Last Updated 3 March 2006

Introduction to Saudi Arabia

Saudi

The Kingdom of Saudi Arabia has an area of 865,000 sq. km equivalent to one-third of the land area of the United States. The capital city is Riyadh and the main trading city is Jeddah. The Monarchy which governs a population of 23 million people.

The Saudi Government has recently proclaimed the mineral sector as a development priority and has set ambitious growth targets. A new Mining Code conforming to best international practice is awaiting Royal assent and a number of other legislative changes have been made during the past 2 years with the objective of increasing foreign investor interest in Saudi Arabia generally. In April 2000, a new Foreign Investment Law was issued under which:

• Foreign investors can own 100p.c. of a business with no local partner required.

• Foreign investors can benefit from incentives previously available only to local companies such as soft project development loans.

• Profits tax reduced from 45p.c. to 30p.c. and losses can be carried forward indefinitely.

Additional development finance is available through the Saudi offset programme whereby companies benefiting from supply contracts to the Saudi Government are obliged to re-invest a portion of the proceeds into development projects in Saudi. The Government has also established the Geological Survey of Saudi Arabia in order to remove a barrier to accessing geological information in the country.

In January 2005 a new Mining Code came into effect designed to modernize the Saudi mining legislation. This is expected to have a positive impact on the Company’s Ghurayyah project in reducing ongoing expenditure commitments.

Ghurayyah - Saudi Arabia (tantalum-niobium) - Tertiary 100%

Recent news.

In December 2005 Tertiary completed a Preliminary Agreement for joint funding of the Pre-Feasibility and Bankable Feasibility Studies with a Consortium comprising two of the leading Saudi family companies.

The broad details of the Preliminary Agreement with A H Algosaibi & Bros Co, and AlNahla Trading & Contracting Co are covered in the Tertiary press release dated 7 th December 2005

Project information.

In January 2002 Tertiary was awarded a five-year exclusive exploration licence over the Ghurayyah tantalum/rare-metal deposit in Saudi Arabia The licence from the Saudi Government is renewable for up to nine years and gives Tertiary the right to acquire a 50-year mining lease on the 47 km sq area.

Ghurayyah is located in the Midyan region of north-west Saudi Arabia, 85km south-west of the regional city of Tabuk and 55km from the Red Sea. SRK Consultants, on behalf of Tertiary, has estimated the deposit to contain an Inferred Resource, to a depth of approximately 250m below surface, of 385 million tonnes grading 245 grammes per tonne (g/t) tantalum pentoxide (Ta205), 2,840 g/t niobium pentoxide (Nb205), and 8,915 g/t zirconium oxide. This resource remains open below 250m and contains over 208 million pounds (95,000 tonnes) of Ta205 and over 2.4 billion pounds of Niobium - more than the known reserves/resources at the combined Greenbushes and Wodgina mines in Western Australia which currently account for around 53p.c. of world tantalum minerals output.

Although explored on behalf of the Saudi Government by Watts, Griffis and McOuat (WGM) in 1978 and the US Geological Survey (USGS) in 1999, the Company believes that Ghurayyah has been overlooked by most exploration companies due to the previous difficulties in gaining access to information and the fact that the WGM work in particular was undertaken at a time when the global demand for tantalum was a fraction of what it is today and prices were significantly lower.

Ghurayyah is a 900m diameter plug of alkali granite outcropping with positive relief of up to 56m above the confluence of two wadi systems. It is reported to contain fine-grained columbite-tantalite and coarser grained zircon as the principal economic minerals of tantalum-niobium and zirconium respectively with possibly minor amounts contained in associated uranium, thorium and rare-earth minerals.

The SRK Inferred Resource estimate has been made according to the Australian Institute of Mining & Metallurgy's JORC Code and is based on 13 reverse circulation and diamond drill-holes. The granite is uniformly mineralised throughout with no internal waste or low-grade mineralisation..

The remarkable consistency in grade distribution and the solid geometry of mineralisation means that Ghurayyah is amenable to low cost open pit mining. Around 10 million tonnes of the estimated resource outcrops above wadi level offering zero waste stripping ratio for the first few years of mining. Thereafter, waste stripping would be limited to unconsolidated wadi sediments.

Following on from favourable metallurgical testwork a Scoping Study for development of the Ghurayyah tantalum-niobium deposit in Saudi Arabia was completed in 2003 with positive results. The Study included financial modelling of a number of alternative processing flow sheets over an initial 20-year mine life with costs estimated to an accuracy of +/- 30%. On a 100% equity funded, un-escalated basis the four main flow sheets were all economically attractive. Each produced pre-tax Internal Rates of Return (IRR) in excess of 25% and Net Present Values (NPV) in the range $55-285 million using discount rates between 10 and 20%.

