Creating a Leading African Copper & Cobalt Company

Annual Report 2007 Company Overview

Katanga Mining Limited is creating an industry leader in copper and cobalt. Its joint venture operations in the Democratic Republic of Congo are in production, and the company has the potential to become Africa’s largest copper producer and the world’s largest cobalt producer by 2011.

In January 2008, Katanga merged with Nikanor PLC, which has an adjacent copper-cobalt complex, to create a company with a US$3.8 billion market capitalization. A four-year phased ramp-up will see the company targeting production of over 300,000 tonnes of reﬁned copper and over 30,000 tonnes of reﬁned cobalt a year by 2011 from a major single-site operation.

01 Company Overview 21 MD&A 01 2007 Highlights 21 Management’s Discussion and Analysis 02 President’s Letter 06 Board of Directors 34 Financial Statements 34 Management’s Responsibility for 08 Progress Review Financial Reporting 08 Project Review 35 Auditors’ Report 12 Operations Review 36 Consolidated Financial Statements 16 Social Responsibility Review 39 Notes to Consolidated Financial Statements 19 Financial Review 57 Shareholder Information Katanga at a Glance

0 1 2 345km Luilu Metallurgical Plant/ planned SX/EW Reﬁnery

Kananga

KOV Open Pit Mine

Kamoto Concentrator

Kamoto Underground Mine Musonoie-T17 Democratic Kolwezi Concentrator Republic of Mashamba East Congo

Tilwezembe 20km Katanga Province Key assets Other mines and plants Kolwezi Katanga’s key assets include the Kamoto Underground Mine and KOV Open Pit Mine, providing both sulphide and oxide ores. The Kamoto Concentrator and Luilu Metallurgical Plant, together with a planned SX/EW Reﬁnery, enable the production of reﬁned copper and cobalt on-site.

Kamoto Underground Mine KOV Open Pit Mine Kamoto Concentrator

The Kamoto Underground Mine, Katanga’s The KOV Open Pit Mine is considered to be The Kamoto Concentrator consists of four primary sulphide ore source, has twin six and a the world’s highest grade significant copper milling and flotation sections constructed half by six meter ramp declines, a service shaft resource. During its lifetime 38 million tonnes between 1969 and 1982, with a design capacity and an 11,000 tonnes per day production shaft. of ore have been mined at an average grade of of 7.5 million tonnes of ore per year. 5.8 per cent copper and 0.5 per cent cobalt. 11,000 5.8% 7.5m Tonnes per day Copper Tonnes per year Our Strengths Large-scale, low-cost and long-life producer Proven management team and track record Katanga’s mine complex is currently in production, with a Katanga’s Board and management team are comprised of phased ramp-up targeting over 300,000 tonnes of refined industry veterans with a track record of successful project copper and over 30,000 tonnes of refined cobalt a year by execution, proven local operating expertise and a history 2011, giving the company the potential to be Africa’s of running large-scale operations. The team brought the largest copper producer and the world’s largest cobalt Kamoto site into production at the end of 2007 on schedule producer. Substantial high-grade resources indicate a and on budget, and is continuing its phased approach for the potential mine life of 40+ years, with one of the world’s development of the enlarged mine complex. lowest production costs.

Globally significant integrated single-site operation Genuine commitment to sustainable development Katanga’s integrated mine complex is considered to be the A company of Katanga’s scale has the opportunity to make largest single-site project in the world producing both copper a significant impact in the Democratic Republic of Congo. and cobalt. It contains both underground and open pit mines, Along with financial benefits in the form of royalties and providing both sulphide and oxide ores. A concentrator and taxes, a coordinated community investment program will metallurgical plant enable the production of refined copper produce positive change for communities surrounding the and cobalt metal on-site. The complex is a mix of existing operations. Katanga’s aim is to help ensure that the social and assets being progressively refurbished and a new economic benefits stemming from its project will last well state-of-the-art refinery which is under construction. beyond the life of the mine.

Luilu Metallurgical Plant Planned SX/EW Reﬁnery Other mines and plants

The Luilu Metallurgical Plant has roasters, The planned greenﬁeld SX/EW Reﬁnery more In addition to its key assets, Katanga also has leaching circuits and electro-winning cells for than doubles Katanga’s capacity, with increased the Kolwezi Concentrator, the previously- copper and cobalt production. It has a potential recoveries and higher grade metal production. mined Mashamba East open pit, and the capacity of 175,000 tonnes of copper and 8,000 Its design has two modules, each producing cobalt-rich Musonoie-T17, Kananga and tonnes of cobalt a year. 80,000 tpy copper and 10,000 tpy cobalt. Tilwezembe deposits, with grades up to 0.87 per cent cobalt. 175,000 80,000 0.87% Tonnes per year Tonnes per year Cobalt Annual Report 2007 Katanga Mining Limited 01 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

2007 Highlights

» Successful transition to production: underground mining began in March, open-pit operations started in May, concentrate was produced in July and first copper cathodes were produced in December. » Phase I rehabilitation of the original Kamoto facilities materially completed, on schedule and on budget. » Merger with Nikanor PLC, which has an adjacent copper-cobalt concession in the Democratic Republic of Congo, announced in November and completed in January 2008. » Final stage of financing for the original project completed: US$150 million two-year loan facility with Glencore, including a 10 year off-take contract beginning in 2009. » Strong foundations built for a community investment program, including creation of a sustainable cooperative farm and improvements carried out to a local hospital. » Upgraded reserve and resource estimate announced. Post-merger, Measured & Indicated resources total 239 million tonnes at 4.45 per cent copper and 0.44 per cent cobalt. » Market capitalization more than doubled during the year, reflecting these achievements and strong commodity prices.

KAT Performance Relative to TSX Diversiﬁed Metals & Mining Index % 300

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0 Jan 07 Feb 07 Feb Sep 07 July 07 Oct 07 Apr 07 Dec 07 Aug 07 Aug Nov 07 Nov Mar 07 June 07 May 07 -50

Katanga Relative TSX Diversiﬁed Metals & Mining Index Relative 02 Katanga Mining Limited Annual Report 2007

President’s Letter

“Katanga’s market capitalization more than doubled during 2007, reﬂecting onsite accomplishments and strong commodity prices.”

Copper production from our Katanga’s market capitalization more Merger with Nikanor than doubled during 2007, reflecting On November 6, 2007, we joint venture’s Luilu refinery onsite accomplishments and strong announced an offer to acquire began in December after 18 commodity prices. The transition Nikanor PLC. The transaction, months of challenging work. from developer to producer during which closed January 11, consolidates the year encompassed several mining operations in the Kolwezi This accomplishment met milestones. Production began at the district and will yield important our primary goal for 2007. Kamoto Underground Mine in synergies. These include reduced Furthermore, it was achieved March. Open-pit operations started capital and operating costs as we in May, although production was remove duplication and collectively within our US$175 million limited until September when the enhance metallurgical recoveries. The budget, another key objective. heavy equipment required could be greater scale of our operations will transported across the Lualaba River. also improve our capability to address In July, concentrate production from external matters such as government the Kamoto Concentrator began, relations and infrastructure. while cold commissioning of the Luilu Metallurgical Plant started in Financing completed November, and first copper cathode Securing the third and final stage was produced mid-December. of financing for the Kamoto project was a key objective in 2007, but Achieving production as scheduled uncertainty created by a government- within the Phase I budget of US$175 mandated review of joint ventures million was an important team with State companies, as well as a accomplishment considering the hostile takeover attempt, meant we condition of the site when the joint were unable to close a syndicated venture started managing it on credit facility. However, by year-end July 3, 2006. The stage is now set we successfully secured a US$150 for Phase II, which began in early million convertible loan from 2008 as planned. Glencore. The facility includes copper and cobalt off-take rights beginning in 2009 that will provide superior marketing strength for our business. Annual Report 2007 Katanga Mining Limited 03 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Employees by a cascade mill in the Lifting starter sheets in the Luilu Underground operations Kamoto Concentrator Metallurgical Plant

Healthy resources Operational progress needs; for example, we received An upgraded reserve and resource By year-end, refurbished facilities authorization to clear customs and estimate was announced early in the were operating satisfactorily, immigration in Kolwezi, thereby year. Proven and probable ore grades although below capacity as mining avoiding border crossing congestion for both the Kamoto Underground rates increase. Open pit and at Kasumbalesa. Mine and the Musonoie-T17 open- underground operations, while pit mine increased materially as a improving, are lagging behind the Having travelled to Lubumbashi result of additional information and plan. The principal limitation is and Kolwezi for 10 years, I see a refined plans. The merger brings an workforce productivity, and we see clear difference today. Katanga now additional 126 million tonnes of high the development of employee skills employs more than 4,000 Congolese grade resources in the KOV deposit and capabilities as a long-term nationals with a local payroll that will drive expansion over the challenge. However, ongoing exceeding US$2.8 million per month. next three years. initiatives to improve performance Resurgence of the mining industry helped mining rates in the T17 open has revived the regional economy, After year-end, we announced pit to exceed plan by year-end, and and more goods and services are a transaction transferring the the required quantities of oxide ores available, including better air services Mashamba West and Dikuluwe are available. Costs in 2007 were and the opening of hotels and deposits to our joint venture partner capitalized, as mine and plant restaurants. Above all, I see growing Gécamines in return for either operations during the year were in confidence and more self-initiative replacing the resource or paying their start-up phase. among the Congolese people. US$825 million from its share of joint venture production. These Ongoing transformation Community projects begun two deposits were scheduled to be of the DRC We started several initiatives during mined starting in 2023 and 2020 Transformation of the DRC into a 2007 to help improve services in respectively, and more value may country with representative Kolwezi. Working with community be created in the joint venture by government continued in 2007. groups and non-governmental replacing these resources with ores Services are still minimal, and power organizations, we delivered a number that can be mined earlier. Post- and transportation infrastructure of projects for the benefit of our transaction, the joint ventures have must improve dramatically to meet employees and the wider community a nominal 239 million tonnes of the needs of a large-scale mining in areas such as agriculture, reserves and resources at average project. Working closely with sanitation and medical services. grades of 4.45 per cent copper and government agencies, we are steadily These included establishing a self- 0.44 per cent cobalt. improving outcomes to meet our sustaining farm cooperative, clearing 04 Katanga Mining Limited Annual Report 2007

President’s Letter continued

“Our new enlarged Board will continue to serve all Katanga shareholders, guiding the company as we embark on the exciting road ahead.”

thousands of meters of local Progress against 2007’s goals drains and ditches, and making In reviewing the goals set in last infrastructure improvements at the year’s Annual Report, I see Mwangeji Hospital, all highlighted achievement in most respects. Phase later in this report. I of our capital program was materially completed on budget. We In 2008 we expect to accelerate raised $150 million for project needs, progress in this area. The priorities though it took a diﬀerent form than are to restart the Mutoshi Institute, a originally intended. About 700 training school for mineworkers, in people were added to the site conjunction with other mining organization during the year, and companies and Gécamines; operational performance is rehabilitate roads in Kolwezi; and improving. continue to upgrade the Mwangeji Hospital. A further goal was to improve the quality of life for our employees and the community. As you will read in About the DRC this report, progress was made and At 2.34 million square kilometers, the Democratic Republic of Congo (DRC) is the we have plans for 2008 that should third largest country in Africa. It has a population of 65.7 million people. enhance conditions. The ﬁnal goal I

In-depth The DRC’s vast mineral wealth includes copper, cobalt, diamonds, gold, coltan and set was to increase Katanga’s market zinc. The country is estimated to contain 10 per cent of the world’s copper resources value. The market capitalization of and 50 per cent of its cobalt resources, centered on the Katanga Province in the the company at the end of December south east of the country. 2007 was 132 per cent greater than at the end of December 2006; an Since independence from Belgium in 1960, the DRC has had a turbulent history. Following a ﬁve-year civil war, a transitional government was formed in July 2003 indication, I believe, of progress and elections in 2006 conﬁrmed Joseph Kabila as President. The world’s largest UN made onsite and the market’s appetite peacekeeping force is in the country overseeing the shift to democracy. for natural resource companies.

Conﬁdence in the DRC is growing among Western companies. The introduction of a new mining code in 2002 was an important element in attracting private sector investment, with over US$2.1 billion in capital raised for DRC mining projects in 2006/07. The country’s economy saw growth of 6.1 per cent in 2007. Annual Report 2007 Katanga Mining Limited 05 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Ore stockpile A farm cooperative was established Examining the mine plan

Opportunities and challenges I also wish to extend my appreciation ahead to our employees, whose efforts and Goals for 2008 In 2008 we face new challenges, such performance enabled us to achieve as managing extensive greenfield our objectives in 2007. We welcome As production grows and the capital construction in a country with Nikanor’s employees to the Katanga program increases capacity during the limited infrastructure, while family as well, and look forward to year, we set the following goals for 2008: » Completing the greenfield feasibility continuing to strengthen operating working together as one team on the study for the combined project by the performance and increase current ambitious program ahead. third quarter. production. There are opportunities » Completing Phase II rehabilitation as well, such as beginning to mine at We will stay focused on our operating and expansion, thereby increasing KOV earlier than planned and objectives and expansion program capacity of the Kamoto Concentrator compressing the timeline for the during 2008 to deliver intended and Luilu Metallurgical Plant to Kamoto rehabilitation. results as we have in the past. 100,000 tonnes of copper cathode per year. Your Board of Directors contended » In parallel with this, developing the with many challenges this past year, KOV pit for production and from a creeping takeover attempt to a beginning construction of the range of matters associated with the Arthur H. Ditto associated greenfield whole-ore Nikanor bid, and I thank them for President, Chief Executive Officer leaching and SX/EW facility. their dedication and guidance. Our and Director » Integrating provisions of the DCP new enlarged Board will continue to joint venture agreement into the serve all Katanga shareholders, KCC joint venture agreement and guiding the company as we embark having the mining/exploitation on the exciting road ahead. concessions issued directly to KCC by the government. » Ensuring that the effectiveness and capability of the on-site management team continues to grow and develop. » Continuing to increase Katanga’s enterprise value as a result of profitable production and efficient use of capital. 06 Katanga Mining Limited Annual Report 2007

Board of Directors

Katanga Mining Limited’s 10-person Board of Directors has broad experience in the mining sector and strong connections in the Democratic Republic of Congo. The Board is committed to corporate governance standards consistent with best practices in the natural resources sector.

