is a common market view that hedging reduces investor interest in gold stocks and destroys value; and

all gold will be sold at prices equal to the prices currently obtainable for future delivery of gold (“futures prices”). The use of futures prices may be justified on the basis that futures prices provide a reliable indicator of the value of future gold production. However, the use of futures prices is not obviously consistent with traditional DCF methodology. The DCF methodology involves the estimation of expected future cash flows. The gold futures price is not equal to the expected future spot gold price. Use of the gold futures price will result in the estimation of “notional cash flows” that are not equal to expected actual future cash flows. Moreover, use of the gold futures price represents an adjustment in full for gold price risk. To the extent that gold price risk is a component of non-diversifiable risk, use of the gold futures price and a discount rate estimated using the conventional CAPM framework may result in an effective “double-counting” of some or all of the gold price risk.

3 Gold Futures Methodology

Theoretical valuation methodologies such as the DCF methodology are based on the premise that the value of an asset or project can be estimated by identifying a portfolio of financial assets of similar cash flow and risk characteristics and extrapolating the value of that portfolio. The DCF methodology assumes that the appropriate analogous asset portfolio is a portfolio of riskless bonds and increases the discount rate to adjust for the additional risks involved in real assets.

It is not clear that the conventional DCF methodology is the most appropriate methodology for valuing gold mining projects. There is a body of argument that suggests that the analogous asset portfolio for gold projects is a portfolio comprised of bonds and gold or bonds and futures contracts over gold. Valuation models which attempt to incorporate the value of management flexibility assume that a mining project may be viewed as a portfolio of complex options over the commodity being mined. However, such an analysis increases practical complexities substantially. This section of the Appendix discusses the valuation of gold projects on the basis that the value of gold projects may be estimated by reference to the value of asset portfolios consisting of bonds and either gold futures or physical gold. The limited usefulness of the DCF methodology for valuing gold assets may be a consequence of the fact that gold is not a commodity. Rather, it is commonly viewed as a financial asset. Through the gold futures market, it is possible to earn returns on gold commensurate with the returns on low risk financial instruments. The gold futures market also provides a precise measure of the present value of gold delivered at some time in the future. A gold futures contract is a contract to buy and sell a quantity of gold for a specified price (the “futures price”) to be delivered at some point in the future. The present value of the future gold delivery is given by the futures price discounted at the risk free rate for the period to delivery of the gold. Valuation of a gold project requires the subtraction of the present value of future extraction costs from the present value of future gold production. Future gold production may be represented as a series of expected gold deliveries. Expected gold deliveries are defined as the mean of all probability adjusted gold deliveries. These expected gold deliveries can be valued by reference to the relevant futures prices, discounted at the risk free rate. This does not represent an attempt to estimate actual future gold revenues. Rather, it is a means of estimating the current value of future gold production. It is argued that it is appropriate to use the risk free rate to value future production because:

all gold price risk has been taken into account through the use of futures prices;

development, mining and related risks have been taken into account by using expected future gold production. Expected future gold production represents risk adjusted future gold production; and

other risks associated with gold revenues should be fully diversifiable. Accordingly, diversified portfolio investors would require no return above the risk free rate.

Use of the risk free rate does not suggest that the cash flows from any asset are certain or risk free. It implies only that the cash flows are not subject to any systematic risk. Therefore, given that all specific (non-systematic) risks can be diversified away on a portfolio basis, it is appropriate to apply the risk free rate. Consequently, the present value of a gold mining project is given by the present value of future production less the present value of future extraction costs. This may be represented as follows:

PV = Σ Pt x Ft

(1 + Rf)t - Σ Ct

(1 + Rf)t where

PV is the present value of the gold mine given by summing the present value for future production less the present value of future costs;

Ft is the gold futures price for delivery in each future period t; Pt is the expected production in each period t; Ct is the expected extraction cost in each period t; and Rf is the risk free rate for duration t.

Gold producers are frequently unable to write gold futures contracts for more than five years. For valuation purposes, however, gold futures prices can be estimated for longer periods. Gold futures prices may be estimated by compounding the current spot price at the risk free rate for the period of the futures contract. This may be represented as follows:

Ft = So(1 + Rf)t

where So is the spot gold price at time 0.

This simplifies the earlier present value for a gold mine to the following:

PV = Σ Pt x So - Σ Ct

(1 + Rf)t Accordingly, gold projects maybe valued by valuing expected future gold production at the current spot gold price, without discounting, and subtracting expected future extraction costs, discounted at the risk free rate. Gold producers typically achieve a contango (the premium to the current spot price) through the futures market that is somewhat less than the current spot price compounded at the risk free rate. This discount reflects counter-party or credit risk and transaction costs. As between credit risk free counter-parties, the gold futures price should always be equal to the current spot price compounded at the risk free rate. If the gold futures price was less than the current spot price compounded at the risk free rate, holders of gold could lock in infinite risk free profits. They could sell their gold, invest the amount realised in risk free bonds and buy back the equivalent volume of gold in the futures market at a price less than the proceeds and accumulated interest from their bond holdings. Conversely, if the gold futures price was greater than the current spot compounded at the risk free rate, infinite risk free profits could be secured by selling bonds (or borrowing), buying gold in the spot market, delivering the gold into futures contracts and repurchasing the bonds. Gold producers are not risk free counter-parties. However, for the purpose of valuing expected future gold production, it is appropriate to assume that the futures price is given by the current spot price compounded at the risk free rate. Counter-party and other diversifiable risks are taken into account through the process of estimating expected future production, which represents risk-adjusted production. The valuation of gold projects by reference to the gold futures market (“gold futures methodology”) does not reflect general practice. However, this approach has a strong theoretical underpinning. Its conclusions are consistent with the common market rules of thumb for valuing gold companies and gold projects on the basis of the quantity of gold in reserves and resources. Aspects of the gold futures methodology have been incorporated in a variety of valuations. Various published valuations of long life Australian mining assets have used spot gold prices compounded at the risk free rate as proxies for the expected future spot price. Although gold futures pricing is not commonly used in Australia it is indirectly supported by international market practice. US gold analysts frequently use a zero discount rate in valuing US gold projects. Use of a zero discount rate is equivalent to valuing future gold production at current spot prices on an undiscounted basis, although it may overstate the present value of future production costs. The market capitalisation of the majority of large, well traded gold companies is better explained by DCF analysis using a zero discount rate than by traditional DCF analysis using a discount rate representing estimates of weighted average cost of capital. Grant Samuel has used the gold futures methodology to value various long life gold mining projects since 1994. The values estimated have better explained observable market values than the values estimated using conventional DCF techniques, by a substantial margin. The following graph indicates the percentage of the transaction value that is explained by the gold futures methodology compared to the percentage that can be explained by a traditional DCF analysis for a number of transactions over the last ten years:

Gold Futures Valuations - Predictive Power

0

20

40

60

80

100

Placer Normandy Delta Goldfields

Transaction Value DCF Value @12% Gold Futures Value

%

Source: Grant Samuel Analysis.

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