Executive Chairman’s report

ARM achieved impressive operational results over the past financial year and is proceeding with its aggressive growth strategy despite the challenging and inconsistent global economic environment.

Our world class management team continued with their effective cost containment and productivity enhancement measures.

The significant growth in sales volumes could not fully offset the 16% strengthening of the Rand against the US Dollar, as well as lower US Dollar commodity prices received for certain of our commodities. The net result was a 26% decrease in headline earnings to R1.7 billion, or 807 cents per share. What is pleasing however, is that the headline earnings for the second half of the year, of R1.3 billion was 178% higher than the R454 million for the first half of the financial year.

This past year has been gratifying as we achieved a significant milestone which is the successful completion of our 2 x 2010 growth strategy. In terms of this strategy we undertook in 2005, to double production volumes by 2010, in our portfolio of commodities, including iron ore, manganese ore, nickel, platinum group metals and coal. This strategy culminated in the delivery of seven new mines over the last 5 years.

Our diverse and quality portfolio of commodities will stand ARM in good stead as demand in commodity markets improves. Furthermore the benefits of our cost control measures and the huge increases in our volumes will significantly contribute to ARM’s long-term profits.

Since the initiation of our growth strategy in 2005, ARM has spent approximately R13.5 billion on an attributable basis on our growth projects, which includes R2.7 billion in the last financial year.

Our aggressive growth continues. Expansions are currently underway at various operations and ARM continues to explore opportunities that are available through corporate action and partnerships.

ARM is well placed financially given that the Company’s growth is supported by a robust financial position with low gearing. At 30 June 2010, ARM’s net debt to equity had been maintained at below 2% year-on-year; a level that supports the Company’s aggressive growth ambitions.

Global Economic Environment

Conditions in commodity markets continued to be challenging, especially in the first six months of the financial year, as the global economy continued to be affected by the slowdown that began in the latter part of the 2008 calendar year. Notwithstanding this, ARM managed to increase annual sales volumes across all commodities, except domestic thermal coal. At the same time, ARM’s management and employees have controlled costs and repositioned the Company to benefit from the global economic recovery.

Whilst the distinct change in profitability in the second half of the year was as a result of improved market conditions, the difficult decisions we took in 2009 to proactively restructure our operations, also contributed to the profits of the Company.

2 x 2010 Growth Strategy

The overriding objective of successfully achieving our 2 x 2010 growth strategy ensured that during the past two years we did not reduce the capital expenditure on our growth projects. While we continued to proactively manage our financial position to ensure an acceptable risk level, we were determined to achieve an appropriate balance between profitability and continued growth.

Since the inception of our 2 x 2010 growth strategy, ARM successfully built seven mines at Modikwa, Two Rivers, Goedgevonden, Nkomati, Khumani, Nchwaning 3 and Dwarsrivier. Most of these are large mines, each with a life-of-mine of more than 25 years. In addition, we increased capacity and improved efficiencies at 2 of our processing plants.

At Black Rock we built a new manganese metallurgical plant and increased the output capacity of the plant from 3 mtpa to 5 mtpa. The Two Rivers processing plant was successfully optimised and has improved recoveries as well as increased annual tonnages at the plant.

Our senior management has now built up significant experience in developing and delivering major projects timeously and within budget.

Through our 2 x 2010 strategy we have doubled volumes in our portfolio of commodities as follows (on a 100% basis):

• Iron ore sales volumes increased from 5.8 to 9.8 million tonnes
• Manganese ore sales volumes increased from 1.8 to 3.1 million tonnes
• PGM sales volumes increased from 320 to 689 thousand ounces
• Nickel sales volumes increased from 5.3 to 8.7 thousand tonnes.

In addition to the above increases, we added two new commodities to our portfolio. Coal was added and attributable sales volumes increased to 2.5 million tonnes for export coal and 1.7 million tonnes for domestic coal in 2010. We also added chrome ore and chrome concentrate at Nkomati and increased sales volumes to 502 thousand tonnes and 314 thousand tonnes respectively.

Aggressive Growth Continues

We are entering another exciting period of growth and ARM’s strategy is to continue to pursue profitable new opportunities.

ARM and Vale recently approved the development of the Konkola North Copper Project in Zambia. Development of the project has already commenced and will be at a capital cost of US$380 million in July 2010 terms and will produce 45 000 tonnes of contained copper in concentrate per annum. The project has significant potential for expansion. Exploration to evaluate Area “A” of the project, is already underway.

The release of this project represents a significant milestone for ARM as it adds a new commodity to the ARM portfolio and is our first operational investment outside South Africa. Our share of the newly developed mine will be housed in a new division, ARM Copper which we expect to grow in the future.

Our internal growth pipeline also includes, amongst others, the following growth projects:

• The Khumani Iron Ore Mine expansion to 16 mtpa.
• The Nkomati Nickel Mine which will increase production from 9 666 tonnes of nickel produced in concentrate in 2010 to 20 500 tonnes by 2013.
• The Goedgevonden Coal Mine which is expected to reach full production of 6.7 mtpa in 2011.