Chairman Hugh Stoyell (left) on a site tour

Hugh Stoyell Arthur H. Ditto Malta D. Forrest T Independent Non-Executive President, Chief Executive Officer Non-Executive Director Chairman and Director Malta Forrest is the third generation Hugh Stoyell has more than 40 years Arthur Ditto has over 40 years of of the Forrest family to be associated of experience in the South African experience in the mining industry and with the Forrest Group conglomerate mining industry. His career includes has held the position of President, of industrial enterprises. With 30 years in gold and chrome mining CEO and Director of Katanga Mining extensive experience of operations in with Rand Mines Limited and 10 Limited since November 2005. the Democratic Republic of Congo, years with Duiker Mining Limited, Between 1993 and 2005, he served his executive positions include retiring as the company’s Chairman Kinross Gold Corporation in a variety Construction Manager and Deputy and Managing Director in 2002. of capacities, including President, Chief Managing Director of Enterprise Most recently Mr Stoyell has acted Operating Officer, Vice Chairman Générale Malta Forrest SPRL. as a consultant to various Black and Director. Prior to that, Mr Ditto Economic Empowerment mining was President and CEO of Plexus Aristotelis Mistakidis T companies. He is currently a Non- Resources and held various senior Non-Executive Director Executive Director of Sentula management and engineering positions Aristotelis Mistakidis has been with Mining Limited as well as caretaker in large copper producing operations Glencore International AG, a leading Chief Operating Officer of Siyanda with Anaconda/Arco. privately held, diversified natural Coal Limited. resources company, since 1993. George A. Forrest Mr Mistakidis is also currently Rafael Berber Non-Executive Director Chairman of Mopani Copper Mines Non-Executive Director George Forrest has been President PLC and a director of Recyclex SA Rafael Berber is Managing Partner of the Forrest Group, a private (formerly Metaleurop SA). of RP Capital Group, a London- conglomerate of industrial based investment firm which he co- enterprises, for over 20 years. The Jean-Claude Masangu Mulongo* founded in July 2004. Mr. Berber company was founded in 1922 in Independent Non-Executive formerly served as Vice Chairman of what is now the Democratic Republic Director Global Capital Markets & Financing of Congo and is one of the country’s Jean-Claude Masangu Mulongo is and Global Head of the Equity- largest industrial enterprises. Today the Governor of the Central Bank of Linked Products Group at Merrill the Forrest Group has operations the Democratic Republic of Congo. Lynch, where he spent 16 years located in Africa, Europe and the Mr Masangu Mulongo has also spearheading the development of Middle East with businesses represented the DRC in various roles the firm’s equity derivatives and spanning civil engineering, mining, including Governor for the DRC and emerging markets franchise. manufacturing and construction. second Vice President of the G24 at Annual Report 2007 Katanga Mining Limited 07 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Members of the Board and executive team on a site tour in the Luilu Metallurgical Plant (left) and Kamoto Underground Mine (right)

the International Monetary Fund, He is an independent non-executive Board committees and Deputy Governor for the DRC director of EVRAZ Group SA, the The Board currently has three committees – at the World Bank. Prior to the largest Russian vertically integrated audit, compensation and corporate Central Bank, he spent the majority steel producer. Mr Robinson’s career governance – the mandates of which are of his career with the Citibank includes serving as Deputy Chairman consistent with best practices. Group in Kinshasa. of Chapada Diamonds plc, Chief The role of the Audit Committee is to Executive and then Chairman of The monitor the quality, integrity, and legal and Stephen Oke*T Albert Fisher Group Plc and Chief regulatory compliance, of the company’s financial statements and other financial Independent Non-Executive Executive of Halstead Services Ltd. information. It also oversees the Director He was a Director of Nikanor PLC qualifications and independence of the Stephen Oke has over 30 years of from July 2006 until its merger with independent external auditor and the experience in the mining and metals Katanga Mining Limited. internal audit procedures. industry. He is currently a non- The role of the Compensation Committee is executive director of International Robert Wardell* to review and approve the remuneration Ferro Metals Ltd. Mr Oke spent Independent Non-Executive packages of the executive and senior 12 years in various operational Director management team, review the compensation of the Board on at least an annual basis, and management positions for the UK’s Robert Wardell is Vice-President, administer the company’s compensation National Coal Board, Anglovaal Ltd, Finance & Chief Financial Officer of plans. BP Coal and Johannesburg Victory Nickel Inc. Prior to that he was The role of the Corporate Governance Consolidated Investment Co Ltd. an audit partner with Deloitte & Committee is to review the company’s Subsequently he has held senior Touche, LLP. He has over 37 years of corporate governance practices and assess positions in the investment banking public accounting experience including the functioning and effectiveness of the industry, specializing in the metals nine years with the accounting and Board, its committees and individual Board and mining sector. Mr Oke was a auditing technical group of Deloitte & members. Director of Nikanor PLC from June Touche and 11 years as an audit partner Joint venture representation 2007 until its merger with Katanga based in Toronto. In addition to the Board of Directors of Katanga Mining Limited, the Boards of Mining Limited. Katanga’s two joint ventures, Kamoto Member of Audit Committee Copper Company (KCC) and DRC Copper T * Terry Robinson* Member of Compensation Committee and Cobalt Project (DCP) meet a number of T Member of Corporate Governance Committee Independent Non-Executive times a year. These Boards include Director representatives from Katanga’s joint venture partner Gécamines, a DRC Terry Robinson has 35 years of state-owned mining company. international business experience. 08 Katanga Mining Limited Annual Report 2007

Project Review

“Much of the work in 2007 was characteristic of a major maintenance shutdown and refurbishment.”

Katanga completed the The Project team succeeded in people, and a total of 2,229,000 handing over the assets to the work hours were spent in the first phase of a complex Operations team on schedule and on reconstruction effort during the year. brownfield project against a budget, ensuring the joint venture Approximately 60 per cent of the tight deadline, in a country could produce its first copper cathode project manpower was provided by with extremely limited by the end of 2007. local labor. infrastructure and services. Much of the work in 2007 was Kamoto Underground Mine characteristic of a major maintenance The rehabilitation needed to achieve shutdown and refurbishment. In Phase I production capacity at the total, 34 kms of old electrical cable Kamoto Underground Mine was were removed and 81 kms of new fairly limited and much of the work cable installed; 71 new motor control was completed by site personnel. centers were designed and installed; Primary pumping capacity was 383 new control and monitoring restored through a combination of instruments were installed; over 950 new and rebuilt pumps and motors. tonnes of structural steel and plate Secondary pumping refurbishment work was completed; and 75 kms of continued throughout the year. Other new pipe was installed. work included restoring basic services such as dewatering and ventilation. Skilled Project team To achieve the complex task at hand, The new production fleet for Kamoto a Project team was assembled and was ordered late in 2006. Equipment led by a team of 26 from Katanga began arriving on site in the first who provided overall construction quarter of 2007 and by mid-year management. Engineering and the entire production fleet was procurement services were provided operational. by Hatch, while construction was accomplished by Congolese and South African contractors. Civil and support work on site was carried out by Congolese contractors. The project team peaked at approximately 1,300 Annual Report 2007 Katanga Mining Limited 09 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Workers ﬁberglassing electro-winning tanks (far left) and ﬂotation cells in operation following A new control system was installed at extensive refurbishment (above) the Kamoto Concentrator

Kamoto Concentrator related infrastructure were removed essentially all of the piping was The Phase I program called for and rebuilt, and all were rubber lined replaced. All of the conveyor restoration of the Kamoto and new flotation mechanisms were components were removed and Concentrator sufficient to process a installed. replaced as required. minimum of 50,000 tonnes of sulphide ore and 20,000 tonnes of To transfer concentrate and water Because of the lead time required to oxide ore per month. A component from the Kamoto Concentrator to design and build new roasters, the of this year’s plan was to restore the Luilu Metallurgical Plant, the decision was made to restore the much of the piping and electrical existing pipelines between the sites existing roaster section to reliable infrastructure needed for Phase I were removed and four new pipelines, short-term operating condition. operations and beyond. Nearly all totaling 28 kms, were installed. New Substantial effort went into water and air delivery pipes were tailings pumps and delivery pipelines stabilizing the building structure. replaced during the year, as were all were installed. New pumps were installed, the required motor control centers. regrind mill was rebuilt, and the Luilu Metallurgical Plant roaster shell was serviced and a new The surface crusher, conveyor systems The Luilu Metallurgical Plant was in refractory lining was installed. and stockpile reclaim areas were a very poor condition and required either rebuilt or replaced. Two of extensive refurbishment to restore In the leaching area, three new oxide the Kamoto mills were thoroughly it to a reliable operating state. receiving tanks were built and other serviced and relined, and new Substantial repair or replacement leach tanks and CCD tanks were lubrication systems were installed. of the infrastructure took place repaired as required. The cobalt area Essentially all of the process piping throughout the year, including the required extensive replacement of and pumps were replaced. Tanks replacement of approximately 32,000 pumps and piping and four new tanks were rebuilt and rubber lined to square meters of roofing, installation were installed. One belt filter and two ensure their long-term service. of all new sump pumps, replacement filter presses were installed, to replace of lighting and upgrading of safety existing drum filters. The remaining In the flotation cells, underlying installations. original tanks were repaired as structural support required only required and returned to service. minimal clean up and repainting, The concentrate receiving and storage but the cells themselves all required areas were restored to near full substantial rebuilding. A total of 88 capacity. The thickeners and other of the original flotation cells and tanks, vacuum pumps and two of the four drum filters were rebuilt, and 10 Katanga Mining Limited Annual Report 2007

Project Review continued

Lifting cathodes at the Luilu Metallurgical Plant

Work in the electro-winning section Kamoto Phase II started with the cleanup, repair and Phase II of the rehabilitation of the relining of 54 cells. An additional original Kamoto assets will be 28 starter sheet cells were repaired completed in 2008. A further mill and relined. New busbar ﬁttings and additional 58 ﬂotation cells will were designed and installed, and be refurbished in the Kamoto three new tanks were built and Concentrator. In the Luilu the distribution piping replaced. Metallurgical Plant, leaching and The existing lead anodes were electro-winning capacity will be cleaned and returned to service doubled and a new roaster will be and new stainless steel cathodes constructed. Preliminary engineering were purchased for starter sheet for Phase II began in October 2007, production. with site civil works for the new roaster beginning in November. Fabrication of the roaster unit began in the last quarter of the year.

Logistics expertise Production capacity for the Kamoto During the course of the 18-month rehabilitation project, over 600 separate loads assets will reach a nominal 150,000 were shipped to site. The Project team substantially reduced the time taken to tonnes of copper and 8,000 tonnes of transport materials from Johannesburg: a journey that took over four weeks at the In-depth beginning of the year was reduced to as low as seven days, with an average of 12 cobalt in 2010 following completion days achieved. of the four-phase rehabilitation. There is a progressive reduction in Four full-time expeditors made frequent visits to manufacturers, ensuring scheduled year to year capital spending for the deliveries were maintained for the smooth supply of materials. Through negotiation added capacity, with the budget for with the government, the joint venture was able to obtain authorization to clear customs in Kolwezi, thereby avoiding the severe border crossing congestion at 2008 set at US$136 million. Options Kasambala. for accelerating the later phases will be examined as part of the feasibility A weak bridge over the Lualaba River presented problems, as loads over 60 tonnes study due in Q3 2008. had to be broken down. The joint venture worked with other local mining companies and Gécamines to refurbish the Lualaba barge, an alternative that sped up the transit of large loads. While the majority of materials arrived by road, some larger items came via rail, demonstrating the availability of the rail network. Annual Report 2007 Katanga Mining Limited 11 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

“There will be a steep growth curve for both copper and cobalt production through to 2011.”

The waste stacker at KOV

Combined project An outline plan for the combined In parallel with the Phase II mine complex has the Kamoto Goals for 2008 rehabilitation, Katanga will develop Concentrator and Luilu the KOV open pit and build a whole- Metallurgical Plant processing The goals for 2008 relate to continuing ore leach and SX/EW facility. A sulphide ore only. Oxide ore and all the Kamoto rehabilitation while phased approach will be taken to the cobalt production will be processed planning and beginning work on the combined operation, with both construction of the plant, with two through the new SX/EW facility, brownfield and greenfield construction 80,000 tonne per year copper which will produce higher grade under way: production modules planned. refined metal with better recoveries. » Completing the feasibility study Initial synergies that can be realized on the combined project by the There will be a steep growth during 2008 will be explored, such as end of Q3. curve for both copper and cobalt processing ore from Tilwezembe » Reviewing the enlarged operations production through to 2011, with through the Kamoto Concentrator. to ensure early synergies are a target of over 300,000 tonnes of realized ahead of the feasibility refined copper per annum and over study completion. 30,000 tonnes of refined cobalt » Beginning mining at KOV by per annum. A feasibility study will the end of the year, ahead of the be prepared by Q3 2008 for the dewatering program completion. integration of the combined assets » Continuing Kamoto Phase II following the merger with Nikanor. construction as planned, reviewing the possibility of accelerating later phases. » Beginning construction of the acid plant and the first module of the greenfield whole-ore leaching and SX/EW facility. 12 Katanga Mining Limited Annual Report 2007

Operations Review

“The overall reliability and performance of the plant has exceeded expectations.”

The transition from clean- Katanga made the transition from workforce and establish discipline rehabilitation to production in 2007, and planning. The team will be up and rehabilitation with the Operations team working supported by a small group of to production has been with the Project team to ensure a experienced contract miners in 2008. challenging, with a steep smooth handover and commissioning of the joint venture’s assets. The focus The target is to exceed 60,000 learning curve to establish then shifted to ensuring a successful tonnes per month of ore by April the management team, ramp-up and ongoing operations and thereafter increasing to 90,000 infrastructure and procedures across the site. tonnes by year end. for successful operation of a Kamoto Underground Mine Musonoie-T17 Open Pit Mine complex site. The first round was blasted in March. Pre-stripping began on schedule in In total, 175,000 tonnes of ore were May at Musonoie-T17, which is mined during the year. There was mined under contract. The ore body a progressive ramp-up towards the was not as close to the surface as the end of the year, with 45,000 tonnes available information had indicated, mined in December. and significantly more pre-stripping was required. Once mining began, While all equipment was in place, over 30,000 tonnes of ore was mined. the management team was not In addition, stockpiles of oxide ore staffed as quickly as planned. By were treated. year-end, however, leadership was in place to direct the underground Annual Report 2007 Katanga Mining Limited 13 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Flotation cells in the Kamoto Concentrator (far left) and employees in the Luilu Metallurgical Plant examine copper cathodes (above)

Kamoto Concentrator Luilu team will work over the Adrian de Freitas, who has extensive The total tonnage of sulphide early part of 2008 to ensure the experience in underground concentrate produced was just under consistency of the process, aiming to operations, joined just before the end 12,000 tonnes. As a consequence produce LME “A” grade copper, a of the year as Operations Director. of the late arrival of oxide ore from higher quality than was historically Musonoie-T17, oxide production produced at the facility. To achieve The merger with Nikanor also did not begin until December. this, a change of system is planned gave the opportunity to draw on However, the overall reliability from March onwards whereby copper an enlarged skills base to fill some and performance of the plant has will be plated directly onto a stainless remaining positions. Eamonn exceeded expectations. steel cathode, rather than on copper Browne is in charge of the open starter sheets as originally conceived. pits and Michael Watters leads Luilu Metallurgical Plant the procurement function in The Luilu facility had limited Operations team in place Johannesburg to ensure spare parts operations in 2007, with cold For a variety of reasons, both and consumables are in place for commissioning beginning in late specific to candidates and as a result reliable operation. November and the first starter sheets of the attempted hostile takeover stripped on December 17. The first in the summer, it took longer to Accommodation needs commercial copper cathodes were fill management positions than To accommodate the expatriate produced on December 22. The anticipated. The team is now in place: workforce, houses have been physical quality of initial cathodes Stuart Allen joined in September as progressively refurbished, and 39 are was variable as expected, but with Secretary General, responsible for now available. A construction camp good chemical quality overall. The HR and business improvement. 14 Katanga Mining Limited Annual Report 2007

Operations Review continued

“The Katanga Operations team has worked with its counterparts at Nikanor to ensure the smooth implementation of the merger.” Blasting at the T17 open pit

of semi-permanent accommodation should be completed in early 2008. for the Project team workforce was The addition of a 100-person expanded in phases during the course “village” from Nikanor means that of the year. By the end of the year, up sufficient accommodation will be to 590 people could be accommodated available for the envisaged expatriate with full catering facilities. workforce by the end of the first quarter in 2008, and the use of An accommodation block is under hotel and boarding-house style construction near the former Kolwezi accommodations will be phased out. golf club, which will provide 40 single units, including rooms for Workforce development visitors and a restaurant. Progress on When the joint venture took over the new block has been delayed but the site in July 2006 it inherited a workforce of approximately 1,500 individuals, mainly ex-Gécamines workers. New hires during 2007 have taken this to over 2,400, with an Safety culture additional 1,600 joining as a result of When the joint venture took over the Kamoto site there was little focus on safety, thus the Nikanor merger. There is a “lost it was imperative to establish a safety culture. A dedicated safety team was formed generation” of workers who as a result and regular inspections carried out. A particular focus was placed on ensuring In-depth employees wear Personal Protective Equipment (PPE) at all times. of the decline of the mining industry in the DRC did not benefit from There were, unfortunately, two deaths during the year: one of an experienced either formal education or on-the-job employee seconded to a contractor, and the other a sub-contractor. The causes of training. Substantial training both were fully investigated and there is confidence that improvements have been investment is required to improve made, with greater training and supervision in key areas. There were no lost time accidents recorded in December. their skill base.

An external audit was recently completed to evaluate progress and assess continuing risks, liabilities and compliance gaps. The site is implementing a company-wide safety system that will comply with ISO standards. A number of employees have received offsite training at NOHSA in South Africa, and the system will be rolled out onsite during 2008. Annual Report 2007 Katanga Mining Limited 15 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

The construction camp built to house workers Underground operations began in March Copper production began in December

Nearly 200,000 hours of training These will inform the Environmental were conducted in 2007. The and Social Impact Assessment and Goals for 2008 proposed restart of the Mutoshi will be compiled in 2008 into long- Institute, a former training school term management plans. The overriding goal for 2008 is to for mine workers, by a group of local establish the benchmark for successful mining companies in conjunction Integration with Nikanor operations in the DRC. This includes: » Further developing a culture of with Gécamines will play an Since the merger was announced safety and respect for the important role in meeting future in November, the Katanga environment throughout the training needs. There is also a plan Operations team has worked with operations. to identify Congolese workers for a its counterparts at Nikanor to ensure » Making a strong focus on production management development program the smooth implementation of the and cost goals a way of life for the to eventually replace much of the merger on the ground. A management entire workforce, including a clear expatriate workforce. team was swiftly put in place after link between performance and the merger was completed, and then recognition. Environment toured each of the Katanga and » Demonstrating the capability of the Environmental emissions were Nikanor sites to enable employees mining operations to dependably at a low level in 2007 due to the to ask questions. meet expected production and cost transition to production. No performance. signiﬁcant environmental infraction » Rapidly improving the systems and or incident was reported during the support functions assisting the year. Environmental baseline data management team, and selectively continues to be collected and progress recruiting in order to ensure a critical was made with water (surface and mass of management. ground), soil, noise and air studies. » Reinforcing an image of upstanding behavior to drive the continued consolidation of a business environment meeting international standards. » Strengthening cooperation with the DRC at a local, provincial, and national level. 16 Katanga Mining Limited Annual Report 2007

Social Responsibility Review

“To ensure that communication channels remain open with local stakeholders, an ongoing consultation and grievance process was established.”

