Annual Report 2001

Chairman's Letter

Dear Shareholder

The past year has seen material progress towards your company achieving its vision of developing into a significant producer of platinum group metals ("PGMs") in Zimbabwe. Our first project to exploit Zimplats’ extensive platinum resources, the Ngezi/SMC Project, has been financed and commenced.

Summary of Major Achievements

In summary, the major achievements in the period since the last annual report, consistent with the objectives set by your management and communicated to shareholders in the last annual report, were:

• The finalisation of the acquisition of BHP’s platinum interests in Zimbabwe.
  This acquisition was facilitated by the release, by the Government of Zimbabwe, of BHP from its performance guarantees given in respect of the Hartley Platinum Mine;

• The successful completion, to bankable standards, of a feasibility study of the Ngezi opencast mine, utilizing the surface metallurgical infrastructure (the "Selous Metallurgical Complex" or "SMC") at the Hartley Platinum Mine ("the Ngezi/SMC Project");

• The securing of appropriate and essential fiscal arrangements to facilitate the required financial investment environment;

• The introduction of Impala Platinum Holdings Limited ("Implats") as a strategic shareholder of Zimplats, in part-substitution for Delta Gold Limited ("Delta"), whilst nonetheless retaining the independence of Zimplats;

• The raising of the required equity and project debt finance from Implats and Absa Bank Limited ("Absa") to enable the US$60 million Ngezi/SMC Project to be developed;

• The commencement and substantial completion of the initial capital works required to enable the Ngezi/SMC Project to commence production on schedule in December 2001;

• The successful completion of a programme to attract and hire the skilled personnel needed to operate the Ngezi/SMC Project in the years ahead.

In completing these tasks, despite significant social and political headwinds encountered during the period, your management has placed Zimplats in an excellent strategic position to add material value to shareholders from the exploitation of its extensive PGM resources in the future.

The Implats and Absa Transaction

On 26 March 2001, a 30% interest in your company was jointly acquired by Implats and Absa from Delta.

Furthermore, on 26 March 2001, Implats agreed to invest US$30 million in Zimplats’ wholly owned subsidiary, Hartley Management Company (Private) Limited, the developer of the Ngezi/SMC Project, for a 30% equity interest therein.

At the same time, Absa offered debt finance to the Project of a further US$30 million. The resultant US$60 million was, and is, considered sufficient finance to develop the Ngezi/SMC Project.

On 28 May 2001 the above mentioned transactions were unanimously approved by the shareholders of Zimplats in General Meeting. Subsequent to that approval, and to the completion of a number of other conditions precedent, it is gratifying to report that, on 3 September 2001, Implats subscribed for the US$30 million in the equity of Hartley Management Company (Private) Limited.

In addition, loan documents for the Absa project loan were signed on 7 September 2001 and draw downs from that loan have commenced although peripheral documentation and some conditions require finalisation before this loan is fully accessible.

In a subsequent development regarded as encouraging for Zimplats, Absa has syndicated this loan with the Industrial Development Corporation of South Africa.

The Importance of Zimplats’ new Strategic Partners

Implats, operating in neighbouring South Africa, is the world’s second largest producer of platinum group metals. Implats has the required technical, financial and platinum-industry attributes sought by your management together with a "partnering" philosophy and vision synergistic with the aims of your company.

Absa is a leading Southern African financial institution.

Together, in the opinion of your directors, Implats and Absa constitute optimal long term strategic shareholder partners to enable Zimplats to achieve its vision of developing into a significant producer of platinum group metals from its resources in Zimbabwe.

There are substantial long term advantages to Zimplats from this strategic association, but perhaps a few examples from the first few months illustrate the point:

• David Brown, the financial director of Implats and Glenn Povey, a senior executive at Absa, have joined your board;

• Senior Impala executives (group metallurgical, geological and engineering managers) have joined the board of Hartley Management Company (Private) Limited;

• Implats has provided both structured and ad-hoc assistance to the management of the Ngezi/SMC Project. Zimplats and Implats managers are in constant contact. Technical exposure and on-the-job training for Zimplats staff is being facilitated at Impala operations in South Africa;

• Implats supplied Zimplats with initial bridging finance to facilitate the timeous commencement of the Ngezi/SMC Project and critical and pro-rata shareholder guarantees to support the finalisation of the Absa loan;

• Absa has provided innovative and material support to facilitate the imminent completion of the Zimbabwean shareholder empowerment transaction together with other banking services;

• Hartley Management Company (Private) Limited management has designed an incremental commissioning plan for the Ngezi/SMC Project that Implats has facilitated by accommodating shipment of different stages of beneficiated product during the process.