We are also evaluating the following prospects:

• An enlarged Platinum Mine at Modikwa.
• The Kalumines Copper Project.
• The Kalplats Platinum Project.

ARM has a 77-year operational history which augurs well for its objective of continuing to be a globally competitive, world-class mining company. We can only succeed in this regard if we retain, motivate and appropriately reward our highly skilled and experienced management team.

Partnerships and Joint Ventures

ARM has positioned itself as the partner of choice within the South African and African mining industry. In our partnerships we seek to have at least 50% ownership of the asset or group of assets. Where we own less than 50% we seek to ensure a process that enables us to increase our shareholding, over time to at least 50%.

Our strategy of being an owner operator, allows us to introduce our management culture and skills to the development of our assets while sharing in the extensive knowledge and experience of our partners; especially in the sales and marketing of our products.

Our success in our joint ventures is reflected in the world-class partnerships formed with global mining companies most of whom are leaders in their respective commodities. We are pleased to grow our relationship with Vale with the release of the Konkola North Project. This is further evidence of the mutual benefit of our collaborations.

Sustainability and Safety

Our primary objective remains the continued creation of value for our shareholders. We always ensure that this is done in a sustainable manner that minimises any environmental impact and prioritises the health and safety of the 22 000 employees and contractors that make up ARM.

We are committed to managing our operations and developing new projects in a manner that creates long-lasting economic and social benefits for the communities neighbouring our mines and ensuring that safety standards are of the highest level.

We believe that a safe and healthy workplace is every employee’s right. Safety awareness, risk assessment and responsible supervision are crucial to the ongoing success of ARM.

Regrettably one fatality was reported during the financial year ended 30 June 2010. At the Machadodorp Works on 10 April 2010, Mr Erick Maluka was fatally injured during slinging operations. ARM and its Board of Directors convey their deepest condolences to Mr Maluka’s family, friends and colleagues.

The Future

While the past financial year, particularly the second half, has seen a remarkable recovery in commodity markets, sentiment is still cautious as the timing of the recovery of the American and other developed economies remains uncertain.

Whereas the global recovery is expected to continue and benefit export oriented economies, it is anticipated that the recovery in certain demand driven economies will be much slower during the forthcoming year.

There remains much speculation about commodity consumption and specifically about the demand from China. We produce high quality iron ore and manganese which is in demand and is used as blend material for lower grade ore from China, India and other developing economies. We are in a small high quality niche market. The medium-term fundamentals are compelling. We remain firmly of the view that a supply shortage could materialise in certain markets, particularly in commodities such as platinum and copper.

ARM remains confident and is well positioned financially and operationally to continue to create value for its shareholders from its long-life and low cost mines. The planned attributable capital spend over the next three years to June 2013, is approximately R10 billion and includes the development of the first phase of our investment in copper. This capital expenditure is expected to be funded from operating cash flows and by utilising available cash and borrowing resources.

Conclusion

We paid an increased fourth annual dividend to shareholders of 200 cents per share involving a cash outflow of R425 million (F2009: R371 million). ARM remains committed to being a dividend paying Company whilst implementing its aggressive growth strategy.

The ARM Board experienced a number of changes in the current year. Mr Max Sisulu resigned as an Independent Nonexecutive Director of the board and became Speaker of the South African Parliament. I would like to express my sincere gratitude to Max for his service to the board and wish him well with his new responsibilities.

We welcomed Mr Mike Arnold to the board. Mike was appointed Financial Director effective 1 August 2009, a position previously held by Mr Frank Abbott who remains on the board as a Non-executive Director. Mr Anton Botha was appointed as an Independent Non-executive Director and Mr Bernard Swanepoel who was previously a Non-executive Director became an Independent Non-executive Director of the board.

We recognise that mining has been and continues to be a crucial sector within the South African economy. As we create shareholder value, we are committed to ensuring that we do so in a manner which allows us to contribute meaningfully to our workforce, the communities within which we operate and to the South African economy.

Since 2005, we have more than doubled the number of employees at the operations from 10 969 to 22 776.

The upliftment of communities within which we operate remains a key imperative for ARM. In the preceding five years we have invested approximately R165 million in the development of our communities. R14.6 million of this was distributed through the ARM Broad Based Economic Empowerment (ARM BBEE) Trust and invested in projects identified by the communities for their upliftment and development. These projects have been in education, health and the development of sustainable enterprises that benefit the communities.

I would like to express my gratitude to my fellow Board members for their invaluable contributions and wise counsel throughout the year.

At the end of a particularly eventful year, I would like to thank Andre Wilkens, our excellent management team, all our employees and their families, for their support and dedication. I am equally grateful to our diverse stakeholders for the tremendous support and the relationships that we have built over many years.

I would also specifically like to thank our various joint venture partners; Anglo Platinum Limited, Assore Limited, Impala Platinum Holdings Limited, Norilsk Nickel Africa (Pty) Limited, Xstrata Coal and Vale S.A.

I am confident that ARM will continue to be competitive and create value for our shareholders and contribute to the improvement of the living conditions of the communities living near our mines and our various stakeholders.

Patrice Motsepe
Executive Chairman

15 October 2010