Social responsibility has a very Directors, from which a broad Feedback from local stakeholders range of policies and procedures attending these meetings was clear meaning to Katanga: was developed. consistent regardless of location: supporting the social » Performance criteria became a “We want our children to be infrastructure to create a standard provision in all social educated”, “We want you to hire development projects. In addition, locally” and “We need better platform that ensures long- it became mandatory to direct all healthcare”. This feedback, which term, sustainable payments into recognized bank aligned closely with Katanga’s own improvements in the day-to- accounts, and cash payment of thinking, formed the basis for a contracts was eliminated. number of initiatives during the year, day lives of those surrounding » International codes and standards as outlined below. the company’s operations. became standard reference for Katanga’s policies and procedures To ensure that communication Clear progress was made in all areas including, by way of example, the channels remain open with local of Katanga’s social responsibility Voluntary Principles for Security stakeholders, an ongoing consultation strategy and activities during 2007. and Human Rights in all security and grievance process was established This is particularly noteworthy in the training and management plans. and is managed by a dedicated context of an environment still management team. Katanga believes suﬀering from high unemployment, Ongoing consultation that continual communication with artisanal mining activity and weak In April 2007, consultation with a local stakeholders will help ensure that general infrastructure. The following far-reaching audience including issues and concerns are addressed is a progress report on initiatives government authorities, traditional before they become problems. undertaken during the year. chiefs, non-governmental organizations (NGOs), community Community investment Governance improved groups and other mining companies Katanga’s level of commitment to the In 2007, Katanga improved the was undertaken through a number community can be measured by governance structure used to guide of community-based engagement progress made in four areas of social decisions and ensure compliance with sessions. Katanga’s meetings were development: corporate standards. Three important conducted in both French and measures were completed: Swahili to ensure full comprehension Healthcare » A Sustainable Development Policy of the discussions. Infrastructure improvements at the was approved by the Board of Mwangeji Hospital were completed during 2007, including repairs to the Annual Report 2007 Katanga Mining Limited 17 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Harvesting the first crop at the Mukweji Farm and (far left) refurbishing the farmhouse perimeter security wall and the employed 100 artisanal miners; construction of two new sanitation rebuilding of a section of road Goals for 2008 blocks that restored toilet and shower between Kolwezi and Nguba; and capacity to the hospital. The facility the clearing of approximately 3,000 In addition to expanding efforts in was also the benefactor of a metres of drains and ditches in governance and transparency, priorities collaborative effort between Katanga Manika, reducing health and include: » In collaboration with other mining and Project CURE, a US-based sanitation issues associated with companies in the area, rehabilitating non-profit group, for a shipment standing water. the Mutoshi Training Institute and of donated medical supplies and upgrading instructional capacity. equipment due to arrive in early To assist with needed upgrades to » Further upgrading the delivery of 2008. The value of these two projects local power distribution capacity, the community medical services through exceeded US$650,000. company donated a large transformer both the Mwangeji Hospital and the to the Congolese power authority. community clinic network. Work also began with Crusader Expenditure for infrastructure » Initiating a malaria vector control Health, an independent medical improvement initiatives throughout program in the general Kolwezi area. services provider, to rehabilitate and 2007 totalled approximately » Sponsoring the start of the GAVI manage a new hospital and three US$2.75 million. Alliance community inoculation clinic facilities in local communities program. surrounding the mine. In addition to Capacity-building » Completing improvements to roads contributing to the capital costs for Local economic expansion in in the town of Kolwezi. facility rehabilitation, medical Kolwezi requires diversification. » Expanding support to upgrading expenses for employees and their To support this process, Katanga local educational capacity. dependents are paid for by the initiated the revitalization of a » Producing a public progress report company, totalling approximately 30-hectare farm with the goal of summarizing activities for the year. US$3 million per year. creating a self-sustaining and independent cooperative. The farm Infrastructure is now producing a commercial crop A broad range of projects was of vegetables being sold throughout completed in 2007, yielding Kolwezi. Farm produce is also being improvements to local roads and purchased by the catering companies sanitation. Initiatives included the providing services to Katanga’s restoration of the national road construction camp. Katanga provided between Kanina and Kapata, which the initial capital required by this 18 Katanga Mining Limited Annual Report 2007

Social Responsibility Review continued

“The merger of Katanga and Nikanor provides the opportunity to optimize spending and consolidate eﬀorts.”

Former artisanal miners were employed to clear drains and ditches

initiative and continues to offer capacity to a level that ensures a The next chapter ongoing project management future generation of well-trained The balance between government support. A second agricultural employees for the mining industry responsibility and good corporate project has been established throughout the country. citizenship has been a fine one over in conjunction with ARDERI, the course of this year. The majority a local NGO. Integration with Nikanor of government capacity within the programs DRC has been dedicated to high- Education The merger of Katanga and Nikanor level reconstruction efforts, leaving During 2007, negotiations were provides the opportunity to optimize few resources to focus on meaningful initiated with Gécamines to assume spending and consolidate efforts. “micro-initiatives” that will rapidly control and responsibility for the Benefits to local stakeholders will improve day-to-day life. Katanga Mutoshi Training Institute. be derived from the greater believes that the direction, funding Katanga’s goal, in collaboration with opportunities that now exist for and rebuilding of the country’s social other local mining companies, is to partnerships with NGOs, infrastructure is the responsibility of rehabilitate this facility and restore multilateral and donor agencies, government, but as a socially educational and instructional and government. responsible company it will continue to provide support in these areas. Managing artisanal mining Artisanal and small-scale mining is common in the DRC, and there are estimated to From a broader perspective, Katanga’s be around 20,000 artisanal miners in the Kolwezi area alone. greatest contribution to the local

In-depth Katanga is developing a strategy to manage the issue. The company contributed population and general economy is financially to and participated in an International Finance Corporation sponsored through an efficient and profitable program which was facilitated by the US-based NGO, Pact. The outcome of this mining operation that generates taxes research program is guiding company plans to manage the artisanal mining issue and royalties. At year-end, the over its concession. company employed more than 2,400 A focus is finding sustainable alternative employment opportunities through employees from the local community. Katanga’s community investment program. A 30 hectare farm near Kolwezi, which Earnings through employment, plus had become overgrown, is being re-cultivated in cooperation with local communities the recognized economic multiplier and people who previously worked as artisanal miners. that accompanies these earnings, means Katanga’s presence injects in One of the workers at the farm is 33-year-old Tshegeka Nwegi, who had worked as an artisanal miner for seven years. “Life as a digger was difficult,” he said. “My life is excess of US$8 million a month into totally different now. Now I know I will have enough money each month to feed my the local economy. family and pay school fees.” Annual Report 2007 Katanga Mining Limited 19 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Financial Review

“Katanga began 2008 with a healthy balance sheet and is now generating operational cash ﬂow.”

In Katanga’s final pre- Katanga began 2008 with a healthy Financing in place balance sheet and is now generating During 2007 Katanga had planned to production year, the company operational cash flow. The US$175 arrange the final stage of its three-stage secured the last stage of its million Phase I refurbishment financing. Three lead arrangers were financing for the original program was delivered on budget and mandated in March. However, copper production began on schedule ongoing uncertainty generated by Kamoto project and entered in December 2007, with the first the mining license review in the into off-take agreements sales recorded early in the new year. Democratic Republic of Congo and for 2008 and for 2009 the hostile takeover attempt over the Following the completion of the summer meant that alternative onwards. merger with Nikanor in January arrangements were required. 2008, Katanga had approximately US$500 million in cash. The In November, Katanga entered into a company has a low debt level, with US$150 million two-year loan facility US$125 million in corporate with Glencore Finance (Bermuda) debentures and a US$150 million Limited. The loan bears interest at convertible loan. LIBOR plus four per cent per annum payable upon maturity. It is convertible Marketing agent appointed in whole or in part at the option of In May 2007 Katanga appointed LN Glencore into up to 9,157,509 common Metals International Ltd as sole agent shares at any time during the first year for 2008 for the marketing of copper and only on repayment of the Facility and cobalt from its Kamoto operations. during the second year. LN Metals is assisting the company in establishing a worldwide customer base Additionally, Katanga and Glencore for its initial copper cathode and cobalt agreed to a 10 year off-take contract metal production to enable it to starting in 2009 under which maximize the profitability of its 2008 Glencore will buy 100 per cent of production. Production during 2008 is Katanga’s annual copper and cobalt expected to be 30,500 tonnes of copper production at market terms. The cathode and 1,600 tonnes of cobalt agreement provides for payment by metal. Glencore of 90 per cent of the expected sales value upon loading at 20 Katanga Mining Limited Annual Report 2007

Financial Review continued

Underground mining at Kamoto the mine gate, with the balance Financing requirements are anticipated payable upon delivery of the metal at to be up to US$500 million, to be Goals for 2008 the discharge port. This significantly funded by a loan facility for drawdown reduces working capital requirements. in the second half of 2009. The Capital expenditure for 2008 will be Following the merger with Nikanor, requirements will be reduced by early funded from existing cash reserves, Glencore’s off-take agreement was cash flow from production, which will with additional financing not anticipated before mid-2009. Goals for extended for the life of all Katanga’s be more significant if copper and cobalt the year relate to marketing the first mines on the same terms. prices remain at their current levels. commercial production and establishing The final amount of financing required future funding requirements: Future financing requirements will be determined by a feasibility » Generating operational cash flow Following the merger with Nikanor, study on the expanded mine complex through successful marketing the company plans to develop a to be published in the third quarter of metal. combined mine complex using a of 2008. » Refining additional funding phased expansion approach, which requirements as part of the will allow a greater portion of capital feasibility study. expenditure to be funded from » Agreeing terms with a group internally produced cash flows. of lenders for a debt facility for drawdown in the second half of 2009. » Integrating Katanga and Nikanor finance teams and systems. » Implementing the Management Information System business platform. Annual Report 2007 Katanga Mining Limited 21 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Management’s Discussion and Analysis

The following discussion and analysis is management’s assessment of the results of operations and financial condition of Katanga Mining Limited (“Katanga” or the “Company”) and should be read in conjunction with its 2007 audited consolidated financial statements. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. All dollar amounts unless otherwise indicated are in United States dollars. This information has been prepared as of March 20, 2008. Katanga’s common shares, warrants and notes trade on the TSX Exchange under the symbols “KAT” “KAT.WT” and “KAT.NT” respectively. Its most recent filings are available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) and can be accessed through the internet at www.sedar.com.

1. Company Overview Katanga is incorporated under the laws of Bermuda and is engaged in the acquisition and development of mineral properties.

In 2004 Kinross Forrest Limited (“KFL”) (which later became a subsidiary of the Company) entered into a joint venture with La Generale des Carrieres et des Mines (“Gécamines”) and set up a project company called Kamoto Copper Company SARL (“KCC”) (75% KFL and 25% Gécamines). Katanga, through KCC, is engaged in copper and cobalt mining and related activities, including the refurbishment and rehabilitation of the Kamoto/Dima mining complex in the Democratic Republic of Congo (the “Kamoto Project”) and the extraction and processing of copper and cobalt metals. The Kamoto Project includes exploration and mining properties, the Kamoto concentrator,the Luilu metallurgical plant, the Kamoto underground mine and various oxide open pit resources in the Kolwezi district of the Democratic Republic of Congo.

In January 2008, the Company completed the acquisition of Nikanor Plc (“Nikanor”). Nikanor has 75% ownership of a project company called DRC Copper and Cobalt Project S.A.R.L (“DCP”) with the other 25% held by Gécamines. DCP’s operations include mining properties, a concentrator and various oxide open pit resources, the largest of which is the KOV pit. The acquisition brings together the adjacent properties in the Democratic Republic of Congo, owned by Katanga and Nikanor, which were previously part of the same complex, to create a major single-site copper and cobalt operation.

2. Highlights and Outlook Highlights for 2007 and the start of 2008 » Construction team build up began onsite in January 2007 and the last of the major infrastructure contracts were awarded.

» An updated reserves and resources statement was released in February 2007. Proven and probable ore grades for the Kamoto underground mine increased signiﬁcantly. Total reserves and resources are 161.9 million tonnes of ore with an average copper grade of 3.50% and an average cobalt grade of 0.38%.

» The underground mine became operational and blasting began on March 21, 2007.

» Concentrator commissioning began on schedule in mid-July. In total, one sulphide and one oxide mill and 88 ﬂotation cells were operational in phase one.

» The seven kilometer concentrate delivery pipeline to the metallurgical plant was completed in July.

» The Company has entered into a marketing agreement with LN Metals International Ltd (“LN”) that entitles it to a marketing fee orf all copper and cobalt production in 2008.

» Glencore International AG (“Glencore”) and the Company have signed an oﬀ-take agreement whereby, commencing January 1, 2009, all copper and cobalt produced will be sold to Glencore based on market terms.

» Extensive improvements were implemented to health and safety standards and operating procedures.

» Community Development activities that commenced in the year for the local area include agriculture, enterprise creation, health, sanitation and infrastructure programs.

» Arthur Ditto was appointed as Chairman of the Company’s Board of Directors on July 3, 2007 following the resignation of Robert Buchan as the Company’s Non-executive Chairman.

» Blasting began at the end of September at the Musonoie-T17 open pit mine and the ﬁrst ore was extracted. 22 Katanga Mining Limited Annual Report 2007

Management’s Discussion and Analysis continued

» In July 2007, Central African Mining & Exploration Company plc (“CAMEC”) advised Katanga that it intended to make a takeover oﬀer for the Company. In response, Katanga established an Independent Committee of the Board of Directors to review all strategic alternatives available to the Company to achieve maximum value for shareholders. CAMEC’s oﬀer was made formally on August 29 and withdrawn on September 6.

» A US$150 million two-year convertible debt facility was arranged with Glencore on November 5, 2007.

» A special meeting of shareholders held on November 2 approved an increase in Katanga’s share capital to provide the Company with the ﬂexibility for future equity ﬁnancings or acquisitions.

» On November 6, 2007 Katanga announced the acquisition of Nikanor, which has an adjacent copper-cobalt concession in the DRC. The acquisition was completed on January 11, 2008 and the consideration for the Nikanor shares comprised of 0.613 new common shares of the Company and $2.16 in the form of a cash return to each Nikanor shareholder from Nikanor’s existing cash resources.

» Cold commissioning at the Luilu Metallurgical Plant began in late November and the ﬁrst starter sheets were stripped on December 17. The ﬁrst commercial copper cathodes were produced on December 22, 2007 and shipped in January 2008.

» On February 8, 2008, the Company announced that Gécamines and Kamoto Copper Company signed an agreement that sets out compensation, security and payment in exchange for the release to Gécamines of the portion of the KCC concession that represents the Mashamba West and Dikuluwe deposits. The agreement provides that the deposits either be replaced or that the Company is fairly compensated for their economic value. These deposits were not scheduled to start producing oxide ores until 2020 and 2023, respectively.

Outlook » Production for 2008 is forecast to be 30,500 tonnes of copper cathode and 1,600 tonnes of cobalt metal, generating Katanga’s ﬁrst operational cash ﬂow.

» Kamoto’s Phase II rehabilitation is commencing as planned and the Company is reviewing the possibility of accelerating later phases. A further mill and additional 58 ﬂotation cells will be refurbished in the Kamoto Concentrator. In the Luilu Metallurgical Plant, leaching and electro-winning capacity will be doubled and a new roaster will be constructed.

» In parallel with the Phase II rehabilitation, Katanga will develop the KOV open pit and build a whole-ore leach and SX/EW facility. Construction of the acid plant and the ﬁrst of two 80 thousand tonne per year modules of the SX/EW facility will begin during 2008.

