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Mining review
As the Chairman has stated, 2007 was an excellent year for Bisichi Mining PLC in South Africa. Our direct mining asset, the Black Wattle Colliery, had its most profitable year ever, supported by strong domestic and international coal markets, as well by improved yields and product quality as a result of investments we have made in our washing plant. We are hoping to commence open cast operations at Black Wattle, having recently received permission from the Department of Minerals and Energy (DME) to do so. The DME have recently concluded a compliance audit at the mine, as part of a nationwide Presidential audit of all operating mines, and Black Wattle received a favourable rating.

Production
The two conventional sections and the single continuous miner underground section performed well in 2007. Despite minor disruptions to our power supply, these had no impact on the mine's overall monthly production or sales contracts. Run of mine production was 1.33 million tonnes in 2007, an increase of 10.9% over 2006. We will increase production and yields at the mine once opencast operations commence.

After nearly four years of operation, the continuous miner needs a major overhaul. We will carry out this work once the open cast section is operating so that any lost tonnage can be easily replaced.

Markets
2007 witnessed an unprecedented strengthening of the coal market, a trend driven by growth in global demand, infrastructure constraints within the major coal basins, a high freight basis, weakening of the US dollar and substantial increases in the prices for competing fuels. At the beginning of 2007, the average weekly price for Free-on-Board (FOB) Coal from Richards Bay Coal Terminal (API4) stood at approximately US$50.00 per tonne. By the end of 2007, this price had nearly doubled. Obviously, this trend has had a major impact on the prices Black Wattle receives for both its steam and low phosphorous metallurgical coal products. On top of the strong price increases we benefited from in 2007, we have successfully negotiated a 64% increase in price from Q2 2008 to Q1 2009 for our steam coal, and a 42% increase in price from Q1 2008 to Q3 2008 for our metallurgical coal. The price increases should enhance substantially our profitability for the duration of 2008.

Memorandum of Understanding (MOU) with Barclays Capital Commodities Principal Investment Area (Barclays Capital CPIA)

As the Chairman has stated, the signing of the MOU with Barclays Capital CPIA in December 2007, for the acquisition and development of coal reserves within the Black Economic Empowerment (BEE) framework in South Africa, represents a major step forward for Bisichi. Barclays CPIA was established in 2006 with a mandate to invest in commodity-based projects and companies worldwide. Barclays CPIA is funded solely by Barclays and to date has made direct equity investments totalling circa US $650 million in coal mining, gold mining, oil & gas and biofuels. We expect to announce our first BEE transaction in partnership with Barclays CPIA in the near future.

Acquisition of Coal Reserves
We have seen a marked increase in the number and quality of coal reserves that have become available following the implementation of the Mineral and Petroleum Resources Development Act (MPRDA) of 2004. The team in our Middelburg office is reviewing a long pipeline of opportunities and, in consequence, we are in the process of acquiring another drill rig to support our prospecting efforts in the area.

There is nothing further to report concerning the Pegasus Reserve other than that constructive discussions between all parties concerned are continuing.

Community Support and Social Development
Black Wattle is committed to improving the living conditions of its employees and the residents of the local community. We have been actively involved in the provision of various municipal services to our surrounding community, including waste removal, road repair, free bus services and emergency water supply assistance.

In support of the creation of sustainable local industry, Black Wattle is establishing a brickmaking facility on the mine's property which will employ local residents who will be engaged in the production of bricks and blocks for sale to the local housing industry. Black Wattle will be providing assistance in the provision of raw materials including sand, water and electricity and will also be providing the initial capital equipment required for this facility. We hope that this local industry will be expanded as the market for bricks and blocks increases and Black Wattle will assist it with any expansion plans.

Procurement
Black Wattle has implemented a BEE-focussed procurement policy which strongly encourages our suppliers to establish and maintain strong BEE credentials. We monitor closely our monthly BEE expenditure and encourage potential BEE suppliers to compete for equipment and service contracts at Black Wattle. We are also actively engaged in the sale of our products to BEE enterprises, as is evidenced by our long term sales agreement with a BEE company for the purchase of our discard product for on-sale to Eskom.

Employment Equity
Bisichi takes its Employment Equity responsibilities at Black Wattle very seriously. At present, over 12 percent of the workforce consists of women, including those serving as artisans and electricians. Black Wattle's Workplace Skills Plan and Annual Training Report has been approved by the Mining Qualifications Agency.

Skills Training
Black Wattle has constructed a computer-equipped training centre which is currently carrying out Adult Basic Education Training (ABET), HIV/AIDS education and other training activities for the mining workforce. It is Black Wattle's intention to extend these training activities into the local community as soon as possible.

People
In order to take advantage of the many opportunities becoming available in South Africa, we are strengthening Bisichi's management team. Robert Grobler, who has served as General Mine Manager at Black Wattle for over 8 years, has been promoted to Director of Mining and joins the Bisichi Board of Directors. In addition to overseeing all of our operations in South Africa, Robert will be leading the expansion of our presence in the coal sector there. As a result of this promotion, we are currently interviewing for a replacement mine manager at Black Wattle. We have also recently appointed a Group Finance Manager, who will be based in London.

Prospects
When the opencast mining begins, it will have a dramatic effect on Black Wattle's mining operations, mining yield and profitability. With historically high prices being achieved for our products and new prospects becoming available for acquisition, I am confident that 2008 will be a successful year for our South African operations.

ANDREW HELLER
Managing Director
Bisichi Mining Plc

 
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