Annual Report 2002

Chairman's Letter

Dear Shareholder

Summary of major achievements

The past year has seen the completion of the construction and commissioning of the Ngezi/SMC Project. By year-end this project had reached a point of near steady-state production at levels, recoveries and efficiencies close to that targeted by your management. Zimplats has now successfully achieved the first phase of its vision to become a significant producer of platinum group metals in Zimbabwe.

The financing, construction, staffing and commissioning of the Ngezi/SMC Project in the midst of the rapidly deteriorating political, social and economic environment in Zimbabwe is a credit to your management. It also bears testimony to the wisdom of securing Impala Platinum Holdings Limited (“Implats”) and Absa Bank Limited (“Absa”) as optimal long-term strategic shareholder partners for Zimplats. Their support, constructive assistance and advice during this last year have been invaluable.

The Ngezi/SMC Project

The Ngezi/SMC Project (“Makwiro Platinum Mines (Private) Limited”) was constructed within budget and ahead of schedule, and commissioning commenced in November 2001. Steady-state production at targeted levels was achieved in July 2002.

Although commissioning took longer than management expectations, this is considered a credible achievement within the platinum industry, particularly given that the Selous Metallurgical Complex had not previously been consistently operated at higher than 40% of nameplate capacity. The operating profit of  approximately US$2,9 million achieved by Makwiro for the first reporting quarter to June 2002 was gratifying, given that operations had yet to reach full production levels.

It is pleasing to report that most of the commissioning and early-stage production difficulties encountered relate to “non-structural” matters that have been remedied, such as additional drainage and pumping in the open-cut workings, a new appropriately-designed crusher apron feeder and new redesigned SAG mill liners. Additional filter press capacity is needed and will be installed later in 2002. The Selous Metallurgical Complex is now being consistently operated at its nameplate capacity.

To date grade control has averaged in excess of 90% of target. This area is, and will remain, a major focus of attention and improvements are gradually being achieved.

Safety, health, environment and community issues

Your company has introduced rigorous safety, health and environmental policies and training to ensure their implementation is ongoing. In addition we are now focusing on wider community support issues in our area of operations and an HIV/AIDS education programme has been initiated.

The Zimbabwean economy and the future role of platinum

The socio-political and economic situation within Zimbabwe has deteriorated throughout the past year and the economic position is rapidly reaching crisis proportions. Zimbabwean authorities have to date reacted to economic crises by introducing “control economic” policies which have failed to address the underlying problems. The current exchange rate policies, for example, are steadily eroding the productive capacity of Zimbabwe.

As platinum resources in Zimbabwe are exceeded only by those of neighbouring South Africa, and following the success of Mimosa Platinum and now Zimplats in demonstrating the economic viability of mining platinum in Zimbabwe, there is an understandable tendency within Zimbabwe to view platinum as the future panacea for the economy.

There is little doubt that platinum in Zimbabwe, developed in a responsible fashion, has a very exciting future and is likely to be a very significant sector of the future Zimbabwean economy. Unfortunately, however, any major expansions of this industry will be subject to the long lead times associated with mining development and the immediate economic benefits will be limited.

Zimplats’ role in the expansion of the platinum industry in Zimbabwe

With its large platinum resource endowment and the ability to utilise and expand its processing facilities at the Selous Metallurgical Complex, Zimplats intends to play a major role in the future expansion of platinum mining in Zimbabwe.

To this end Zimplats plans to carry out a pilot mining project later in 2002, assessing the economics of underground mining by conventional room and pillar methods from the high wall of the Ngezi open pit. The thick (>3m) mineralised nature of the Main Sulphide Zone, the shallow dip of five degrees and anticipated competent hanging wall conditions, result in estimated mining costs being materially lower than the current open-pit mining costs.

Should this exercise confirm current expectations, underground mining by conventional room and pillar methods will continue on a limited scale in conjunction with the current open-cut mining and your management will seek to increase and maximise throughput at the Selous Metallurgical Complex.

Thereafter, and subject to market and capital constraints, experience derived from this underground mining exercise over at least eighteen months will form the basis of a significant expansion involving the construction of a concentrator at the Ngezi mine and possibly the re-opening of the Base Metal Refinery at Selous.  This expansion should approximately double the scale of Zimplat’s existing operations to some 400,000 ounces of 4E per annum.