» Completion of the feasibility study on the enlarged project due to the acquisition of Nikanor is expected by the end of September 2008.

» A full integration of the Nikanor assets is expected to be completed during 2008. A four year phased ramp-up is planned with a forecast production of over 300,000 tonnes of reﬁned copper and over 30,000 tonnes of reﬁned cobalt by 2011.

» The acquisition will bring together the adjacent properties in the DRC owned by Katanga and Nikanor, which were previously part of the same Mine Complex, to create a major single-site copper and cobalt operation.

» Additional funding requirements as part of the feasibility study will be calculated and terms agreed with a group of lenders for a debt facility for drawdown in the ﬁrst half of 2009.

» We will continue to evolve a culture of safety and respect for the environment throughout the Company’s operations to ensure consistent performance at the level expected of world-class operators.

» Continued expansion of the skills and operational knowledge of the work force is seen as a major challenge going forward. Nearly 200,000 hours of training were carried out in 2007. The proposed restart in 2008 of the Mutoshi Institute, a former training school for mine workers, will play an important role in meeting future training needs.

Annual Report 2007 Katanga Mining Limited 23 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

3. Selected Annual Financial Information

2007 2006 2005 Year ended December 31, Interest income $4,711,633 $2,934,638 $269 Other administrative expenses $10,457,132 $5,283,495 $6,961 Stock-based compensation $5,171,296 $1,622,852 $nil Foreign exchange loss (gain) $18,369,974 $(900,821) $nil Interest expense $18,996,049 $1,551,868 $nil Net loss $47,853,868 $4,721,236 $6,692 Loss per share $0.61 $0.08 $nil

As at December 31, Cash and cash equivalents $100,713,650 $196,985,623 $944,737 Current assets $128,513,138 $201,688,958 $945,599 Mineral interests and other assets $320,308,963 $48,390,822 $2,643,932 Total assets $448,822,101 $250,079,780 $3,589,531 Current liabilities $67,144,833 $9,648,929 $1,088,584 Long-term debt $267,529,994 $93,496,963 $nil Total liabilities $334,674,827 $103,145,892 $1,088,584 Shareholders’ equity $114,147,274 $146,933,888 $2,500,947

Results of the operations for the years ended 2007 and 2006 » The net loss for the year 2007 was $47,853,868 (2006 – $4,721,236) and represents the losses incurred in completing phase I of the feasibility study. Work on phase I commenced in the third quarter of 2006 before which the Company had no material operating costs as expenditure related to the feasibility study costs only.

» Interest Income was earned on non-utilized funds.

» The expenses for 2007 totaled $33,998,402 (2006 – $6,005,526). These included: o general administrative expenses of $10,457,132 (2006 – $5,283,495) representing the costs to maintain the head oﬃce function in London and maintain the Company’s TSX listing in Canada; o stock-based compensation of $5,171,296 (2006 – $1,622,852); and o foreign exchange losses of $18,369,974 (2006 – gain of $900,821) of which $19,964,100 (2006 – $nil) were unrealised losses created by the translation into US$ of the CDN$ denominated debentures. Any unrealised losses or gains on the debentures will be realized on their maturity on November 30, 2013.

» The interest expense in 2007 related wholly to the debentures payable and totaled $18,996,049. The interest on the convertible debt is being capitalized and will not be charged to operations until commercial production commences in 2008. 24 Katanga Mining Limited Annual Report 2007

Management’s Discussion and Analysis continued

4. Selected Quarterly Information Fiscal 2007

As at and for the Three Months Ended December 31, September 30, June 30, March 31, 2007 2007 2007 2007 Three Months Ended Interest income $98,449 $736,466 $1,574,883 $2,301,836 Administrative expenses $7,828,541 $10,909,914 $11,401,683 $3,858,265 Interest expense $4,950,630 $6,140,937 $4,085,434 $3,819,048 Net loss $12,035,475 $16,391,456 $13,991,498 $5,435,439 Loss per share $0.15 $0.21 $0.18 $0.07

As at Cash and cash equivalents $100,713,650 $37,868,422 $100,618,724 $166,040,849 Current assets $128,513,138 $54,295,480 $110,758,993 $170,688,044 Mineral interests and other assets $320,308,963 $223,198,315 $143,904,867 $78,344,826 Total assets $448,822,101 $277,493,795 $254,663,860 $249,032,870 Current liabilities $67,144,833 $39,811,417 $16,457,561 $12,131,031 Long-term debt $267,529,994 $116,347,157 $107,953,162 $94,219,118 Total liabilities $346,674,827 $156,158,574 $124,410,723 $106,350,149 Shareholders’ equity $114,147,274 $121,335,221 $130,253,137 $142,682,721

Fiscal 2006

As at and for the Three Months Ended December 31, September 30, June 30, March 31, 2006 2006 2006 2006 Three Months Ended Interest income $2,046,612 $888,026 $ nil $ nil Administrative expenses $2,468,275 $3,537,251 $ nil $ nil Interest expense $1,551,868 $ nil $ nil $ nil Net loss $2,072,011 $2,649,225 $ nil $ nil Loss per share $0.02 $0.03 $ nil $ nil

As at Cash and cash equivalents $196,985,623 $122,729,429 $131,463,901 $423,560 Current assets $201,688,958 $126,164,641 $131,565,963 $424,422 Mineral interests and other assets $48,390,822 $18,959,585 $12,200,954 $4,803,239 Total assets $250,079,780 $145,124,226 $143,766,917 $5,227,661 Current liabilities $9,648,929 $3,978,148 $2,093,417 $895,600 Debentures payable $93,496,963 $ nil $ nil $ nil Total liabilities $103,145,892 $3,978,148 $2,093,417 $895,600 Shareholders’ equity $146,933,888 $141,146,078 $141,673,500 $4,332,061

Three months ended December 31, 2007 and 2006 » In the fourth quarter ended December 31, 2006 implementation of Phase I of the feasibility commenced. The expenses for this period are therefore in relation to the development of the mine but are not at the same magnitude as the expenses for the quarter ended December 31, 2007 as activity has increased considerably. Annual Report 2007 Katanga Mining Limited 25 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

» Expenses for the three months ended December 31, 2007 were $7,828,541 (2006 – $2,468,275). These included: o exchange losses incurred of $2,028,840 (2006 – gain of $231,062) which were caused by the strengthening of the CND$ against the US$ in the quarter. The debentures payable are denominated in CND$ which gave rise to unrealised exchange losses totaling $1,825,181; o stock-based compensation for the three months ended December 31, 2007 of $552,821 was lower for the quarter as the share price decreased in the fourth quarter (CND $1.36) which resulted in a reduction of $375,448 in the recorded fair value of the Restricted Stock Units (RSU’s). The RSU’s are valued using the Company’s quoted share price; o professional fees for the quarter were $936,341 an increase from previous quarters due to the expenses incurred in defending the Company from the uninvited take-over approach from CAMEC PLC.

» All of the interest expense relates to the debentures payable and totaled $4,950,630 (2006 – $1,551,868) for the quarter. The debenture was issued in November 2006.

» Interest income of $98,449 was earned in the three months ended December 31, 2007 (2006 – $2,046,612) on the cash balances not yet spent on the rehabilitation of the Kamoto Joint Venture Assets. The majority of the interest income earned in the fourth quarter of 2007 was oﬀset against mineral interests as the cash was held by KCC the operating company which has not yet commenced commercial operations. In 2006, the cash was held by Katanga Mining Limited.

» The above resulted in a net loss for the quarter ended December 31, 2007 of $12,035,475 after income taxes (2006 – $2,072,011).

Quarterly Trends The focus of the Company has been the development of the mine site and therefore the most notable trend has been the increase in expenditures incurred on mineral interests. Expenditures commenced in the quarter ended March 31, 2006 and totaled $4,803,239. The corresponding expenditures capitalized in the quarter ended December 31, 2007 were $97,110,648.

5. Cash Flows

Three Months Ended Year Ended Cash Flows from: December 31, December 31, December 31, December 31, 2007 2006 2007 2006 Operating activities $(13,784,929) $(196,915) $(23,852,124) $(1,117,964) Financing activities $150,000,000 $96,390,902 $156,239,114 $229,858,546 Investing Activities $(72,821,727) $(22,168,019) $(228,406,149) $(32,929,922)

2007 and 2006 » The net operating cash costs for the year ended 2007 were $23,852,124 (2006 – $1,117,964). The majority of the operating expenses were non-cash (as noted in the selected annual financial information). $16,083,730 of operating cash used relates to the build-up of inventory (2006 – $176,583). The remainder relates to the cash costs of head office offset by a realized foreign exchange gain of $1,594,126(2006 – $670,595).

» On May 2, 2006, the Company received aggregate gross proceeds of CDN$ 152,250,000 upon the issuance of a total of 21,000,000 subscription receipts which entitled the holder to acquire one Katanga common share without further consideration. The net proceeds of the issue of these subscription receipts was US $129,407,842. On November 20, 2006 the Company received net proceeds of $94,524,416 upon the issuance of 115,000 unsecured subordinated notes and common share purchase warrants. The additional source of funds in ﬁnancing activities in 2006 relates to the exercise of warrants and $3,708,675 in capital contributions which were used to fund the feasibility study.

» In 2007, $1,210,624 was received upon the exercise of 216,677 options and $5,028,490 upon the exercise of 633,600 warrants. $150,000,000 was received from Glencore upon issuance of convertible debt.

» The investing activities for 2006 and 2007 relate mainly to the completion of phase I of the rehabilitation of the site in preparation for commercial production in 2008. 26 Katanga Mining Limited Annual Report 2007

Management’s Discussion and Analysis continued

Three months ended December 31, 2007 and 2006 » For the three months ended December 31, 2007, non-cash items in operating expenses included unrealized foreign exchange losses on the debentures of $1,825,181 (2006 – $nil) and $3,772,208 (2006 – $1,551,868) for debenture interest which was paid in January 2008.

» For the three months ended December 31, 2007, inventory (in operating activities) increased by $5,883,566 (2006 – $176,583) as a result of the build-up of spares in preparation for commercial production in 2008.

» The remainder of the cash expenditures in operating activities relates to head oﬃce expenditures.

» The ﬁnancing activities in the three months ended December 31, 2007 relate to the issuance of convertible debt to Glencore. The amount for the three months ended December 31, 2006 relates to the issuance of the unsecured subordinated notes and associated warrants.

» Investing activities in the three months ended December 31, 2006 relate to costs incurred on the start of Phase I of the rehabilitation project. For 2007, investing activities relate to similar costs incurred but at a much higher level due to the increase in activity as the Company neared production.

6. Discussion of Financial Position and Liquidity December 31, December 31, 2007 2006 $ $ Assets Cash and cash equivalents 100,713,650 196,985,623 Other current assets 27,799,488 4,703,335 Property, plant and equipment 298,262,527 41,847,436 Other non-current assets 22,046,436 6,543,386 448,822,101 250,079,780

Liabilities Current liabilities 67,144,833 9,648,929 Convertible debt 149,517,502 – Debentures payable 118,012,492 93,496,963 334,674,827 103,145,892

Shareholders’ equity 114,147,274 146,933,888

Cash and Cash Equivalents/Liquidity Cash and cash equivalents decreased by $96,271,973 during the year ended December 31, 2007. This is primarily due to the expenditures incurred to complete Phase I of the Kamoto Project. All cash is held in interest bearing accounts and none has been invested in asset-backed commercial paper.

In terms of liquidity, the expected completion of the Phase I capital program reduced the Company’s cash resources during the fourth quarter of 2007 and as a result the Company raised $150,000,000 from Glencore in the form of a convertible debt obligation.

Other Current Assets The increase in other current assets totaled $23,096,153 during 2007 of which $16,083,730 can be attributed to the build-up of inventory of spares in preparation for commercial production. The remaining increase is due to the amount prepaid, mainly to suppliers, for goods and services yet to be supplied to site as most suppliers require some form of payment in advance for the supply of goods to the DRC.

Other Non-current Assets Other non-current assets increased by $15,503,050 primarily as a result of the Nikanor acquisition costs ($18,925,646) oﬀset by the change in accounting policy for the deferral of ﬁnancing costs ($4,023,386). Annual Report 2007 Katanga Mining Limited 27 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Property, Plant and Equipment The increase in property, plant and equipment during the year ended December 31, 2007 of $256,415,091 is primarily related to additions to the Kamoto Joint Venture Assets (investing activities) and the acquisition of property, plant and equipment to support the operation. Commercial production is expected to commence in the second quarter of 2008.

Current Liabilities The increase in current liabilities of $57,495,904 during the year ended December 31, 2007, is due to an increase in creditors ta the mine-site, an accrual of $18,403,541 for the acquisition costs of Nikanor and the accrual of debenture interest which is no longer being added to the principal balance outstanding as of July 1, 2007, and is now being accrued for under current liabilities of $8,766,213 (the interest accrued from July 1, 2007, to December 31, 2007, was paid in January 2008).

Debentures Payable The increase in debentures payable of $24,515,529 during the year comprises interest added to the principal outstanding prior to July 1, 2007 of $8,331,681, transition adjustments for new accounting standards for deferred ﬁnancing costs of $(3,915,708) and unrealized foreign exchange translation losses of $20,099,556.

Convertible Debt On November 5, 2007, the Company’s subsidiary KCC finalized a loan facility with Glencore. The key terms of the debt facility are a 2 year term, interest rate of Libor plus 4%, first year’s interest added to the loan principal at the end of the first year, full amount repayable at the end of the 2 year term, mandatory prepayment on change of control, subordination agreement making the loan senior ranking to other indebtedness and the loan is guaranteed by the Company.

On October 31, 2007, the Company signed a conversion agreement with Glencore. The agreement gives Glencore the right to convertthe full loan, at any time in the ﬁrst and second year, as long as the loan is outstanding, into 9,157,509, common shares of the Company. The loan is repayable at any time and if it is repaid, in part or in full, by the Company in the ﬁrst year, Glencore has the option to purchase common shares of the Company at the price of $16.38 each equal to the amount of the principal repaid at any time ending on November 4, 2008. In the second year if the loan is repaid early, in part or in full, Glencore has the same right but must exercise it within 21 days.

The equity component of the convertible debt has been valued by determining the carrying amount of the financial liability by discounting the stream of future payments of interest and principal at the prevailing market rate for a similar liability that does not have the associated equity component (LIBOR plus 5%). The carrying amount of the equity instrument was then determined by deducting the carrying amount of the financial liability from the amount of the compound instrument as a whole. On issuance of the debt the estimated fair value of $2,716,249 attributed to the equity component was classified in shareholders’ equity on the consolidated balance sheet.

The convertible debt facility is being accreted to its face value over the term of the loan with a corresponding interest expense charge over the term of the debt. Up to December 31, 2007 $226,354 of this interest has been capitalized to mineral interests.

Off-Balance Sheet Arrangements As at December 31, 2007, the Company had no oﬀ-balance sheet arrangements.

7. Contractual Obligations and Commitments The Company’s outstanding debentures are due November 30, 2013. Interest on the debentures is payable semi-annually in arrears with equal installments on January 1 and July 1 of each year, with interest payable from the closing date to June 30, 2007 capitalized and payable on maturity and cash interest payments commencing January 1, 2008.

The Company is obligated under the terms of an operating lease for minimum annual property rental payments of $1,039,798 for a period of ﬁve years, commencing September 19, 2006, with an option to renew for a further ﬁve years.

The Company estimates its capital expenditures for the redevelopment of the Kamoto Project to be $499 million (inclusive of costs already incurred) over the next three years ending December 31, 2010. The project is being developed in four phases with each phase designed to increase the level of production capacity. The initial phase, which brought the assets into initial production in December 2007, cost $175 million (exclusive of interest and other costs capitalized prior to commencement of commercial production). Phases II, III and IV are estimated to be $136 million, $124 million and $64 million (excluding capitalized interest and other costs), respectively. Each of these last three phases is expected to last one year beginning in January 2008. The Company has also entered into an engineering contract with a 28 Katanga Mining Limited Annual Report 2007

Management’s Discussion and Analysis continued

vendor for the design of two 400 tonne per day industrial copper concentrate roasters. The initial roaster to be built is part of Phase II of the redevelopment plan and the second roaster to be built is part of Phase III. The contract for the design of these roasters is for $3.8 million.

As a result of the acquisition of Nikanor, a revised feasibility report is being prepared that takes into account the requirements of the combined companies and it is expected that this will signiﬁcantly impact the amount and timing of the capital expenditures referred to above.

