TITANIUMRESOURCES - Sierra Rutile€¦ · TITANIUMRESOURCESGROUPLTDANNUALREPORT2007 1 2007ataGlance...

T ITAN IUM RESOURCES

ANNUAL REPORT 2007

TITANIUM RESOURCES GROUP LTD ANNUAL REPORT 2007 2

TRG will release the value of the mineral reserves from its deposits in Sierra Leoneand enhance expansion opportunities for the benefit of shareholders.

Our commitment to identifying and managing risk and maintaining an efficient operatingsystem aligns the needs of our shareholders, employees and local communities to themutual long term benefit of all.

2 CHAIRMAN’S STATEMENT

4 CH IEF EXECUTIVE ’S REV I EW

9 BUSINESS REV I EW

12 SOCIAL RESPONSIB I L IT Y

14 PR INCIPAL R I SKS

18 KEY PERFORMANCE INDICATORS

20 DIRECTORS AND ADVISERS

24 DIRECTORS ’ REPORT

28 AUDITORS ’ REPORT

29 F INANCIAL STATEMENTS

33 NOTES TO F INANCIAL STATEMENTS


2007 at a Glance

� Sales of US$67.8 million in the year (year ended 31 December 2006: US$51.3 million)

� Loss before interest, tax, depreciation, amortisation and exceptional items of US$0.3 million (year ended 31 December

2006: profit of US$8.3 million)

� Loss before taxation US$17 million (year ended 31 December 2006: loss of US$1.5 million)

� Rutile production up by 12% to 82,530 tonnes (2006, 73,802 tonnes)

� Ilmenite production up by 14% to 15,750 tonnes (2006, 13,819 tonnes)

� Bauxite production up by 9% to 1,168,141 tonnes (2006, 1,072,159 tonnes)

� Completed construction and commissioning of Dredge D2

� Imported and commenced installation of major components for the Mineral Separation Plant

� Imported all major components for 30MW HFO fired Power Station and commenced its construction

� Completed design and imported all the structural elements for Dredge D3: commissioning is expected in early 2009

� Commenced feasibility study on dry mining project to supplement dredge feed to expanded Mineral Separation Plant

Freetown

Nitti Port

SherbroIsland

Sierra Rutile mining area

SML Bauxite mining area

Sierra Leone Africa

2 TITANIUM RESOURCES GROUP LTD ANNUAL REPORT 2007

Dear ShareholdersIn 2007 the Company made significant progress in its transformation into a world leading mineral sands producer and, on behalfof the Board I would like to thank our employees for their hard work during the period. Our future success as a company willdepend upon the continuing dedication and application that all employees of the Company have demonstrated to this point andI look forward to an exciting future for both TRG and Sierra Leone.

A Year in which we have delivered muchWe continue to work hard to develop our operations in order to fully realise our world class property in Sierra Leone.We areconvinced that the Sierra Rutile mine can be the premier mineral sands asset in the world producing very high grade titaniumdioxide for customers in all TiO2 markets.We continue to consider a range of options to achieve this goal and on 19 November wewere pleased to announce the commissioning of the second dredge (“Dredge D2”) at Sierra Rutile. Dredge D2, which doubledrutile production capacity to 200,000 tonnes per annum, was commissioned by the new President of the Republic of Sierra Leone,His Excellency, Ernest Bai Koroma.

In May 2007 the company successfully raised approximately £17.6 million (US$35.2 million) through a placement of new sharesto provide us with the funds to deliver on the expansion plans we have already outlined, whilst also giving us the flexibility topursue a range of opportunities to enhance the competitive position of the Company.

We continue to consider options for expanding and maximizing value from our Sierra Minerals bauxite mine. The mineperformed creditably in the year and has potential for expansion and development given the favourable geology in surroundingareas.

ChallengesWhilst the transformation of our business continues apace, we have faced a number of difficulties in the year which have affectedprofitability. These are a result of the significant headwind caused by inflation, affecting all inputs in the mining sector and anumber of operational issues which have impacted production levels.We are taking concerted action to counter these problemsthrough, for example, the construction of a new, more efficient power station and the implementation of a number of cost controlmeasures at an operational level. As we progressively increase levels of production and upgrade and develop all elements of ouroperations in the year ahead we are convinced that we will be able to return the company to a profitable footing.

Chairman’s Statement


Recruitment of skilled professionals is also an issue which is affecting the entire global mining industry. The sustained growth ofthe sector, driven by demand from China and India, means that hiring workers with the requisite experience and training hasbecome difficult. A number of TRG’s experienced and skilled technical and trades workforce are approaching retirement age andrecruiting from the communities in which we operate is also difficult as there is a significant shortage of mid level Sierra Leoneanprofessionals available. To address this issue we are funding and assisting a number of educational initiatives in the areassurrounding our operations, such as the SRLTechnical/Vocational Institute and an Education Resource Centre where we aretraining the next generation of TRG employees.