A further and important aspect of this planned pilot mining project will be to demonstrate the commercial and technical viability of mining a large proportion of Zimplats’ platinum resources thereby enabling significant reclassification to reserve status.

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. The National Investment Trust (“NIT”) of Zimbabwe has been designated by the Government of Zimbabwe to take up these shares on behalf of the people of Zimbabwe.

During the last year several proposed transactions have been investigated and conditional agreements have been entered into between Zimplats and NIT. These did not proceed owing to a shortage of available foreign currency and exchange control regulations.

Your company remains committed to implementing this empowerment transaction as soon as possible to ensure that the agreed empowerment objectives are achieved and a range of alternatives are being considered.

The market for Platinum Group Metals

Prices for platinum group metals (“PGMs”) during the past year have remained high although these have recently started to decline in line with a slowdown in world economies.

Notwithstanding the sound medium term outlook for these metals it seems prudent to expect further declines in PGM prices, perhaps for the next three years. Whilst platinum is anticipated to remain reasonably steady in a range between US$450 and US$550 per oz, palladium prices are expected to come under some pressure.

Corporate Governance

In line with best international practice, five of your seven directors are non-executive. In addition, as chairman of your Board, I am independent of major shareholders in your company.  Ms. Liz Chitiga , is to be proposed at the forthcoming annual general meeting as an additional independent non-executive director. Her impressive credentials are set out in the director’s report.

During the year five directors’ meetings were held and preparation for, and attendance at, these meetings by your directors was exemplary.

Implats increases Shareholding in Zimplats

On 22 August 2002 Implats acquired the balance of AurionGold’s shares in Zimplats and now holds a beneficial shareholding of 36% in Zimplats.

Shareholders are reminded that neither the City Code on Takeovers and Mergers (UK), nor the provisions of The Corporations Law of Australia pertaining to Takeovers and Mergers apply to Zimplats.

As a consequence, in early 2001, Zimplats proposed inserting selected minority-takeover provisions in the Articles of the Company but this proposal was rejected by the ASX.  This potential method of entrenching minority rights is again being reviewed by Zimplats.

In addition, in early 2001, Zimplats and Implats signed a Memorandum of Understanding (“MOU”) containing provisions intended to protect the interests of minority shareholders.

         
Implats has advised Zimplats that, in its opinion, the provisions of the MOU requiring Implats to make a standby offer to minorities do not apply in respect of the acquisition of the balance of AurionGold’s shares. Zimplats is currently taking legal opinion to establish whether Implats can be required to make this standby offer.

Should it transpire that the MOU is not legally enforceable and/or that the conditions precedent thereof needed for a standby offer to be made have not at this stage been fulfilled, then Zimplats has negotiated a new agreement with Implats.

This new agreement is intended to establish legally binding requirements and conditions requiring   Implats to make a standby offer to minorities should it further increase its shareholding in Zimplats as well as protecting the independence of Zimplats.

An announcement will be made as soon as the necessary legal opinions have been obtained and, if applicable, agreements have been finalised with Implats.

It should be stressed that Implats remains fully supportive of the growth objectives of Zimplats.

The Period Ahead

The immediate period ahead will be one of consolidation. Your company will use all of its endeavours to maximise steady-state production volumes, recoveries and efficiencies and reduce its unit costs. Grade control will remain a focus.

The parlous state of the Zimbabwean economy will probably result in inputs being increasingly incurred in US dollars, thereby increasing costs.

The planned pilot mining project later this year to assess the economics of underground mining by conventional room and pillar methods from the high wall of the Ngezi open pit is amongst the initiatives that will position Zimplats for future growth and lower future production costs.

Appreciation

The successful commissioning of the Ngezi/SMC Project during the past year was made possible by the dedication and commitment of the entire Zimplats and Makwiro teams and associated 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.

Once again I would like to record our thanks and appreciation to the Government of the Republic of Zimbabwe for its constructive support and assistance during the past year.

Finally I wish to record my thanks to all your directors for their advice, support and counsel during a demanding year.

R.G. Still

Chairman