The Company has entered into a marketing agreement with LN that entitles it to a marketing fee for all of the copper and cobaltproduction in 2008. Whereby, commencing January 1, 2009, Glencore and the Company have signed an oﬀ-take agreement under which all copper and cobalt produced will be sold to Glencore based on market terms.

The following table summarizes the Company’s contractual and other obligations, as at December 31, 2007.

Total Less than 1 year 1-3 years 4-5 years After 5 years Payments due by period ($ million) Property operating lease 3.9 1.0 2.9 – – Redevelopment expenditure commitments 37.0 37.0 – – – Debentures payable(1) 228.5 16.8 48.3 32.2 131.2 Long-term debt(1) 174.9 – 174.9 – – (1) The total payable includes all interest costs to the date of repayment.

8. Changes in Accounting Policies Financial instruments, comprehensive income and hedges On January 1, 2007, the Company adopted the following new accounting standards that were issued by the Canadian Institute of Chartered Accountants:

Handbook Section 1530, “Comprehensive Income”, Section 3251, “Equity”, Section 3855, “Financial Instruments – Recognition and Measurement”, and Section 3865, “Hedges”. The Company adopted these standards retrospectively; accordingly comparative amounts orf prior periods have not been restated.

Accounting changes In July 2006, the Accounting Standards Board (“AcSB”) issued a replacement of The Canadian Institute of Chartered Accountants’ Handbook (“CICA Handbook”) Section 1506, Accounting Changes. The new standard allows for voluntary changes in accounting policy only when they result in the financial statements providing reliable and more relevant information, requires changes in accounting policy to be applied retrospectively unless doing so is impracticable, requires prior period errors to be corrected retrospectively and calls for enhanced disclosures about the effects of changes in accounting policies, estimates and errors on the financial statements. The impact that the adoption of Section 1506 will have on the Company’s results of operations and financial condition will depend on the nature of future accounting changes.

Capital Disclosures and Financial Instruments – Disclosures and Presentation On December 1, 2006, the CICA issued three new accounting standards: Handbook Section 1535, Capital Disclosures, Handbook Section 3862, Financial Instruments – Disclosures, and Handbook Section 3863, Financial Instruments – Presentation. These standards areeffective for interim and annual consolidated financial statements for the Company’s reporting period beginning on October 1, 2007. Section 1535 specifies the disclosure of (i) an entity’s objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance. Annual Report 2007 Katanga Mining Limited 29 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

The new Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments — Disclosure and Presentation, revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from ﬁnancial instruments and how the entity manages those risks.

The Company is currently assessing the impact of these new accounting standards on its consolidated ﬁnancial statements.

9. Critical Accounting Estimates Critical accounting estimates used in the preparation of the financial statements include Katanga’s estimate of recoverable value on its investment in the redevelopment of the Kamoto Joint Venture Assets, fair value estimates for stock options and warrants, the fair value of the Glencore convertible debt, the residual value of the equity portion of the Glencore convertible debt, and estimated lives of depreciable assets. These estimates involve considerable judgment and are, or could be, affected by significant factors that are out of Katanga’s control.

Katanga’s recorded value of its mineral interests associated with the redevelopment of the Kamoto Joint Venture Assets is based on historical costs that are expected to be recovered in the future. Katanga’s recoverability evaluation is based on market conditions for minerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale. Katanga is in an industry that is exposed to a number of risks and uncertainties, including political risk, exploration risk, development risk, commodity price risk, operating risk, ownership risk, funding risk, currency risk and environmental risk. Bearing these risks in mind, Katanga has assumed reasonable world commodity prices will be achievable, as will costs used in studies for projected construction and mining operations. All of these assumptions are potentially subject to signiﬁcant change, which are out of Katanga’s control, however such changes are not determinable. Accordingly, there is always the potential for a material adjustment to the value assigned to these assets.

The fair value of the stock options and warrants is calculated using an option pricing model that takes into account the exercise price, the expected life of the option/warrant, expected volatility of the underlying shares, expected dividend yield and the risk free interest rate for the term of the option.

10. Outstanding Share Data Summary of Outstanding Securities a) Authorized: 1,000 common shares, par value $12.00 each, and 300,000,000 common shares, par value $0.10 each. b) Issued:

Number of Shares Opening – December 31, 2005 20,163,475 Exercise of warrants 1,747,500 Issued for cash 21,000,000 Exercise of options 125,000 Common share adjustment 1 Shares issued to acquire KFL 35,001,500

Balance – December 31, 2006 78,037,476 Exercise of options 216,667 Exercise of warrants 633,600

Balance – December 31, 2007 78,887,743 Performance shares issued to former Nikanor employees 33,189 Shares issued to acquire Nikanor 127,168,221 Balance –March 20, 2007 206,089,153

The Company has a Stock Option Plan which is consistent with the policies of the Toronto Stock Exchange (the “TSX”). 30 Katanga Mining Limited Annual Report 2007

Management’s Discussion and Analysis continued

11. Other Information Material Transactions There were no material transactions during the period, other than as described herein.

Use of Financial Instruments Katanga has not entered into any specialized financial agreements to minimize its investment risk, currency risk or commodity risk. The principal financial instrument affecting Katanga’s financial condition and results of operation is currently its cash and cash equivalents and the debentures payable.

Related Party Transactions Kamoto Operating Limited (“KOL”), a company incorporated pursuant to the laws of the DRC, has been appointed to act as the operator of the Kamoto project pursuant to the Kamoto Joint Venture Agreement and an operating agreement (“Operating Agreement”) between KOL and the Company’s subsidiary, KCC, executed on November 2, 2005. Current shareholders and directors of the Company are owners of KOL. The Operating Agreement establishes the terms and conditions pursuant to which KOL as operator will provide services to KCC in the planning and conduct of exploration, development, mining, processing and related operations with respect to the Kamoto Joint Venture Assets, including a management fee to be provided to KOL. During the year ended December 31, 2007, management fees totaling $7,326,518 (2006 – $875,707) were incurred and accrued to KOL. These fees have been capitalized to mineral interests.

The Company has the option to acquire KOL (“KOL Call Option”). The purchase price payable if the KOL Call Option is exercised will be determined by an independent investment bank agreed to between the parties as the fair market value to the KOL shareholders, as at the date of the valuation, based on an agreed cash ﬂow model. The consideration will be paid in cash or shares of the Company at the option of the KOL shareholders.

During the year ended December 31, 2007, the Company engaged an entity owned by one of its directors for the sourcing and provision of goods and services (including construction and other resources), mining of one of its open pit ore bodies and the construction of a tailings dam. The total paid for these services was $20,324,997 (2006 – $1,560,591) and as at December 31, 2007, $3,409,915 was includedin accounts payable and accrued liabilities for these services (2006 – $nil).

KOL, on behalf of KCC, entered into an agreement for the mining of one of its open pit ore bodies with an entity owned by one of its directors. The pre-stripping commenced in April 2007, and mining is expected to continue through 2011. A mobilization fee of $2,520,000 was paid during the year ended December 31, 2006. The fee will be charged to income upon commencement of commercial production fo the ore body.

12. Health, Safety, Community and Environment The Company recognises the critical importance of providing employees with a safe and healthy work environment. The Company is actively implementing policies, standards, training, audit protocols and health, safety and environmental (“HSE”) reporting system across its operation. This includes emergency response preparedness and training as well as job task analysis and relevant training.

An extensive Environmental & Social Impact Assessment (“ESIA”) is underway and ﬁnal report together with Environmental & Social Management plans will be published in mid 2008, following further public consultation and stakeholder engagement. Environmental baseline data collection includes air, noise, surface water and groundwater measurements.

The Company actively supports community consultation and liaison through regular dialogue with surrounding communities. Feedback from this communication is continually integrated into the Company’s social and community development plans.

During 2007, a broad range of community development programs were completed covering medical and health, infrastructure, capacity building and education initiatives. Speciﬁc contributions included facility improvements to the local hospital and community clinic network in Kolwezi, restoration of the national road between Kanina and Kapata, rebuilding of a section of the road between Kolwezi and Nguba and the clearing of nearly 3,000 meters of clogged drains and ditches, thereby reducing health risks that are associated with standing water.

13. Recent Developments Acquisition of Nikanor PLC On January 11, 2008, the Company acquired 94.10% of the outstanding common shares of Nikanor PLC (“Nikanor”). On February 29, 2008, the Company acquired the balance of the outstanding common shares of Nikanor through a statutory compulsory acquisition procedure. Annual Report 2007 Katanga Mining Limited 31 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Consideration for the shares acquired comprised: a) The issue by the Company of 0.613 new common shares for each Nikanor share acquired (the “Oﬀer”). This resulted in the issuance of 127,168,221 common shares with an aggregate fair value of $2,009,258,000. The value ascribed to each Katanga share was determined using the average quoted market value of the Katanga shares two days before and two days after the announcement of the transaction (CDN$15.80); and b) The payment of $2.16 in cash to each Nikanor shareholder contemporaneously with the closing of the Oﬀer (the “Cash Return”). The Cash Return was paid from Nikanor’s existing cash resources and totaled $446,148,000.

The acquisition is being accounted for as an asset acquisition of the KOV high grade copper and cobalt body. Further information on the accounting treatment and the pro forma eﬀects of the acquisition can be found in the Business Acquisition report that is ﬁled on SEDAR.

Summary of Acquisition » The acquisition will bring together the adjacent properties in the DRC owned by Katanga and Nikanor, which were previously part of the same mine complex, to create a major single-site operation.

» Substantial high-grade resources of both copper and cobalt will create an exceptional foundation for a large-scale, low-cost and long-life operation.

» Based on work completed to date, the Company intends to develop a uniﬁed mine complex with annual output in excess of 300,000 tonnes of copper and 30,000 tonnes of cobalt by 2011. It is believed that the combined operations will be the largest single-site project in the world producing both copper and cobalt.

» The acquisition is expected to deliver signiﬁcant value enhancement for shareholders of both companies resulting from capital savings, lower unit operating costs and increased production.

» More cost eﬀective operations are expected to increase revenue to the DRC government. The coordination of the Company’s infrastructure spend and corporate social responsibility activities will also be more eﬀective in producing positive change for the communities surrounding the operations.

» The Company will follow Katanga and Nikanor’s existing strategies of financing their projects through a mixture of debt and equity. The level of additional financing required will be determined as part of a combined business plan, but it is expected that production from Katanga and a phased approach to capital expenditure will result in a lower and delayed requirement for additional financing than for Nikanor on a standalone basis.

Contract Review On February 11, 2008, KCC received a letter from the Minister of Mines of the DRC outlining a number of points that require further discussion as a consequence of the review by the DRC Government of the mining rights which both KCC and DCP hold.

The points to be addressed are: the submission of feasibility studies by the joint ventures; Gécamines’ role in the management of the joint ventures; the submission of schedules of achievements for social projects; and the re-examination of royalty payments for lease facilities. In addition, with respect to DCP, the status of the plant lease and payments to Gécamines are to be clariﬁed. Other documentation matters need to be addressed with respect to both joint venture contracts.

The Company has formally responded to the Minister of Mines and is in active discussions with the government of the DRC.

Mashamba West and Dikuluwe Deposits On February 8, 2008, the Company announced that Gécamines and KCC have signed an agreement that sets out compensation, security and payment in exchange for the release to Gécamines of the portion of the KCC concession that represents the Mashamba West and Dikuluwe deposits. These deposits were not scheduled to start producing oxide ores until 2020 and 2023, respectively.

The agreement provides for Gécamines to replace these deposits by July 1, 2015, with other deposits having a total tonnage of 3,992,185 tonnes of copper and 205,629 tonnes of cobalt according to Canadian Securities Administration rules (National Instrument 43-101), or pay over time, beginning July 1, 2012, a total of US$825 million from Gécamines’ entitlement to royalties and dividends from KCC. The parties have agreed to ﬁx the equivalent value of the deposits released by reference to a feasibility study prepared in 2006. The agreement set this amount at US$825 million, subject to a joint review by the parties. 32 Katanga Mining Limited Annual Report 2007

Management’s Discussion and Analysis continued

At July 1, 2012, the parties will calculate the proportion of the reserves replaced by Gécamines at that date. Dividends and royalties payable to Gécamines by KCC from this date will be paid into an escrow account to secure future payments by Gécamines. As at July 1, 2015, the parties shall recalculate the amount of reserves transferred to KCC. In the event Gécamines has not completely replaced the deposits, the balance of the amount due shall be paid in cash from that in escrow. Any remaining payments due will be met from Gécamines’ future revenues from KCC, until full payment has been made.

To assist Gécamines in ﬁnding replacement deposits, KCC and Gécamines shall conduct jointly managed exploration to be funded initially by KCC and reimbursed by Gécamines out of its revenues from KCC.

In addition to the agreement reached with Gécamines above, the parties agreed to complete a deﬁnitive agreement within the next 90 days addressing transfer of the exploitation permits and mining rights over an agreed area, to encompass the approximate current concession area, from Gécamines to KCC.

In exchange for this transfer, which will result in KCC holding the assets directly, KCC will pay to Gécamines as compensation US$35 per tonne of remaining copper reserves identified in the feasibility study. This amount, which is approximately US$135 million, will be paid over time on a basis to be agreed in the definitive agreement and will be based on the cash flows available to KCC. The agreement willalso address various other matters relating to the joint venture, including the management of the exploration program.

Disclosure Controls The Company’s certifying officers have designed a system of disclosure controls and procedures to provide reasonable assurance that material information relating to the Company is made known to them with respect to financial and operational activities. The certifying officers have evaluated the effectiveness of the disclosure controls and procedures as of December 31, 2007 and have concluded that these disclosure controls and procedures are effective at the reasonable assurance level. The management of the Company was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The result of the inherent limitations in all control systems means no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Risk Factors Katanga is in the development stage and is subject to the risks and challenges similar to other companies in a comparable stage of development. The risks include, but are not limited to, limited operating history, speculative nature of mineral exploration and development activities, operating hazards and risks, mining risks and insurance, foreign operations, environmental and other regulatory requirements, competition, stage of development, ﬂuctuations in commodity prices, currency risk, conﬂicts of interest, reliance on key individuals and enforcement of civil liabilities.

The mining concession on which the Company is currently operating and developing is located in the DRC. As a result the Companyis subject to certain risks, including possible political or economic instability in the DRC, which may result in the impairment, loss of the mineral concession or renegotiation of the joint venture contract with Gécamines. Any changes in laws or regulations or shifts in political attitudes are beyond the control of the Company and may adversely affect its business. In relation to the DRC Commission appointed by the DRC Government to review mining agreements, the Company expects there to be no material adverse affect but no assurance can be given as to the outcome of any future discussions or negotiations between KCC, DCP and the DRC Government or that KCC’s and DCP’s security of tenure and ability to secure additional financing in the future may not be adversely affected so as to have a material adverse effect on its business, operating results and financial position.

There are risks specific to Katanga, including: the fluctuations in metal prices as Katanga does not at present hedge metal prices; the provision of power to the project; improvement in the rail and roads is not guaranteed and may impact the delivery of materials into the site and the ability to timely sell the metal production; Katanga’s ability to raise funds as required; Katanga’s operations and activities are subject to environmental risks; Katanga is subject to international operations and regulatory risks, specifically the political stability of the Democratic Republic of Congo; and HIV/AIDS and other infectious diseases may have a negative effect on the work force and increase medical costs.

The Company’s risk factors are discussed in detail in the Company’s AIF which are available on SEDAR at www.sedar.com and should be reviewed in conjunction with this document. Annual Report 2007 Katanga Mining Limited 33 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Forward Looking Statements This annual report may contain forward-looking statements, including predictions, projections and forecasts. Forward-looking statements include, but are not limited to, statements with respect to exploration results, the future price of copper, the estimation of mineral reserves and resources, the realization of mineral reserve and resource estimates, the timing and amount of estimated future production, costs of production, anticipated budgets and exploration expenditures, capital expenditures, costs and timing of the development of new deposits, the success of exploration activities generally, permitting time lines, currency ﬂuctuations, requirements for additional capital, government regulation of exploration and mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims, limitations on insurance coverage and the timing and possible outcome of any pending litigation. Often, but not always, forward-looking statements can be identiﬁed by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or describes a “goal”, or variation of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.

Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, the actual results of current exploration activities; actual results and interpretation of current reclamation activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future prices of copper and cobalt; possible variations in ore grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of exploration, development or construction activities, as well as those factors disclosed in the company’s publicly filed documents. Although Katanga has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. 34 Katanga Mining Limited Annual Report 2007

Management Responsibility for Financial Reporting Katanga Mining Limited (A Development Stage Entity)

The accompanying consolidated financial statements of Katanga Mining Limited were prepared by management in accordance with Canadian generally accepted accounting principles. Management acknowledges responsibility for the preparation and presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances. The significant accounting policies of the Company are summarized in note 3 to the consolidated financial statements.