The Ngezi/SMC Project

Hartley Management Company (Private) Limited has made excellent progress to date in completing the initial capital works required to enable the Ngezi/SMC Project to commence production on schedule in December 2001.

To date:

• the metallurgical plant has been substantially cold commissioned;
• the 77 km Ngezi to Selous highway is on schedule for completion in December 2001;
• mining and haulage contractors have been appointed;
• the mining contractor has mobilized and initial waste mining is on schedule; and
• the capital works at Ngezi are nearly complete.

It is particularly gratifying that Zimplats has been able to attract, select and hire a full complement of skilled management and workers. Operational teams are now preparing, training and planning for the commencement of production.

The Operating Environment

Zimbabwe has suffered from unfortunate political and socio-economic dislocations in the past year. We believe that the processes underlying these disruptions will diminish and possibly reverse in the foreseeable future.

It is nonetheless important to stress that the overall environment in which Zimplats operates is largely positive and conducive to Zimplats being able to extract maximum shareholder value from its assets in the years ahead.

A few details are brought to the attention of shareholders:

• In addition to agreeing to the fiscal arrangements needed to develop the Ngezi/SMC Project, the Government of Zimbabwe has been consistently constructive and supportive of your management in its endeavours to develop the project.

• Zimbabwe enjoys world-class mining legislation and a mining tradition developed over many decades.

• Zimplats enjoys the protection of retaining sale proceeds in US$ bank accounts outside Zimbabwe. This ensures that the company has sufficient foreign currency to meet all its external obligations to contractors, suppliers, consultants, payment of external loans plus interest, and the payment of dividends. Only the resulting surplus funds and funds required to pay local costs, taxes and royalties are remitted to Zimbabwe.

• The infrastructure supporting the company’s operations is adequate and has delivered acceptable services to date.

• Zimbabwe has one of the most educated populaces in Africa. Zimplats has been inundated with both skilled and experienced applicants for available jobs.

Zimbabwe Shareholder Ownership

Shareholders will recall that Zimplats has agreed to make up to 15% of its share capital available for ownership by Zimbabwe citizens, by subscription at prevailing market prices, and our board believes that this initiative is essential to the long term prosperity of Zimplats.

It is, however, essential that the arrangements made maximise the sustainable benefit of this share offer to a wide Zimbabwean shareholder base. Schemes designed in absolute good faith to achieve similar objectives in neighbouring South Africa have, at best, met with mixed results.

Accordingly your management is engaged in ongoing discussions with the National Investment Trust ("NIT") of Zimbabwe, the Ministry of Mines and Energy and with a wide number of role players and financial institutions in order to ensure that this initiative successfully achieves its empowerment objectives.

Your board has considered and rejected several proposals to date and has clearly conveyed to all stakeholders in this initiative that it will not be pressurized into agreeing to any arrangements that, whilst technically satisfying the commitments made by Zimplats, are unlikely to result in a wide and economically viable Zimbabwean shareholder base.

Nonetheless, as a consequence of some innovative financial engineering by Zimplats and its advisors, I am hopeful that a balanced and sensible Zimbabwean shareholder empowerment transaction, acceptable to all stakeholders, may shortly be finalised.

The Market for Platinum Group Metals

The platinum industry enjoys a strong long-term demand base, comfortably outstripping other commodities. Demand for platinum, palladium and rhodium has increased at a compound annual rate of 6% since 1980, and demand almost doubled in the 1990s from 7.5 million ounces in 1991 to 15.3 million ounces in 2000.

This demand base has been largely underpinned by the increasing use of PGMs in autocatalysts, in turn driven by both underlying economic growth and tightening environmental legislation. This legislation is expected to further tighten and extend geographically in the medium term. The demand base for platinum has furthermore been significantly augmented by the rapid rise in its use in jewellery.

On the supply side, notwithstanding expansions throughout the last decade by the leading producers, new production failed to keep pace with demand and this shortfall was balanced by sustained selling by Russia of metals stockpiled over previous decades.

It now appears inevitable that the combination of additional supply resulting from major committed expansions in South Africa together with depressed demand from the current slowdown in world economic growth will result in significant downward pressure on PGM prices for the next few years. This will be exacerbated by the economic impact of the recent terrorist attacks on the world’s largest economy, the United States of America.