The Base-Case returned the highest NPV and IRR. It considered:

• mining of 1.52 million tonnes ore per annum over an initial 20 year period;

• production of tantalum-niobium concentrate containing 600,000 lbs per annum of tantalum pentoxide (Ta205), 6.3 million lbs per annum of niobium pentoxide (Nb205) and separate saleable zircon concentrate (10,000 tonnes per annum) by flotation and magnetic separation of ore after crushing/grinding;

• aluminothermic reduction (smelting) of the concentrate to a low-radioactivity iron-niobium-tantalum alloy (“the ATR alloy”), and

• further processing of the ATR alloy to saleable ferro-niobium (for use in the steel industry) and salts of tantalum and niobium (for use by refiners of tantalum and niobium metals, powders and oxides in the manufacture of capacitors and special alloys).

The Base-Case financial model indicated a payback of three years on capital costs of $101 million, average annual revenues of $106 million and average annual operating costs of $51 million.

At Base Case throughput rates the known resource is sufficient for more than 200 years of production.

The Base-Case financial model used current prices for niobium products and tantalum product prices factored to the predicted tantalum concentrate prices forecast by Metal Bulletin Research. It should be noted that current spot prices for tantalum are at lower levels than both historical averages and MBR future forecast prices. The vast majority of tantalum is not sold on a spot basis but on long term contract prices which are considerably in excess of current spot prices.

The projected annual production rate of 600,000lbs contained tantalum pentoxide is less than the forecast increase in demand for tantalum predicted by Metal Bulletin Research for the period 2006 to 2008.

The Base–Case flow sheet envisaged the downstream production of tantalum and niobium salts and ferro-niobium as these products are currently traded on world markets and price information is readily available. However, Tertiary’s objective for Ghurayyah, at least in the first years of production, is to process the ore only as far as is necessary to establish marketable ”raw materials” for sale to existing processors.

Consequently the Scoping Study has considered a number of alternative flow sheets where the concentrates are smelted into different intermediate tantalum and niobium alloys and synthetic concentrates, including the ATR alloy, an intermediate product in the Base-Case flow sheet. During smelting the uranium and thorium contained in the concentrates are separated into a relatively inert slag for disposal.

Click the image below for a larger version

Flowsheets for processing Ghurayyah Ore

Ghurayyah intermediate “raw materials” have a higher ratio of niobium-tantalum than is normal for tantalum raw materials and whilst the Pittinga mine in Brazil has successfully made and sold such intermediate products in the past, future prices for these materials can only be established by negotiation with tantalum and niobium processors. The scoping study has established preliminary specifications and target prices for intermediate products based on acceptable rates of return and estimated costs of production.

Whilst intermediate products have the disadvantage of higher niobium-tantalum ratios this will be less of a disadvantage if the use of niobium capacitors grows as anticipated. The low levels of uranium and thorium will be a distinct advantage as competitor raw materials (tantalite and columbite concentrates) have variably higher levels of “natural” radioactivity. The acceptable limits of uranium and thorium for import of these materials into “developed-world” processing countries are becoming increasingly restrictive.

The flow sheets involving the production of alloy and synthetic concentrate “raw materials” involve a lower degree of process risk than the Base-Case. Some also have lower capital costs and may prove more attractive to the Company if adequate sales contracts can be negotiated. Discussions with potential purchasers of Ghurayyah products are continuing.

The project-financing environment in Saudi Arabia is very attractive, with Government funding available on low interest terms for, typically, 50% of capital costs through the Saudi Industrial Development Fund. In addition, project finance guarantees and low cost debt funding may be available for a further 37.5% of capital costs through the British Aerospace Project Finance Initiative administered by British Offset that is already supporting the project, having funded a part of the company’s metallurgical development programme. The net result of such funding is that the equity component of the capital costs for the project could be as little as 12.5% of the total capital requirement. This supportive project-financing environment gives the Ghurayyah project a competitive advantage over other new tantalum projects currently on the drawing-board.

The Study, which has recommended further feasibility studies, suggests a development starting in 2006. It was carried out by St Barbara Consulting under the direction of senior mineral processing consultant Richard Wilkinson, a metallurgist/chemical engineer, who was formerly in charge of mineral processing research at Billiton. Mine planning and costing was carried out by SRK Consulting whilst process plant and infrastructure was costed by GBM Minerals Engineering Consultants.

The Company has been working with the British Offset Office, to formally register the Ghurayyah project with the Al Yamamah Economic Offset Programme.

This will allow the Company to apply for project funding under this Programme on favourable terms and to enlist the support of the Programme to further the evaluation of the project, including the identification of local sources of funding for continuing preliminary and full feasibility studies. This process has assisted in attracting A H Algosaibi & Bros Co and AlNahla Trading & Contracting Co to the Ghurayyah project which will meet Tertiary’s objective for Ghurayyah which is to farm out further expenditure obligations to a joint venture partner, thereby maintaining a significant interest in the project at little further financial risk to shareholders.