Management has established a system of internal control over the ﬁnancial reporting process, which is designed to provide reasonable assurance that relevant and reliable information is produced.

PricewaterhouseCoopers LLP, the Company’s independent auditors, conduct an audit of the consolidated financial statements in accordance with Canadian generally accepted auditing standards and provide an independent professional opinion thereon. Their audit includes an examination, on a test basis, of evidence supporting the amounts and disclosures in the financial statements. As well, they make an assessment of the accounting principles used and significant estimates made by management and they evaluate the overall financial statements presentation.

The Board of Directors is responsible for reviewing and approving the consolidated financial statements and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee which is comprised of independent non-executive directors, assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management as well as with the independent auditors to review the internal controls over the financial reporting process, the consolidated financial statements and the auditors’ report. The Audit Committee also reviews the Annual Report to ensure that the financial information reported therein is consistent with the information presented in the consolidated financial statements. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements for issuance to the shareholders.

Management recognizes its responsibility for conducting the Company’s aﬀairs in compliance with established ﬁnancial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.

Arthur H. Ditto Stephen M. Jones President and Chief Executive Oﬃcer Senior Vice President and Chief Financial Oﬃcer

March 18, 2008 Annual Report 2007 Katanga Mining Limited 35 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Auditors’ Report

To the Shareholders of Katanga Mining Limited

We have audited the consolidated balance sheets of Katanga Mining Limited as at December 31, 2007 and 2006 and the consolidated statements of operations and comprehensive loss and deficit and of cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2007 and 2006 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Chartered Accountants, Licensed Public Accountants Toronto, Ontario

March 18, 2008 36 Katanga Mining Limited Annual Report 2007

Consolidated Financial Statements Katanga Mining Limited (A Development Stage Entity) Consolidated Balance Sheets (Expressed in United States Dollars)

December 31, 2007 2006 Assets Current Cash and cash equivalents $100,713,650 $196,985,623 Inventory of supplies 16,260,313 176,583 Prepaid expenses and other current assets 11,539,175 4,526,752 128,513,138 201,688,958

Property, plant and equipment (Note 4) 298,262,527 41,847,436 Mobilization charge (Note 9) 2,520,000 2,520,000 Future income tax asset (Note 11) 600,790 – Deferred ﬁnancing costs (Note 3) – 4,023,386 Deferred acquisition costs 18,925,646 – $448,822,101 $250,079,780

Liabilities Current Accounts payable and accrued liabilities $43,450,128 $8,813,568 Restricted stock units (Note 8) 5,291,164 835,361 Accrued acquisition costs 18,403,541 – 67,144,833 9,648,929

Long-term Convertible debt (Note 6) 149,517,502 – Debentures payable (Note 5) 118,012,492 93,496,963 334,674,827 103,145,892

Shareholders’ Equity Capital stock (Note 7) 7,900,675 7,815,648 Warrants (Note 7) 5,808,538 6,736,405 Contributed surplus (Note 7) 150,424,341 137,122,818 Equity component of convertible debt (Note 6) 2,716,249 – Deﬁcit (52,702,529) (4,740,983) 114,147,274 146,933,888 $448,822,101 $250,079,780 Nature of Operations – Note 1; Commitments – Note 10; Acquisition of Nikanor Plc – Note 15

Approved by the Board of Directors

Signed by Signed by Arthur H. Ditto (Director) Robert G. Wardell (Director)

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. Annual Report 2007 Katanga Mining Limited 37 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Katanga Mining Limited (A Development Stage Entity) Consolidated Statements of Operations and Comprehensive Loss and Deﬁcit (Expressed in United States Dollars)

For the Years Ended December 31, 2007 2006 Expenses General and administrative $8,538,835 $4,045,781 Professional fees and consulting 1,918,297 1,237,714 Stock based compensation 5,171,296 1,622,852 Foreign exchange loss (gain) (Note 5) 18,369,974 (900,821)

Loss for the year before the following: (33,998,402) (6,005,526) Debenture interest (18,996,049) (1,551,868) Interest income 4,711,633 2,934,638

Loss for the year before income taxes: (48,282,818) (4,622,756) Recovery of (provision for) income taxes (Note 11) 428,950 (98,480)

Net loss and comprehensive loss for the year (47,853,868) (4,721,236) DEFICIT, beginning of year (4,740,983) (19,747) Transition adjustment (Note 3) (107,678) –

DEFICIT, end of year $(52,702,529) $(4,740,983)

Basic and diluted loss per common share $(0.61) $(0.08) Weighted average number of common shares outstanding 78,447,108 60,677,494

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. 38 Katanga Mining Limited Annual Report 2007

Katanga Mining Limited (A Development Stage Entity) Consolidated Statements of Cash Flows (Expressed in United States Dollars)

For the Years Ended December 31, 2007 2006

Cash and Cash Equivalents provided by (used in): Operating activities Net loss for the year $(47,853,868) $(4,721,236) Items not aﬀecting cash: Stock based compensation 3,123,630 2,458,213 Debenture interest 17,598,534 1,551,868 Unrealized foreign exchange loss (gain) (Note 5) 19,964,100 (230,226) Future income taxes (Note 11) (600,790) – Changes in non cash working capital: Inventory (16,083,730) (176,583) (23,852,124) (1,117,964)

Investing Activities Additions to property, plant and equipment (227,884,044) (30,669,922) Acquisition costs (522,105) – Mobilization charge – (2,520,000) Repayment from related party – 260,000 (228,406,149) (32,929,922)

Financing Activities Capital contributions – 3,708,675 Proceeds from convertible debt (Note 6) 150,000,000 – Net cash acquired in RTO transaction (Note 2) – 1,846,478 Net proceeds from Unit Oﬀering (Note 5) – 94,524,416 Issue of common shares, net of issue costs 6,239,114 129,778,977 156,239,114 229,858,546

(Decrease) Increase in Cash and Cash Equivalents (96,019,159) 195,810,660 Cash and cash equivalents, beginning of year 196,985,623 944,737 Eﬀect of exchange rate changes on cash held in foreign currencies (252,814) 230,226 Cash and cash equivalents, end of year $100,713,650 $196,985,623

Supplementary Cash Flow Information Cash interest paid $1,505,191 $– Cash income taxes paid $216,188 $–

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. Annual Report 2007 Katanga Mining Limited 39 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Notes to Consolidated Financial Statements Katanga Mining Limited (A Development Stage Entity)

Years Ended December 31, 2007 and 2006 (Expressed in United States Dollars)

1. Description of Business and Nature of Operations Katanga Mining Limited (“Katanga” or the “Company”) is incorporated under the laws of Bermuda.

Katanga, through Kamoto Copper Company SARL (“KCC”), is engaged in copper and cobalt mining and related activities, including the refurbishment and rehabilitation of the Kamoto/Dima mining complex in the Democratic Republic of Congo (the “Kamoto Project”) and the extraction and processing of copper and cobalt metals. The Kamoto Project includes exploration and mining properties, the Kamoto concentrator, the Luilu metallurgical plant, the Kamoto underground mine and various oxide open pit resources in the Kolwezi district of the Democratic Republic of Congo (“DRC”).

In January 2008, the Company completed the acquisition of Nikanor Plc (“Nikanor”) (Note 14) whose operations include mining properties, a concentrator and various oxide open pit resources, the largest of which is the KOV pit. The acquisition brings together the adjacent properties in the DRC owned by Katanga and Nikanor to create a major single-site copper and cobalt operation.

The operating cash flow and profitability of the Company will be affected by various factors, including the amount of copper and cobalt produced and sold, the market prices for copper and cobalt, operating costs, interest rates, environmental costs and the level of exploration activity and other discretionary costs and activities. The Company is exposed to fluctuations in foreign currency exchange rates, political risks and varying levels of taxation. The Company seeks to manage risks associated with its business, however many of the factors affecting these risks are beyond the Company’s control.

2. Reverse Takeover Accounting On December 12, 2005, Katanga acquired a 23.33% ownership in Kinross Forrest Limited (“KFL”) for $4,711,232.

Pursuant to an option agreement dated July 29, 2005, as amended by agreements dated November 9, 2005 and March 15, 2006 (the “Option Agreement”) KFL granted an option to Katanga to purchase the 76.67% of the outstanding shares of KFL it did not already own, in exchange for 35,001,500 common shares of Katanga and a cash payment of $800,000 (the “RTO Transaction”). The option was exercised and the share exchange occurred on June 27, 2006. The RTO Transaction resulted in the former shareholders of KFL, other than Katanga, owning 67.01% of Katanga. Accordingly, the exchange of shares has been accounted for as an acquisition of Katanga by KFL, referred to as a “reverse takeover” (“RTO”). The agreement closed on June 27, 2006. Application of RTO accounting results in the following: a) KFL is deemed to be the acquirer for accounting purposes; its assets and liabilities are included in the consolidated balance sheet at their carrying values. b) The consolidated balance sheet combines the Katanga assets and liabilities acquired as follows:

Fair value of assets and liabilities of Katanga at June 27, 2006

Cash $1,846,478 Prepaid expenses and other current assets 10,000 Initial investment in KFL 4,711,232 Investment in KFL with respect to feasibility study costs 6,369,369 Accounts payable and accrued liabilities (661,674) $12,275,405

The fair value of Katanga’s assets and liabilities other than the investment in KFL with respect to feasibility study costs approximates their net book value. No value has been allocated to the investment in KFL with respect to feasibility study costs as the actual feasibility expenditures made by KFL are already included in mineral interests.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. 40 Katanga Mining Limited Annual Report 2007

Notes to Consolidated Financial Statements continued Years Ended December 31, 2007 and 2006

3. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements are presented in United States dollars and are prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). The consolidated financial statements consolidate the assets, liabilities and results of all entities in which the Company holds a controlling financial interest. The effects of all transactions between controlled entitiesare eliminated.

The consolidated ﬁnancial statements include the Company’s wholly-owned subsidiaries and its 75% interest in KCC.

Foreign Currency Translation The functional currency of the Company is the US dollar. The Company’s foreign operations are classiﬁed as integrated for foreign currency translation purposes. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates in eﬀect at the balance sheet date. Non monetary items are translated at historical rates. Revenues and expenses are translated at the average exchange rate during the year with the exception of depreciation and amortization which is translated at the historical rate recorded for property, plant and equipment. Exchange gains and losses arising on the translation of monetary assets and liabilities are included in the determination of income for the current period.

Use of Estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Significant areas where management’s judgment is applied include the carrying value of mineral properties and future income taxes, fair value estimates for stock options, warrants and restricted stock units, and estimated lives of depreciable assets. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly from these estimates.

Cash and Cash Equivalents Cash and cash equivalents include cash on hand, balances with banks and short-term deposits with original maturities of three months or less.

Property, Plant and Equipment Mineral Interests All direct costs relating to the mineral interests which meet the generally accepted criteria for deferral are capitalized as incurred. These criteria include having a clearly defined process with identifiable associated costs, establishment of technical feasibility, an intention to process and sell the recovered minerals to a clearly defined market, and adequate resources exist or are expected to be available to complete the project to commercial production.

Carrying values of mineral interests as reported on the balance sheet do not necessarily reﬂect the actual present or future value. Recovery of carrying values is dependent upon the future commercial success of operations.

Upon establishment of commercial production, carrying values of mineral interests will be amortized over the estimated life of the mines, using the units of production method, based upon the current estimated recoverable reserves and resources.

Other Property, Plant, Equipment and Amortization Other property, plant and equipment is recorded at cost and amortized using the following rates and methods: Access roads 1 – 5 years Straight line Computer equipment 3 years Straight line Computer software 1 year Straight line Furniture and ﬁxtures 5 – 10 years Straight line Housing 10 years Straight line Tools 7 years Straight line Automobiles 4 – 7 years Straight line Leasehold improvements – Straight line, over the term of the underlying lease

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. Annual Report 2007 Katanga Mining Limited 41 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Inventory of supplies Inventory of supplies, which consists of consumable materials, is stated at the lower of cost and net realizable value. Consumable materials are capitalized to mineral interests as they are utilized when they are expected to provide future economic beneﬁt to the Company.

Stock-based Compensation The Company recognizes the fair value of stock-based compensation over the vesting period of the options and restricted stock units. The fair value of the options granted is calculated using an option pricing model that takes into account the exercise price, expected life of the option, expected volatility of the underlying shares, expected dividend yield, and the risk free interest rate for the term of the option. The fair value of the restricted stock units is based on the market value of the underlying stock at the date of grant and is revalued based on the market value at the balance sheet date.

Income Taxes Income taxes are calculated using the asset and liability method of tax accounting. Under this method, current income taxes are recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will be in effect when the differences are expected to reverse or losses are expected to be utilized. A valuation allowance is recognized to the extent that the recoverability of future income tax assets is not considered more likely than not.

Impairment of Long Lived Assets Long lived assets to be held and used by the Company are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, undiscounted future cash ﬂows expected to result from the use of the asset and its disposition are estimated and compared with the carrying values of those assets.

Where the undiscounted future cash ﬂows are less than the carrying amount of the asset, the assets are written down to their estimated fair values. Management has not identiﬁed circumstances indicating possible impairment of the Company’s long lived assets as at December 31, 2007 or 2006.

Loss Per Common Share Basic loss per common share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year, including contingently issuable shares which are included when the conditions necessary for issuance have been met. Diluted loss per share is calculated in a similar manner, except that the weighted average number of common shares outstanding is increased to include potentially issuable common shares from the assumed exercise of common share purchase options, warrants and on the conversion of debt, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for options, warrants and the conversion of debt. Currently, the eﬀect of potential issuances of shares under options, warrants and the conversion of debt would be anti dilutive, and accordingly basic and diluted loss per common share are the same.

Asset Retirement Obligations The fair value of liabilities for asset retirement obligations will be recognized in the period in which they are incurred. Currently there are no asset retirement obligations as the Company had not yet started commercial operations as of December 31, 2007. However, as the development of any project progresses, the Company will assess whether an asset retirement obligation liability (“ARO”) has arisen. At the point where such a liability arises, the ﬁnancial statement adjustment required will be to increase the projects carrying value and ARO obligation by the discounted value of the total liability. Thereafter, the Company will be required to record a charge to income each year to accrete the discounted ARO obligation amount to the ﬁnal expected liability.

Deferred Acquisition Costs Costs incurred prior to December 31, 2007 relating to the acquisition of Nikanor have been deferred and shown on the consolidated balance sheet as deferred acquisition costs until the acquisition date, January 11, 2008, at which point they have been considered as part of the cost of acquisition of Nikanor (see Note 14).

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. 42 Katanga Mining Limited Annual Report 2007

Notes to Consolidated Financial Statements continued Years Ended December 31, 2007 and 2006

3. Summary of Significant Accounting Policies (continued) New Accounting Policies a) Financial instruments, comprehensive income and hedges On January 1, 2007, the Company adopted the following new accounting standards that were issued by the Canadian Institute of Chartered Accountants:

As a result of the adoption of the new standards, the Company has measured its accounts payable and accrued liabilities and debentures payable at amortized cost and they are classified as other financial liabilities. Upon adoption of Section 3855, the Company is using the effective interest method of amortization for transaction costs fees and discounts incurred relating to the debentures payable (see Note 5). The liability was re-measured upon implementation at the present value of future payments discounted at the effective interest rate in the instrument. Upon transition to the new standard, the Company recorded an adjustment that eliminated the deferred financing cost asset, decreased debentures payable by $4,023,386 and increased opening deficit by $107,678. b) Accounting changes In July 2006, the Accounting Standards Board (“AcSB”) issued a replacement of The Canadian Institute of Chartered Accountants’ Handbook (“CICA Handbook”) Section 1506, “Accounting Changes”. The new standard allows for voluntary changes in accounting policy only when they result in the financial statements providing reliable and more relevant information, requires changes in accounting policy to be applied retrospectively unless doing so is impracticable, requires prior period errors to be corrected retrospectively and calls for enhanced disclosures about the effects of changes in accounting policies, estimates and errors on the financial statements. The impact that the adoption of Section 1506 will have on the Company’s results of operations and financial condition will depend on the nature of future accounting changes. c) Capital Disclosures and Financial Instruments – Disclosures and Presentation On December 1, 2006, the CICA issued three new accounting standards: Handbook Section 1535, “Capital Disclosures”, Handbook Section 3862, “Financial Instruments – Disclosures”, and Handbook Section 3863, “Financial Instruments – Presentation”. These standards are effective for interim and annual consolidated financial statements for the Company’s reporting period beginning on January 1, 2008.