A noteworthy and healthy feature of the structure of the platinum industry is the discipline and leadership that is provided by the leading producers of PGMs and the major auto producers. A shining example to the commodity industry worldwide has been provided by the pro-active and successful efforts of the industry in promoting and marketing the use of PGMs, especially in jewellery manufacture. Once in production, Zimplats will support these efforts.

Notwithstanding the healthy market structure of this industry, a disappointing feature in recent times has been structural imbalances between the supply and demand of differing components of the PGM mix. This is graphically illustrated by the high, unsustainable and ultimately damaging palladium prices in the recent past. Market activities by Russia appear to have exacerbated these structural imbalances.

The relative proportions in which PGM metals are produced is a predictable and unavoidable function of the resources mined and these change slowly over time. A challenge to platinum industry leaders is to improve the prediction, communication and management of these usage ratios to the benefit of all.

A consequence of these structural stresses, and resultant industry actions, is likely to place particular downward pressure on palladium prices in the short term and on the rhodium price further out.

The unknown factor, as always, will be the strategy adopted by Russia in marketing its PGMs, particularly in respect of palladium, but this Russian influence will decrease in the years ahead owing to the clearly depleted status of its PGM stockpiles.

Prices received for platinum group metals in the immediate future are beyond the control of your management. Notwithstanding the sound medium term prognosis for these metals it is clear that the recent high prices enjoyed by industry participants will not be sustained in the short term.

In summary it seems prudent to expect PGM prices, perhaps for the next 3 years, to be below the price forecasts made for the Ngezi/SMC Project.

The Period Ahead

Momentous as this past year has been, all at Zimplats are conscious that the future of your company will be substantially established by the successful implementation and commissioning of the Ngezi/SMC Project.

Your directors are confident in the ability of the management team, key contractors and strategic partners that have been assembled to implement the project, that the project enjoys attractive economic fundamentals and that it will accordingly achieve its designed operating parameters. Tight grade control to ensure planned ore grades will be a pivotal factor.

A more sobering aspect is the lower prices expected for platinum group metals in the next few years.

Consequently your company will use all its endeavours to maximise efficiencies and reduce unit costs in the period ahead. In this regard optimal use will be made of goods and services procured within Zimbabwe, given the depreciating nature of the prevailing local currency exchange rates, thus lowering unit costs.

Notwithstanding the healthy and extensive longer term growth prospects and plans for Zimplats outlined in your chief executive’s report, the full attention of your management will be directed to ensuring the success of the Ngezi/SMC Project prior to any planning of new expansions.

Corporate Governance

In line with best international practice, five of your seven directors are non-executive. In addition, two of these directors, including the chairman of the board, are totally independent of major shareholders in your company.

During the past year it was necessary to convene no less than 13 directors meetings and preparation for, and attendance at, these meetings by your directors was exemplary.

Appreciation

The significant achievements by Zimplats during a difficult and momentous year were made possible by the dedication and commitment of the entire Zimplats team and its associated consultants and contractors. It is my pleasure to express, on behalf of the board and all shareholders, our appreciation to your chief executive, Mr Roy Pitchford, and the entire Zimplats team.

I would like to thank our partners, Implats, Absa and Delta for their support and reiterate that we have now secured outstanding long term strategic shareholder partners.

It is also appropriate to express our thanks and appreciation to the Government of the Republic of Zimbabwe for its constructive support and assistance during the past year.

On completion of the agreement with Implats and Absa early this year, Messrs Kerry Sibraa, Terry Burgess, Steve Gemell and John Shaw resigned as directors of your company. I wish to thank them all for their considerable contribution to Zimplats over the past few years. I also thank Mr Stuart Murray who played a pivotal role in introducing Implats as an investor in Zimplats and HMC and represented Implats for a short period on the board prior to taking up a senior position with another platinum producer.

I would like to welcome Messrs David Brown, Louis Rozman and Glen Povey to your board as non-executive directors and welcome and congratulate Mr Greg Sebborn on being appointed an executive director.

Finally I wish to record, on behalf of all shareholders, my appreciation to all the directors who served on the board for their advice and counsel during a demanding year .

Your company’s ability to realise its vision of developing into a significant producer of platinum group metals in Zimbabwe will be tested in the year ahead.

I am confident that Zimplats will be equal to the challenge.

R.G. Still
Chairman