ARM COPPER. Thando Mkatshana Chief Executive: ARM Copper and ARM Coal. Vale/ARM joint venture 50% 50% Refining. Flash/ Isa smelt smelting

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1 110 INTEGRATED ANNUAL REPORT 2016 ARM COPPER Thando Mkatshana Chief Executive: ARM Copper and ARM Coal ZCCM-IH 80% 50% 100% 20% Lubambe Copper Mine and Extension Area Vale/ARM joint venture 50% Vale S.A. PRODUCTION PROCESS Refining COPPER Blister copper Crushing & milling Ore extraction Fines Concentrate Flash/ Isa smelt smelting Matte Refining Anode copper Electrorefining Froth flotation Tailings Slag CATHODE COPPER

2 111 INTRODUCTION LUBAMBE Copper Mine and Extension Area MANAGEMENT SCORECARD LUBAMBE COPPER MINE F2016 OBJECTIVES F2016 PERFORMANCE F2017 OBJECTIVES Continue to mine the East Limb at full production and evaluate mine design alternatives to access the South Limb ore and prepare the mine for ramp up to full production in F2019. Due to low US Dollar copper prices a decision was taken to reduce production from the East Limb from tonnes per month to tonnes per month effective from 1 March This reduces cash funding requirements and preserves the mining reserves to be exploited during more favourable market conditions. Continue to operate the mine at tonnes per month while focusing on productivity gains and cost efficiency. Production unit costs will be optimised by focusing on quality mining and cost efficiency. This period is to be utilised to upgrade the underground water infrastructure to setup the mine for ramp up in more favourable copper market conditions. MINERAL RESOURCES AND MINERAL RESERVES Continue with the implementation of lessons learnt and operational improvements. Implementation of lessons learnt and operational improvements enabled Lubambe to reduce C1 unit cost of production by 14% from US$2.80/lb to US$2.41/lb in the financial year under review. Continue with implementation of cost and productivity efficiency improvements while focusing on quality mining. LUBAMBE EXTENSION AREA F2016 OBJECTIVES F2016 PERFORMANCE F2017 OBJECTIVES Continue to hold off further drilling until conditions in the copper market improve. The Lubambe Extension Area Project was put on hold. Continue to hold off further drilling until conditions in the copper market improve. AGM NOTICE AND PROXY GLOSSARY OPERATIONAL ARM COPPER SUSTAINABILITY GROUP CORPORATE GOVERNANCE FINANCIALS INVESTOR RELATIONS

3 112 INTEGRATED ANNUAL REPORT 2016 ARM COPPER continued OPERATIONAL (ON 100% BASIS) F2016 F2015 % change F2017 target Copper concentrate produced tonnes (17) Copper concentrate sold tonnes (17) Contained copper produced tonnes (19) Contained copper sold tonnes (19) FINANCIAL (ATTRIBUTABLE BASIS) F2016 F2015 % change EBITDA R million (230) (125) (84) Headline loss R million (555) (430) (29) Cash outflow from operating activities R million (154) (95) (62) Capital expenditure R million (125) SUSTAINABILITY (100% BASIS)*** F2016 F2015 % change LTIFR* CSR spend** R million (37) Electricity consumption 000 MWh (9) Water consumption million m (29) Total: Scope 1 and 2 emissions (attributable) tco 2 e (33) * LTIFR: Lost Time Injury Frequency Rate (per man-hours). ** CSR: Corporate Social Responsibility (only CSI). *** All figures are stated on 100% basis except tco 2 e, which is attributable (as per the CDP submission). OPERATIONAL AND FINANCIAL The ARM Copper headline loss increased by 29% to R555 million mainly owing to a 20% reduction in the average realised copper price from US$6 349 per tonne in F2015 to US$5 048 per tonne in F2016. Production volumes at the Lubambe Mine reduced by 19% to approximately tonnes copper as part of the revised mining plan to tonnes per month. Despite the decline in production volumes, Lubambe Mine achieved a 14% decrease in C1 unit cash costs to US$2.41/lb of copper produced (F2015: US$2.80/lb). Notably, during the last four months of F2016, after the reduction of targeted tonnage was implemented, the C1 unit cash cost reduced to an average of US$2.27/lb of copper produced. After a number of changes in the mineral royalty tax during 2015, the Government of the Republic of Zambia amended the mineral royalty tax in 2H F2016, to operate on a sliding scale from 4% to 8% as a function of the copper price. In 1H F2016, ARM recorded an attributable impairment of R1 404 million after non-controlling interest (F2015: R784 million) for the Lubambe Mine assets. THE LUBAMBE COPPER MINE During 2H F2016, a number of production scenarios were evaluated with the objective of minimising cash funding requirements during the severely depressed copper market. Following the review process, it was agreed to reduce target production to tonnes milled per month, effective from 1 March The tonnes per month plan minimises cash funding requirements while preserving the mine through the creation and build-up of mineable reserves in the high grade, long-life portion of the mine. In support of the reduced production plan, the following additional cost reduction measures were implemented: > Effective 1 March 2016, expatriate labour was reduced by 66% from 47 to 16; > Electricity costs were reduced with the shutdown of No 2 Shaft and the VS2C ventilation fan. This has allowed Lubambe Mine to reduce maximum demand and reduce the requirement for more expensive imported electrical power; > Mining vehicles not required to support the tonne per month plan, have been parked; and > Suppliers were engaged to reduce costs of consumables and spares. The implementation of the aforementioned cost saving initiatives resulted in an improvement in C1 cash cost from US$2.47/lb (year-to-date up to February 2016) to US$2.27/lb average for March to June Due to the reduction in target production rate, however, contained copper production was 19% below F2015. The reduction in production was achieved without compromising the ore grade and it provided an opportunity for the mine to successfully complete the transition from contractor to owner operator and the costs have reduced accordingly. Various mining and processing improvement initiatives, which commenced during F2015, resulted in an enhanced copper head grade and marginally better copper concentrator recoveries. These improvements were especially pronounced in