Section 1535 speciﬁes the disclosure of (i) an entity’s objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance.

The new Sections 3862 and 3863 replace Handbook Section 3861, “Financial Instruments — Disclosure and Presentation”, revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from ﬁnancial instruments and how the entity manages those risks.

The Company is currently assessing the impact of these new accounting standards on its consolidated ﬁnancial statements.

2006 Figures Certain of the 2006 figures have been reclassified to conform with current year financial statement presentation.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. Annual Report 2007 Katanga Mining Limited 43 COMPANY OVERVIEW PROGRESS REVIEW FINANCIAL STATEMENTS FINANCIAL REVIEW PROGRESS OVERVIEW COMPANY

4. Property, Plant and Equipment Mineral Interests December 31, December 31, 2007 2006 Feasibility study costs $6,242,607 $6,242,607 Development costs 272,021,605 24,472,290 Property acquisition costs 4,711,232 4,711,232 $282,975,444 $35,426,129

In February 2004, KFL entered into a joint venture agreement (the “Kamoto Joint Venture Agreement”) with La Générale des Carrières et des Mines (“Gécamines”), the state owned and operated mining enterprise of the DRC to rehabilitate the Kamoto Joint Venture assets, which include exploration and mining properties, the Kamoto concentrator, the Luilu metallurgical plant, the Kamoto underground mine and various oxide open pit resources in the Kolwezi district of the DRC (the “Kamoto Joint Venture Assets”).

KFL and Gécamines are utilizing a DRC incorporated and organized company, KCC, owned 75% by KFL and 25% by Gécamines, to hold, redevelop, rehabilitate and operate the Kamoto Joint Venture Assets. KCC has a six person board, four members of which are nominees of & A MD KFL. Under the terms of the Kamoto Joint Venture, Gécamines has granted to KCC exclusive rights to take possession of and use all of the real and personal property constituting the Kamoto Joint Venture Assets. KFL must contribute the technical expertise and the necessary capital for the redevelopment of the Kamoto Joint Venture Assets.

Other Property, Plant and Equipment Accumulated December 31, December 31, Cost Amortization 2007 2006 Access roads $595,148 $595,148 $ – $472,706 Computer equipment 2,378,162 366,252 2,011,910 542,801 Computer software 88,318 67,905 20,413 22,676 Furniture and ﬁxtures 1,104,262 189,868 914,394 565,304 Housing 2,128,948 5,888 2,123,060 41,228 Tools 2,511,400 333,604 2,177,796 1,319,788 Vehicles 6,113,562 1,204,643 4,908,919 2,436,750 Leasehold improvements 1,114,050 120,123 993,927 1,020,054 Assets in transit 2,136,664 – 2,136,664 – $18,170,514 $2,883,431 $15,287,083 $6,421,307

Total property, plant and equipment $298,262,527 $41,847,436

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. 44 Katanga Mining Limited Annual Report 2007

Notes to Consolidated Financial Statements continued Years Ended December 31, 2007 and 2006

5. Debentures Payable On November 20, 2006, the Company closed a debenture oﬀering of 115,000 units (“Units”) for an aggregate of CDN$115,000,000. Each Unit consists of a CDN$1,000 unsecured subordinated note (“Notes”) and 40 common share purchase warrants (“Warrants”). Each Warrant entitles the holder to purchase one common share of the Company anytime within ﬁve years from the closing date at CDN$8.50 per share. The Units do not trade and were separated into Notes and Warrants immediately upon issuance which trade separately. The Notes bear interest at the rate of 14% per annum, payable semi annually in arrears in equal installments on January 1 and July 1 of each year, with interest payable from the closing date to June 30, 2007 added to the principal and cash interest payments commencing January 1, 2008. The Company may redeem the Notes, in whole or in part, at any time after November 20, 2009.

The Company is using the net proceeds of the oﬀering to continue the refurbishment and development of the Kamoto Joint Venture Assets in the Democratic Republic of Congo and for general corporate purposes including working capital. The Notes mature on November 20,2013.

The resulting 4,600,000 warrants were fair valued using the Black Scholes valuation model at CDN$7,728,000 ($6,736,405) using the following underlying assumptions: dividend yield 0%, expected volatility (based on pricing of warrants at time of debenture issue) 30%, risk free rate of return 4.26% and expected life of 5 years. The fair value of each warrant issued was CDN$1.68.

The debentures payable balance is comprised of the following: December 31, December 31, 2007 2006 Debentures payable, beginning of year $93,496,963 $ – Changes during the year: 2006 upon issuance – 91,945,095 Interest capitalized from closing date and payable upon maturity 8,331,681 1,551,868 Transition adjustment – deferred financing costs (Note 3) (4,023,386) – Transition adjustment – interest (Note 3) 107,678 – Foreign exchange translation loss (1), (2) 20,099,556 – Debentures payable, end of year $118,012,492 $93,496,963 (1) The foreign exchange translation loss is unrealized and represents the revaluation of the CDN dollar denominated debentures to US dollars. The foreign exchange translation amount will change annually in accordance with the relevant movement of the CDN dollar to the US dollar. The foreign exchange translation gain or loss will be realized upon maturity of the debentures on November 20, 2013. (2) The unrealized foreign exchange loss in the year ended December 31, 2007 of $18,369,974 in the consolidated statement of operations and comprehensive loss and deficit and $19,964,100 in the consolidated statement of cash flows (shown as an item not affecting cash) includes a $20,099,556 foreign exchange translation loss on the debentures.

6. Convertible Debt The convertible debt is comprised of the following: December 31, December 31, 2007 2006 Glencore International AG debt facility – principal amount $150,000,000 $ – Equity component of convertible debt (1) (2,716,249) – Capitalized interest 2,007,397 – Accretion (2) 226,354 – $149,517,502 $ – (1) The equity component of the convertible debt has been valued by determining the carrying amount of the financial liability by discounting the stream of future payments of interest and principal at the prevailing market rate for a similar liability that does not have the associated equity component (LIBOR plus 5%). The carrying amount of the equity instrument was then determined by deducting the carrying amount of the financial liability from the amount of the compound instrument as a whole. On issuance of the debt the estimated fair value of $2,716,249 attributed to the equity component was classified in shareholders’ equity on the consolidated balance sheet. (2) The convertible debt is being accreted to its face value over the term of the loan with a corresponding interest expense charge over the term of the debt. Up to December 31, 2007, $226,354 of this interest has been capitalized to mineral interests.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. Annual Report 2007 Katanga Mining Limited 45 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

On November 5, 2007, the Company’s subsidiary KCC finalized a debt facility with Glencore International AG (“Glencore”). The key terms of the debt facility are a 2 year term, interest rate of LIBOR plus 4%, first year’s interest added to the loan principal at the end of the first year, full amount repayable at the end of the 2 year term, mandatory prepayment on change of control, subordination agreement making the loan senior ranking to other indebtedness and the loan is guaranteed by the Company.

On October 31, 2007 the Company signed a conversion agreement with Glencore. The agreement gives Glencore the right to convert the full loan, at any time in the ﬁrst and second year, as long as the loan is outstanding, into 9,157,509, common shares of the Company. The loan is repayable at any time and if it is repaid, in part or in full, by the Company in the ﬁrst year, Glencore has the option to purchase common shares of the Company at the price of $16.38 each equal to the amount of the principal repaid at any time ending on November 4, 2008. In the second year if the loan is repaid early, in part or in full, Glencore has the same right but must exercise it within 21 days.

7. Capital Stock and Contributed Surplus (a) Authorized 1,000 common shares, par value $12.00 each 300,000,000 common shares, par value $0.10 each

On November 2, 2007, shareholders approved an increase in the authorized share capital of the Company to 1,000 common shares with a par value of $12.00 (2006 – 1,000 common shares) and 300,000,000 common shares with a par value of $0.10 (2006 – 100,000,000 common shares).

(b) Common Shares Issued Number of Capital Contributed shares stock surplus Total Balance at December 31, 2005 (1) 10,000 $10,000 $2,510,694 $2,520,694 Additional contributions of capital during the year (2) – – 3,858,675 3,858,675 Shares issued in RTO Transaction (3) 35,001,500 3,500,150 2,405,886 5,906,036 Shares issued in private placement (4) 21,000,000 2,100,000 127,307,842 129,407,842 Reclassification to reflect par value of shares outstanding (5) 20,922,796 2,095,180 (2,095,180) – Warrants exercised during the year 1,103,180 110,318 260,817 371,135 Options vested during the year – – 2,874,084 2,874,084 Balance at December 31, 2006 78,037,476 $7,815,648 $137,122,818 $144,938,466 Options exercised during the year 216,667 21,667 1,188,956 1,210,623 Warrants exercised during the year 633,600 63,360 5,892,997 5,956,357 Options vested during the year – – 6,219,570 6,219,570 Balance at December 31, 2007 78,887,743 $7,900,675 $150,424,341 $158,325,016 (1) The capital stock and contributed surplus amounts at December 31, 2005 are the amounts reported by KFL, the continuing entity under reverse takeover accounting described in Note 2. KFL issued 10,000 common shares with a par value of $1 per share in 2004. Contributed surplus of $2,510,694 arose as a result of cash advances to KFL by Katanga. Pursuant to the terms of the Option Agreement, Katanga advanced funds to KFL to fund the feasibility study and other mineral property expenditures on the Kamoto Joint Venture Assets. (2) Additional cash advances between January 1, 2006 and June 27, 2006 (the date of the RTO Transaction) were made to KFL by Katanga to fund the completion of the feasibility study. (3) The value ascribed to the 35,001,500 common shares issued in the RTO Transaction is the fair value of Katanga’s net assets excluding( advances to KFL to fund feasibility costs referred to in (1) and (2) above) on June 27, 2006, the date of the RTO Transaction, as described more fully in Note 2. (4) Following completion of the RTO Transaction, the Company received net proceeds in the amount of $129,407,842, previously held in escrow upon the issuance of 21,000,000 subscription receipts in May 2006 at a price of $7.25 per receipt. Each subscription receipt entitled the holder to acquire one common share without payment of further consideration. Total costs of issue for this private placement amounted to $6,246,908. (5) The stated value of the Company’s capital stock has been increased and contributed surplus decreased by an equivalent amount to present capital stock at the actual par value of the common shares outstanding on June 27, 2006, the date of the RTO Transaction. This reflects 1,000 shares, par value of $12 each and the remaining shares, par value $0.10 each.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. 46 Katanga Mining Limited Annual Report 2007

Notes to Consolidated Financial Statements continued Years Ended December 31, 2007 and 2006

7. Capital Stock And Contributed Surplus (Continued) (c) Warrants The following table reﬂects the continuity of warrants during 2006:

Exercised/ Outstanding Issued Expired Outstanding Exercise December 31, during the during the December 31, Expiry date price (1) 2005 year year 2006 October 6, 2006 CDN$0.35 1,837,500 – (1,837,500) – October 18, 2006 CDN$1.45 – 560,000 (560,000) – November 20, 2011 CDN$8.50 – 4,600,000 – 4,600,000 1,837,500 5,160,000 (2,397,500) 4,600,000

The following table reﬂects the continuity of warrants during 2007:

Exercised/ Outstanding Issued Expired Outstanding Exercise December 31, during the during the December 31, Expiry date price (1) 2006 year year 2007 November 20, 2011 (1) CDN$8.50 4,600,000 – (633,600) 3,966,400 (1) The fair market value originally assigned to outstanding warrants was CDN$7,728,000 ($6,736,405). CDN$1,064,448 ($927,867) was transferred from warrants to capital stock and contributed surplus with respect to warrants exercised during the year.

(d) Stock Options The following table reﬂects the continuity of stock options for the years presented: Weighted Number of Exercise Stock Options Price per Share(1) Balance outstanding at December 31, 2004 and 2005 – $ nil Granted during the year 2,315,000 6.75 Exercised during the year (125,000) 4.10 Outstanding at December 31, 2006 2,190,000 $6.90 Granted during the year 1,275,000 14.58 Cancelled during the year (100,000) 7.30 Exercised during the year (216,667) 6.06 Outstanding at December 31, 2007 3,148,333 $10.06 (1) Denominated in Canadian dollars.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. Annual Report 2007 Katanga Mining Limited 47 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

During the year ended December 31, 2007, 1,275,000 (2006 – 2,315,000) options were granted with exercise prices ranging from $6.61 to $20.10 (2006 – $4.10 to $7.40). The value assigned to these options was calculated using the Black Scholes valuation model withthe following assumptions: dividend yield 0%, expected volatility 60% to 84%, risk free rate of return 3.5% to 4.4% and expected maturity of 5 years. The weighted average grant date fair value of each option was $8.09 (2006 – $4.00). The total fair value assigned to these options was $10,320,218 (2006 – $9,256,418). These options vest at a rate of 33.33% in each of 2008, 2009 and 2010, respectively (2006 – 33.33% in each of 2007, 2008 and 2009).

The following table summarizes the stock options outstanding at December 31, 2007:

Exercise Price Exercisable Outstanding per Share (1) Expiry Date Options Options (2) $4.10 January 17, 2011 30,000 – $7.40 April 19, 2011 216,666 566,667 $6.15 July 6, 2011 100,000 200,000 $6.00 July 9, 2011 61,667 123,333 $7.30 December 17, 2011 191,667 383,333 $7.20 December 31, 2011 – 50,000 $6.61 January 7, 2012 – 50,000 $6.66 January 29, 2012 – 25,000 $12.81 April 1, 2012 – 175,000 $15.97 May 6, 2012 – 25,000 $16.29 May 9, 2012 – 100,000 $17.50 June 3, 2012 – 25,000 $18.09 July 1, 2012 – 50,000 $20.10 August 31, 2012 – 100,000 $17.93 September 25 ,2012 – 50,000 $16.28 October 12, 2012 – 50,000 $14.61 December 5, 2012 – 575,000 600,000 2,548,333 (1) Denominated in Canadian dollars. (2) The aggregate fair value of these unvested options not yet charged to operations is CDN$9,880,116.

8. Restricted Stock Units During the year ended December 31, 2007, 396,272 Restricted Stock Units (“RSUs”) were granted to the Company’s directors, senior oﬃcers, employees, consultants and consultant companies (2006 – 365,000 RSUs). Each unit entitles the holder to one share of the Company’s common stock upon vesting. The RSUs vest at a rate of 33.33 % in each of 2008, 2009 and 2010, respectively. Upon vesting, the Company is obligated to provide a trustee with the necessary funds to enable the trustee to acquire the Company’s common stock in the marketplace for the beneﬁt of the holder. The holders of the RSUs have no rights of ownership associated with common shares until the RSU’s have vested and the common shares have been transferred to the participant. Included on the Company’s December 31, 2007 balance sheet is a payable of $5,291,164 (CDN$5,190,469) related to the issuance of 740,434 RSUs (December 31, 2006 – $835,361 related to the issuance of 365,000 RSUs).

On December 15, 2006, 104,600 RSUs were granted to officers of the Company, entitling the holder to one share of the Company’s common stock upon vesting. The vesting terms were subject to a milestone based performance clause, the Board of Directors deemed that the clause had been satisfied and the associated expense has been recognized in these financial statements. A further 3,772 were granted in 2007 under similar terms to an officer of the Company and these have also vested and been expensed in these financial statements.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. 48 Katanga Mining Limited Annual Report 2007

Notes to Consolidated Financial Statements continued Years Ended December 31, 2007 and 2006

9. Related Party Transactions Related party transactions not otherwise disclosed in these consolidated ﬁnancial statements include:

Kamoto Operating Limited (“KOL”), a company incorporated pursuant to the laws of the DRC, has been appointed to act as the operator of the Kamoto project pursuant to the Kamoto Joint Venture Agreement and an operating agreement (“Operating Agreement”) between KOL and the Company’s subsidiary, KCC, executed on November 2, 2005. Current shareholders and directors of the Company are owners of KOL. The Operating Agreement establishes the terms and conditions pursuant to which KOL as operator will provide services to KCC in the planning and conduct of exploration, development, mining, processing and related operations with respect to the Kamoto Joint Venture Assets, including a management fee to be provided to KOL. During the year ended December 31, 2007, management fees totaling $7,326,518 (2006 – $875,707) were incurred and accrued to KOL. These fees have been capitalized to mineral interests.

During the year ended December 31, 2007, the Company engaged an entity owned by one of its directors for the sourcing and provision of goods and services (including construction and other resources), mining of one of its open pit ore bodies and the construction of a tailings dam. The total paid for these services was $20,324,997 (2006 – $1,560,591) and as at December 31, 2007 $3,409,915 was included in accounts payable and accrued liabilities (2006 – $nil).