New members of the boardAfter the year end we took steps to strengthen and broaden the experience and skills of the Company’s Board through theappointment of three new members. I am delighted to welcome our three new board members and believe the experience they bringwith them, of working in developing countries and Sierra Leone in particular and a wide ranging knowledge of community anddevelopment issues, will add significant value to the workings of the Board.

John Bonoh Sisay, 38, a Sierra Leonean national, is currently TRG’s Director of Corporate Affairs and joined the board as anExecutive Director. Baroness Valerie Amos, 53, who has held a number of senior posts in the UK Government including Secretaryof State for International Development and Leader of the House of Lords, joins as a Non-Executive Director. Mr. Alex B. KamaraB.Sc. Mech., B.Sc. Elec., P.Eng., who has considerable experience in mining and mechanical and electrical engineering roles in SierraLeone has also joined as a Non-Executive Director.

Sierra Leone – a positive futureFollowing the successful transfer of power at the national elections in September 2007, we welcome the growing signs of politicalmaturity in Sierra Leone. As the country’s largest employer and biggest individual contributor of foreign export earnings, we lookforward to continuing to enhance Sierra Leone’s reputation as an attractive destination for international investment through ourcontinuing operational progress, and engagement with our local communities.

In the year ahead we will continue to focus on delivering projects and driving growth across the group.

Walter Kansteiner, Chairman


Despite the difficulties associated with the substantial operational improvements which have been our focus over the year, thetransformation of our business is now largely complete. Our markets remain robust and the new Government of Sierra Leone hasacknowledged the Company’s determination to ensure that we have the skills to match the potential of the country’s resources and tocope with the competitive pressures in the global mining industry.

During the last twelve months, the Company has been highly active on all fronts: with good progress made towards extending existingreserves, a doubling of rutile production capacity and improvements in operational efficiencies. In addition, the Company is alsoconsidering its options with regards to its non-core operations.

In total, we spent US$57 million of expansionary capital expenditure on our operations during the year, an increase of 54% on theprevious year. In May 2007, we raised £17.6 million via a placing of shares to support this investment in our operations.

Production of the Company’s key minerals increased in the year, with rutile production up by 12%, ilmenite production up by 14%and bauxite production up by 9%. Production from the Sierra Rutile mine is now at a level which covers both corporate andoperating overheads and this is set to continue and improve over the remainder of the current financial year.

We have also announced a number of Board changes during the year and I am delighted to welcome the new appointees to the Board.

ProductionThe Sierra Rutile mine produced 82,530 tonnes of rutile and, 15,750 tonnes of high TiO2 ilmenite in the year. In addition,we produced 1,168,141 tonnes of bauxite from the Sierra Minerals mine, slightly below the mines historic production capacity of1.2 million tonnes per annum. This result was achieved despite power shortages in the first six months of 2007 which were thenresolved such that production for the second half of 2007 remained steady.

Work to upgrade the land plant at Sierra Rutile has progressed well and the plant now has the capacity to process the increasedproduction from Dredges D1 and D2 whilst also providing improved rutile recovery.

Although Dredge D2 commenced production on schedule in January 2008, after the end of the year we experienced reliabilityproblems with the dredge which negatively impacted production and resulted in increased costs on a per tonne basis. This was due tothe failure of a number of its components. However, following rapid remedial action we alleviated the problem and first shipments ofproduct from Dredge D2 were made in the first quarter of 2008 as planned.

Chief Executive’s Review


Operations at the port of Nitti ran smoothly throughout the year, with no major problems. Operating our own port has meant thatthe mines have been very successful in minimising port and demurrage costs which are a major concern to the industry as a whole.Following ongoing work to upgrade the marine fleet at Nitti we will be able to further reduce demurrage costs in the year ahead.

Progress on the development of Dredge D3 has been less positive.We are currently re-evaluating the programme for the constructionof the dredge and our dredge building team is now fully focused on developing the project as rapidly as possible. The results of thisre-evaluation will be completed shortly and once an accurate commissioning date has been determined we will inform investors.At this stage we expect to commission Dredge D3 in early 2009.

We are particularly excited by the prospects for introducing dry mining at Sierra Rutile following the successful completion of afeasibility study in the year. Dry mining will enable us to mine a number of high grade deposits more efficiently and at lower costthan by dredging, whilst also giving us increased options in relation to the blending of product.

Other major projects underway during the year have included upgrades to rutile storage facilities, the completion of all preparationworks on the Lanti South Deposit which will be mined by Dredge D1 shortly and the completion of a feasibility study on a zirconupgrade plant.

