Chatham Rock Phosphate Limited - Interim Report

Six months to 30 September 2011

Financial Result

Your directors submit the unaudited financial statements of Chatham Rock Phosphate Limited (“CRP”) for the six months to 30 September 2011. The trading result for the period was a loss of $248,000 (2010 loss $185,000). An analysis of the result is provided in the table below:

The increased deficit for the six months to 30 September 2011 reflected higher activity levels as we moved into the second year work programme for the Chatham Rise Rock Phosphate Project.

Operations Review

CRP is now a single project company, with the sole focus being the development of the rock phosphate deposit that sits within Mineral Prospecting Licence 50270 located on the central Chatham Rise.

Milestones

The project now has significant momentum as milestones are being achieved across a range of initiatives. In the last 6 months there have been further developments on various fronts including operational matters, financing, and the proposed overseas listing.  

Operational highlights

In recent months there has been an ongoing dialogue with three  local fertiliser sector companies and we now expect to be able to sell product  to all three. 

Further market development work has been undertaken in Australia  and throughout South-East Asia. Responses to initial contacts made have been  encouraging and, given the two year lead time we have, our expectations are  that we will have a healthy forward order book well before we are in full  production    

A scoping study has been commissioned to determine the feasibility  and economics of beneficiating our rock phosphate (effectively raising the  level of contained phosphorous).   If this is successful the indications are that we will be able to sell  more product and for a better unit price. 

NIWA has completed a number of reports for us concerning various  aspects of the Chatham Rise seabed environment. Further supplementary work is  underway and once completed the reports will be published in order that there  can be an informed discussion about what actually exists on and above the  Chatham Rise and can put into context our planned activities  there. 

Recently CRP executed an agreement with one of the world’s largest  integrated dredging companies, Royal Boskalis Westminster for Boskalis to  undertake a number of projects that collectively comprise phase one of the  planned work programme. These projects include design engineering, logistics  studies and preliminary design work and environmental studies

including  turbidity assessments.  These  projects were expected to take approximately six months and if successful  could lead to phase two activities incorporating final design, detailed  engineering, construction and testing.

Glauconite deposits

In mid 2011 CRP arranged for two moorings to be located on the central Chatham Rise in order to measure water currents and to collect other environmental baseline data. As this required a vessel to be out on the Chatham Rise for several days in May and then July CRP decided to collect bottom samples of sandy silt from various nearby locations. The primary purpose of gathering these samples was to assist Boskalis in refining the design of its phosphate nodule recovery system.

CRP also decided to undertake a detailed analysis of the constituents of the sandy silt and this work has recently been completed.   While these results are of a very preliminary nature and clearly are limited to a very small group of samples, they do demonstrate that there are significant quantities of glauconite contained within the seabed sandy silt layer that also contains the phosphate nodules. As such it appears possible the recovery system designed to gather the phosphate nodules may also capture the glauconite fraction without incurring additional recovery costs.

Accordingly, Boskalis has now been commissioned to conduct a check analysis of the sandy silt samples and to investigate the feasibility of a secondary recovery circuit that separates the glauconite particles. Preliminary laboratory tests of a separation technique have been encouraging on a very small scale but translating this successfully into a high volume extraction system may be challenging.

Glauconite is a mica-type clay mineral containing potassium, which makes it (like the Chatham Rise rock phosphate) an ideal slow release direct application fertiliser. It can also be used in glass manufacture and for paint pigments. Glauconite powder is presently sold in Russia for fertiliser use for US$365/tonne. Recent technological advances suggest that it’s now possible to separate potassium from glauconite, which could create another market opportunity as the demand for potassium (also known as potash) is substantial. Potash presently sells for US$470/tonne, rock phosphate for US$199. 

Some of the samples gathered in May and July were in two areas within our licence that had not previously been explored and which had not previously been tested for the presence of rock phosphate nodules.  The good news is that rock phosphate nodules were found to be present in both areas. 

Financing

In June we raised a further $1.6 million from the exercise of all the June 2011 options. These funds have enabled CRP to maintain forward project momentum during the subsequent months while progress has been made toward to the overseas listing we signalled 12 months ago.

In view of continuing adverse market conditions and the forthcoming year-end holidays the board of Chatham Rock Phosphate has resolved to defer its proposed offshore initial public offering until 2012.

The purpose of the IPO is to fully fund CRP through to a mining licence grant and commencement of production.  Although it remains a priority to secure full funding for the project we consider it in the best interests of our shareholders to delay seeking full funding for now.  When we do recommence with the IPO we can act quickly because the documentation is well advanced, having prepared a draft prospectus and a project technical report.

The company does need to raise capital to avoid delays in our work programme and maintain operational momentum. The board is presently considering the optimum level of capital needed to be raised during this intervening period and is starting discussions with qualified investors with a view to undertaking private placements. As these matters crystallise, further details will be released to the market.

Chatham Rock Phosphate – why we are so excited about this project 

The concept of recovering rock phosphate from the seabed in New Zealand territorial waters has a significant number of economic, environmental and market benefits.

The economic benefits include

• Import substitution of up to $300 million annually  
• Possible exports to nearby markets  
• Reduced commodity risk for fertiliser manufacturers and  farmers  
• Reduced foreign exchange risk for fertiliser manufacturers and  farmers  
• Development of a new industry  
• Generation of additional income tax, GST and royalty income for the  local economy  
• Security of supply (most rock phosphate is imported from  potentially unstable regimes in North Africa and the Middle East) 

The environmental benefits include

• CRP product is significantly lower in cadmium and uranium than  imported product  
• Much lower carbon footprint than imported product  
• If applied as a direct application fertiliser CRP has less run off  than super-phosphate, is applied once every three years, and is a more  effective, slower acting product  
• Extraction will affect only 1/1000th of the Chatham Rise  total area and will be intermittent  
• Extraction will occur in accordance with International Marine  Mining environmental guidelines

The market benefits include

• Much cheaper source than Morocco  
• 25+ years security of supply  
• Known extraction costs will allow fixed price contracts over  several years which will benefit New Zealand fertiliser companies, farmers and  agriculture outputs generally as fertiliser pricing will be less of a  lottery

Outlook

During the last 18 months the direction of your company has been transformed with a primary focus on advancing development of this strategically located rock phosphate deposit.

A lot has been achieved in a very short time and it’s intended that this project continue to be as rapidly progressed as we can manage with the resources at our disposal.    

For and on behalf of the Board,

Keith T Hindle                          Chris D Castle
Chairman                                   Director                                               

Wellington

25 November 2011

NZX Format Result Summary

There have been no major  changes or trends in Chatham Rock Phosphate’s business subsequent to 30  September 2011.

There are no unrealized gains resulting from the revaluation of assets included as separate items after profit before  extraordinary items. Chatham Rock Phosphate does not operate any  dividend or distribution reinvestment plan.

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