4 113 INTRODUCTION the second half of the financial year which bodes well for the 2017 financial year. The milled head grade during the last four months was 2.06% total copper, which is above the revised plan and indications are that this improvement is sustainable. Ore development was in line with revised targets while waste development was negatively impacted by greater than anticipated ground water inflows into underground workings. A substantial upgrade of the underground pumping infrastructure is underway and will increase pumping capacity from m 3 per day to m 3 per day. Subsequently, an additional upgrade, will increase pumping capacity to m 3 per day. The implementation of this water infrastructure upgrade is currently on schedule and the first incremental benefits will be realised during 1H F2017. During F2017, the mine will operate at the revised target of tonnes per month, with the focus being on improving mining and cost efficiencies. This will be achieved through increased productivity and lower ore dilution through the implementation of revised development and stoping techniques. Enhancements to stope methodology, mine design and extraction optimisation, which commenced in F2015, have been successfully implemented with a subsequent increase in copper head grade and cost reductions. Further improvements are anticipated as the new mining methods are refined. Future mine production is dependent on the ability to maintain a sustainable vertical deepening of the ramps, preventing net depletion of mining reserves. The ability to deepen the ramps at the required rate was impacted by the greater than anticipated influx of ground water into the ramps. CAPITAL EXPENDITURE Capital expenditure for the mine reduced by 85% from approximately US$53 million to US$8 million. During F2017, the largest portion of capital is expected to be expended on completing the underground water infrastructure upgrade which will increase water pumping capacity by more than 300% from m 3 per day to more than m 3 per day. PROJECTS LUBAMBE EXTENSION AREA PROJECT The Lubambe Extension Project has been put on hold until the copper price recovers. The high-grade Lubambe Extension Area remains an integral part of the future development of the Lubambe ore body. MANAGEMENT GROUP SUSTAINABILITY OPERATIONAL ARM COPPER MARKET The copper market still reflects an oversupply despite some mine closures or production cuts. It is predicted that the oversupply will hold until after 2017 as there is new production coming on line out of Chile, Peru and Zambia while the cut-back from the existing producers is largely hindered by the drop in oil prices and the relatively stronger US Dollar seen in 1H The role of governments to protect jobs also makes it difficult to effect retrenchments and cut back production in developing countries. The average copper price realised at Lubambe reflected the market conditions dropping by 20% to US$2.29/lb (F2015: US$2.88/lb). China recorded increased copper imports in the first half of F2016 which reflected in prices recovering as compared to 1H F2015. The LME stocks levels were reduced correspondingly by about 14% from tonnes at end of December 2015 to tonnes by end of June It is expected that this consumption will hold and it bodes well for the copper demand as China consumes approximately half of the world copper production. The rest of the world demand is also forecast to increase, particularly in 2018 albeit it might be slower than the oversupply following additional production coming to the market. Copper prices will thus be dependent on how quickly could some of the production be taken out of the market. COPPER PRODUCTION VOLUMES F2013 TO F2019 (100% basis) (tonnes) F2016 SPOT COPPER PRICES (US$/t) F2013a F2014a F2015a F2016a F2017e F2018e F2019e July 2015 June 2016 Source: INet Bridge AGM NOTICE AND PROXY MINERAL RESOURCES AND MINERAL RESERVES CORPORATE GOVERNANCE FINANCIALS INVESTOR RELATIONS GLOSSARY

5 114 INTEGRATED ANNUAL REPORT 2016 ARM COPPER continued ARM COPPER OPERATIONAL STATISTICS LUBAMBE MINE Management: The mine is managed by the shareholders, via a Board of Directors. Measured and Indicated Resources Proved and Probable Reserves Mt TCu% Mt contained Cu Mt TCu% Mt contained Cu Resources and Reserves (100% basis) Refining Total labour Lubambe Mine Lubambe Extension Target Area The concentrate produced is being smelted and refined at Konkola Copper Smelter and Chambishi Copper Smelter employees, including 382 contractors. The Measured and Indicated Mineral Resources are inclusive of these modified to produce Mineral Reserves. F2016 F2015 % change Waste development metres (41) Ore development metres Ore development tonnes Ore stoping tonnes (29) Ore tonnes mined tonnes (24) Tonnes milled thousand (23) Mill head grade % copper Concentrator recovery % Copper concentrate produced tonnes (17) Copper concentrate sold tonnes (17) Average realised copper price US$/lb (20) C1 cash cost per pound of copper produced US$/lb (14) Capital expenditure US$ (85) Contained metal Copper produced tonnes (19) Copper sold tonnes (19) Headline loss attributable to ARM (40%) R million (555) (430) (29) Refer to pages 241 to 242 for the ARM Copper segmental information. IAR

6 115 INTRODUCTION Exploration drill rig at Lubambe Copper Mine AGM NOTICE AND PROXY GLOSSARY INVESTOR RELATIONS FINANCIALS CORPORATE GOVERNANCE MINERAL RESOURCES AND MINERAL RESERVES OPERATIONAL ARM COPPER SUSTAINABILITY GROUP MANAGEMENT