KOL, on behalf of KCC, entered into an agreement for the mining of one of its open pit ore bodies with an entity owned by one of its directors. The pre-stripping commenced in April 2007 and mining is expected to continue through 2011. A mobilization fee of $2,520,000 was paid during the year ended December 31, 2006. The fee will be charged to income upon commencement of commercial production fo the ore body.

10. Commitments The Company is obligated under the terms of an operating lease for minimum annual property rental payments of $1,039,798 for a period of ﬁve years, commencing September 19, 2006, with an option to renew for a further ﬁve years.

As a result of the acquisition of Nikanor (see Note 14) a revised feasibility report is being prepared that takes into account the requirements of the combined companies and it is expected that this will signiﬁcantly impact the amount and timing of the capital expenditures referred to above.

The Company has entered into a marketing agreement with LN Metals International Ltd that entitles it to a marketing fee for allof the copper and cobalt production in 2008. Glencore and the Company have signed an oﬀ-take agreement whereby, commencing January 1, 2009, all copper and cobalt produced will be sold to Glencore based on market terms.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. Annual Report 2007 Katanga Mining Limited 49 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

11. Income Taxes The following table reconciles the expected income tax recovery at the statutory income tax rate to the amounts recognized in the statements of operations for the years ended December 31, 2007 and 2006:

2007 2006 Loss before income taxes reﬂected in the statements of operations $(48,282,818) $(4,622,756)

Expected income tax recovery at Canadian statutory rates $15,508,441 $1,577,285 Effect of differences in foreign tax rates 3,707,112 13,525 Effect of change in temporary differences not recognized (7,636,492) 326,496 Permanent differences (6,556,028) (590,367) Adjustment in respect of prior years (19,287) – Current year losses not recognized (4,574,796) (1,425,419) Recovery of (provision for) income taxes $428,950 $(98,480)

The following table reﬂects the future income tax assets at December 31, 2007 and 2006:

2007 2006 Future Income Tax Assets Non capital losses carried forward $4,126,811 $1,443,392 Other temporary diﬀerences 9,107,344 (5,789) 13,234,155 1,437,603 Less: Valuation allowance (12,633,365) (1,437,603) Net future income tax asset $600,790 $ –

The net future income tax asset of $600,790 represents United Kingdom tax relief on RSU costs that arises when the RSUs vest. The Company has recorded a valuation allowance in respect of non-capital losses and other tax assets in the amount of $12,633,365 as at December 31, 2007 (December 31, 2006 – $1,437,603) as it is not considered to be more likely than not that the beneﬁt associated with these losses and other tax assets will be realized prior to their expiry.

The acquisition of Nikanor (see Note 14) is not anticipated to materially impact the future income tax asset position in countries that the Company operates in other than Canada. Under current Canadian income tax legislation, the Company’s Canadian future tax assets that arose from previously reported capital loss carry forwards expired upon the completion of the transaction. Non capital losses carried forward do not expire, but utilisation is restricted to oﬀset against future proﬁts from the business which generated the loss.

As at December 31, 2007, the Company had non capital losses available for future use, expiring as follows:

2008 $72,127 2009 64,280 2010 75,488 2013 and thereafter 16,324,058 $16,535,953

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. 50 Katanga Mining Limited Annual Report 2007

Notes to Consolidated Financial Statements continued Years Ended December 31, 2007 and 2006

12. Segmented Information The Company is engaged in mining, exploration and development and has assets and operations in Canada, the United Kingdom and the Democratic Republic of Congo, as described below:

As at December 31, 2007 Democratic Republic of Canada United Kingdom Congo Total Cash and cash equivalents $9,905,074 $89,680,220 $1,128,356 $100,713,650 Other assets 19,755,268 5,477,443 322,875,740 348,108,451 Total Assets $29,660,342 $95,157,663 $324,004,096 $448,822,101

For the Year Ended December 31, 2007

Net income (loss) $(61,282,021) $14,128,153 $(700,000) $(47,853,868) Interest income $4,711,633 $ – $ – $4,711,633 Debenture interest $(18,996,049) $ – $ – $(18,996,049) Recovery of income taxes $ – $428,950 $ – $428,950

As at December 31, 2006 Democratic Republic of Canada United Kingdom Congo Total Cash and cash equivalents $3,312,139 $193,110,302 $563,182 $196,985,623 Other assets 4,223,774 4,568,826 44,301,557 53,094,157 Total Assets $7,535,913 $197,679,128 $44,864,739 $250,079,780

For the Year Ended December 31, 2006 Net loss $(4,221,768) $(499,468) $ – $(4,721,236) Interest income $2,934,638 $ – $ – $2,934,638 Debenture interest $(1,551,868) $ – $ – $(1,551,868) Provision for income taxes $ – $(98,480) $ – $(98,480)

13. Financial Instruments At December 31, 2007 and 2006, the Company’s ﬁnancial instruments consisted of cash and cash equivalents, prepaid expenses and other sundry assets, accounts payable and accrued liabilities and long-term debt. The Company estimates that the fair value of these ﬁnancial instruments approximate the carrying values at December 31, 2007 and 2006.

14. Subsequent Events Acquisition of Nikanor PLC In January 2008, the Company acquired Nikanor Plc as explained in Note 15.

Contract Review On February 11, 2008, KCC received a letter from the Minister of Mines for the DRC notifying KCC of the DRC Government’s position as a consequence of the review by the DRC Government of the mining rights which KCC hold.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. Annual Report 2007 Katanga Mining Limited 51 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

The letter from the Minister included a statement of terms upon which the Government proposes discussions be based upon to balance the partnership between the DRC and KCC. KCC has formally responded to the Minister of Mines and is seeking further discussions with the Minister of Mines.

The mining concession on which the Company is currently operating and developing is located in the DRC. As a result the Companyis subject to certain risks, including possible political or economic instability in the DRC, which may result in the impairment, loss of the mineral concession or renegotiation of the joint venture contract with Gécamines. Any changes in laws or regulations or shifts in political attitudes are beyond the control of the Company and may adversely affect its business. In relation to the DRC Commission appointed by the DRC Government to review mining agreements the Company expects there to be no material adverse affect but no assurance can be given as to the outcome of any future discussions or negotiations between KCC and the DRC Government or that KCC’s security of tenure and ability to secure additional financing in the future may not be adversely affected so as to have a material adverse effect on its business, operating results and financial position.

The agreement provides for Gécamines to replace these deposits by July 1, 2015 with other deposits having a total tonnage of 3,992,185 tonnes of copper and 205,629 tonnes of cobalt according to Canadian Securities Administration rules (National Instrument 43-101), or pay over time, beginning July 1, 2012, a total of $825 million from Gécamines’ entitlement to royalties and dividends from KCC. Theparties have agreed to ﬁx the equivalent value of the deposits released by reference to a feasibility study prepared in 2006. The agreement set this amount at $825 million, subject to a joint review by the parties. At July 1, 2012, the parties will calculate the proportion of the reserves replaced by Gécamines at that date. Dividends and royalties payable to Gécamines by KCC from this date will be paid into an escrow account to secure future payments by Gécamines. As at July 1, 2015, the parties shall recalculate the amount of reserves transferred to KCC. In the event Gécamines has not completely replaced the deposits, the balance of the amount due shall be paid in cash. Any cash thus remaining due shall be paid to KCC using the funds in the escrow account, and any remaining payments due will be met from Gécamines’ future revenues from KCC, until full payment has been made.

In addition to the agreement reached with Gécamines above, the parties agreed to complete a deﬁnitive agreement by May 7, 2008 addressing transfer of the exploitation permits and mining rights over an agreed area, to encompass the approximate current concession area, from Gécamines to KCC.

In exchange for this transfer, which will result in KCC holding the assets directly, KCC will pay to Gécamines as compensation $35 per tonne of remaining copper reserves identified in the feasibility study. This amount, which is approximately $135 million, will be paid over time on a basis to be agreed in the definitive agreement and will be based on the cash flows available to KCC. The agreement willalso address various other matters relating to the joint venture, including the management of the exploration program.

15. Acquisition of Nikanor PLC On January 11, 2008 the Company acquired 94.10% of the outstanding common shares of Nikanor PLC (“Nikanor”). On February 29, 2008, the Company acquired the balance of the outstanding common shares of Nikanor through a statutory compulsory acquisition procedure.

The pro forma balance sheet information below is intended to give the reader of these consolidated ﬁnancial statements an overview of the accounting treatment to be adopted for the acquisition of Nikanor and to show the impact of the transaction on the Company’s ﬁnancial position.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. 52 Katanga Mining Limited Annual Report 2007

Notes to Consolidated Financial Statements continued Years Ended December 31, 2007 and 2006

15. Acquisition of Nikanor PLC (Continued) The pro forma balance sheet of Katanga as at December 31, 2007 gives eﬀect to the acquisition as if it had taken place as at December 31, 2007: Katanga Mining Nikanor PLC Pro Forma Consolidated Limited Adjustments Unaudited Unaudited $000 $000 $000 $000 ASSETS Current Cash and cash equivalents 100,714 852,808 (446,148) (a) 507,374 Inventories 16,260 39,441 76,675 (b) 132,376 Other ﬁnancial assets – 122 122 Accounts receivable – 18,342 18,342 Prepaid expenses and other current assets 11,539 133,193 144,732 128,513 1,043,906 (369,473) 802,946

Property, plant and equipment 298,262 171,142 1,212,131 (b) 2,229,846 519,485 (c) 28,826 (d) Other ﬁnancial assets – 173 173 Mobilisation charge 2,520 – 2,520 Future income tax assets 601 905 1,506 Deferred acquisition costs 18,926 – (18,926) (d) – 448,822 1,216,126 1,372,043 3,036,991

LIABILITIES Current Accounts payable and accrued liabilities 43,450 43,881 87,331 Restricted stock units 5,291 – 5,291 Accrued acquisition costs 18,404 – 9,900 (d) 28,304 67,145 43,881 9,900 120,926

Future income tax liability – – 519,485 (c) 519,485 Asset retirement obligation – 2,410 2,410 Derivative ﬁnancial instruments – 3,235 3,235 Convertible debt 149,518 – 149,518 Debentures payable 118,012 – 118,012 334,675 49,526 529,385 913,586

SHAREHOLDERS’ EQUITY Capital stock 7,901 2,066 10,651 (b) 20,618 Warrants 5,809 – 5,809 Contributed surplus 150,424 1,189,158 (446,148) (a) 2,146,965 1,253,531 (b) Equity component of convertible debt 2,716 – 2,716 Deﬁcit (52,703) (24,624) 24,624 (b) (52,703) 114,147 1,166,600 842,658 2,123,405

448,822 1,216,126 1,372,043 3,036,991

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. Annual Report 2007 Katanga Mining Limited 53 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY

Pro Forma adjustments: a) The payment of $2.16 per share, ($446,148,000) in cash to each Nikanor shareholder. b) The issue by the Company of 0.613 new common shares for each Nikanor share outstanding. This resulted in the issuance of 127,168,221 common shares of the Company with an aggregate fair value of $2,009,258,000. The value ascribed to each Katanga share was determined using the average quoted market value of the Katanga shares two days before and two days after the announcement of the transaction ($15.80).

The fair value of the assets purchased from Nikanor is estimated at December 31, 2007 to be:

Asset/Liability Fair Value $’000 (1) Cash and cash equivalents (after the distribution in a)) 406,660 Inventories (after fair value increase from book value of $76,675) 116,116 Accounts receivable 18,342 Prepaid expenses and other current assets 133,193 Property, plant and equipment: other 171,142 Property, plant and equipment: KOV other 1,731,616 Future income tax asset 905 Future income tax liability (519,485) Accounts payable and accrued liabilities (43,881) Asset retirement obligation (2,410) Net derivative instruments (2,940) Total 2,009,258 (1) For purposes of the allocation of the purchase consideration to the Nikanor assets and liabilities acquired, the fair value of all assets and liabilities other than property, plant and equipment, ﬁnished goods inventory and the future income tax liability was considered to be equal to their respective book values.

These are preliminary estimates of the fair value and will likely differ from the final allocation and the differences may be material. The Company will finalise the fair value allocation within 12 months of the closing of the transaction. . The effect of the pro forma adjustments on the pro forma balance sheet can be summarised as follows: Effect on Effect on net assets shareholders’ equity $000 $000 Cash distribution(B) (446,148) (446,148) Increase in share capital due to share issue(A) 12,717 Increase in contributed surplus(B) 1,996,541 Fair value attributable to KOV (net of tax) 1,212,131 Fair value increase in Nikanor concentrate inventories 76,675 Elimination of Nikanor share capital(A) (2,066) Elimination of Nikanor contributed surplus(B) (743,010) Elimination of Nikanor deficit 24,624 Total 842,658 842,658 (A) Net impact on share capital is $10,651,000 (B) Net impact on contributed surplus is $807,383,000 c) The emerging issues committee issued abstract – EIC-110 “Accounting for acquired future tax benefits in certain purchase transactions that are not business combinations”. To comply with this guidance, the Company has accounted for the future income tax liability on the difference between the fair value of the KOV open pit and its basis for tax purposes. d) The Company has estimated that the costs associated with the acquisition will be approximately $28,826,000. Of this amount, $18,926,000 was shown as deferred acquisition costs on the balance sheet of Katanga at December 31, 2007. Further costs of approximately $9,900,000 were incurred subsequent to December 31, 2007. These costs comprise incremental third party costs directly related to the acquisition of Nikanor which upon closing will be included in the purchase price allocated to the net assets acquired.

The accompanying notes constitute an integral part of these consolidated ﬁnancial statements. 54 Katanga Mining Limited Annual Report 2007

Notes Annual Report 2007 Katanga Mining Limited 55 COMPANY OVERVIEW PROGRESS REVIEW MD & A FINANCIAL STATEMENTS FINANCIAL & A MD REVIEW PROGRESS OVERVIEW COMPANY 56 Katanga Mining Limited Annual Report 2007

Notes Shareholder Information

Board of Directors Corporate Oﬃce 15 Golden Square Hugh Stoyell London W1F 9JG Independent Non-Executive Chairman United Kingdom Rafael Berber Non-Executive Director Tel: +44 (0)20 7440 5800 Fax: +44 (0)20 7440 5801 Arthur H. Ditto Email: [email protected] President, Chief Executive Oﬃcer and Director George A. Forrest www.katangamining.com Non-Executive Director Transfer Agent and Registrar Malta D. Forrest Equity Transfer & Trust Company Non-Executive Director 200 University Ave., Suite 400 Aristotelis Mistakidis Toronto, Ontario, Canada M5H 4H1 Non-Executive Director Tel: +1 416 361 0152 Fax: +1 416 361 0470 Jean-Claude Masangu Mulongo Independent Non-Executive Director Auditors Stephen Oke PricewaterhouseCoopers LLP Independent Non-Executive Director Toronto, Ontario, Canada

Terry Robinson Share Capital Information Independent Non-Executive Director Listed on the Toronto Stock Exchange: Robert Wardell KAT, KAT-NT, KAT-WT Independent Non-Executive Director As at March 20, 2008: Management Team Exercise Arthur H. Ditto price President, Chief Executive Officer and Director (millions) (CDN$) Nic Clift Current shares in issue 206.089153 General Manager, Kamoto Operating Limited Current warrants in issue 3.966400 8.50 Current stock options in issue 5.101567 12.10* Anu Dhir Current performance Vice President, Corporate Development shares in issue 0.207987 0.00 Richard Dye 215.365107 Senior Vice President, Technical Services Convertible loan stock 9.157509 Stephen M. Jones Fully diluted shares in issue 224.522616 Senior Vice President & Chief Financial Officer *Weighted average Brett A. Richards Share Trading Information Vice President, Human Resources Allan D. Schoening CDN$ per share Senior Vice President, Corporate Affairs 2007 High Low Average Volume Close (millions) Annual General Meeting Q1 13.20 6.34 8.31 21.4 Wednesday, May 7, 2008 at 4:30 pm Q2 18.75 11.26 15.77 27.0 Sheraton Centre Toronto, 123 Queen Street West, Q3 28.07 16.82 20.98 24.7 Toronto, Ontario, Canada M5H 2M9 Q4 17.99 11.03 15.63 41.7 www.katangamining.com

Katanga Mining Limited 15 Golden Square London W1F 9JG United Kingdom Tel: +44 (0)20 7440 5800 Fax: +44 (0)20 7440 5801 Email: [email protected]

TSX: KAT