Industrial grade rutile bagged and awaiting shipment from the Sierra Rutile mine Members of the local community at the airstrip of Sierra Rutile



FinancialsThe Company generated sales of US$67.8 million in the year, representing an increase of 32.2% on the prior year. Attributablelosses before taxation of US$17 million (2006 US$1.5 million) resulted in part from a shortfall in production which led to areduction in planned sales by US$9 million and which was compounded by an increase in fuel costs of US$3 million. Costs werealso impacted by unrealised foreign exchange losses of just over US$3 million arising on retranslation of the Euro denominatedEuropean Union loan and increased operating costs at our bauxite operation of just under US$4 million.

The Company also used US$57 million of cash in investing activities during the year, mainly in the acquisition of property, plantand equipment underlining our commitment to expand and develop our operations. This sum principally relates to expenditures onDredge D2 and D3, the upgrading of the land plant and the construction of the new power station at Sierra Rutile.

Cost StructureAlthough prices for our rutile products increased during the year, we have, like other mining companies, seen a rise in operating costs,including fuel costs. In order to ensure that Sierra Rutile becomes the largest lowest-cost producer in the world, we are continuing toinvest in certain key capital assets, in particular our Heavy Fuel Oil (“HFO”) power station.The construction of this new power stationis a crucial element in reducing production costs on site. There is no mains power available to us and with diesel prices increasing by42% in 2007 it is a key element in our cost reduction strategy. Fuel represents a significant element of our operating costs and webelieve that the new HFO plant will reduce fuel costs by approximately 50%, saving the Company nearly US$1 million a month.

All of the key elements of the power station have been delivered and the generators have been assembled and are ready to betransferred to the operation from our port at Nitti. Major civil engineering work has also been completed and we expect the projectto be completed in the autumn of this year.

MarketingDemand for rutile and ilmenite continued to remain high during the year, and new contracts were negotiated with major titaniumdioxide pigment producers. In addition, distributor agreements were also successfully initiated with respect to the sales of industrialgrade rutile for consumption in the welding rod industry.

The outlook for 2008 is promising in terms of titanium mineral sales, with high demand from the titanium pigment, titaniumsponge, and welding rod industries, and the Company anticipates that sales will match production.


Bauxite continued to be sold on contract to Alcoa and Glencore, with a price increase negotiated during the year.

ExplorationThe Company’s exploration programmes continued to focus on areas outside of current mining plans but within the Company’smining licences. However, we also initiated an exploration programme on the Turners’ Peninsula concession located 40km from thecurrent operations.

The Sierra Rutile exploration strategy is initially to concentrate on increasing the resource base in current and planned dredgemining areas to ensure the longevity of our dredge operations whilst also minimising the capital expenditure associated with movingdredges to new deposits. Further optimisation of the Sierra Rutile dredge mine plans is currently underway on the basis of drillingresults from 2007 and we expect to publish a JORC compliant reserve and resource upgrade for Sierra Rutile in October 2008.A comprehensive re-evaluation of our Sierra Minerals bauxite tenement was carried out in the year. A number of potential bauxiteareas have been identified, which require further drilling. The Company has already identified additional material to be mined.Progress in exploring the bauxite deposit has been greatly assisted by the return of Paul McGrane as General Manager. Paul workedon the mine prior to its closure in 1995, and has extensive knowledge of the deposit and the Sierra Minerals facilities which hasproved invaluable as many of the records were destroyed or lost whilst the mine was not in operation.

Towards the end of the year, initial drilling commenced in our Exclusive Prospecting Licence on Turners’ Peninsular, a 1,742km2

area along the south eastern coast of Sierra Leone. Initial exploration and historic records from the Geological Survey of SierraLeone indicates the presence of heavy minerals, comprising ilmenite, zircon, rutile and monazite. Suites of samples have beencollected, which have been sent to Australia for detailed analysis to determine potential mineralogical changes along strike of theidentified beach sequences and to provide preliminary information on the quality of individual heavy minerals.

OutlookMarketing of the additional rutile and ilmenite production arising from Dredge D2 has not been difficult. The demand forpremium end product has grown and prices have been increasing. Marketing of material from Dredge D3 is underway but,with current demand already outpacing the growth in supply, the outlook appears positive for future sales. Much of the demand hasbeen generated from existing customers so we believe that further demand may be available from untapped markets shouldadditional production from dry mining, for instance, be initiated.

Our relationship with the new Government in Sierra Leone remains very positive. As we are one of the biggest employers and foreignexchange generators in the country our partnership with the Government is based on a mutual understanding of the benefits that oursuccess can bring to the country as a whole.

The issues pertaining to Dredge 2 production losses have been resolved and we are confident that the dredge is now consistentlyoperating at a profitable level of production.We have amended the mine plan based on exploration information and the processingcharacteristics of the ore contained in the deposits and both Dredges D1 and D2 are now on slightly different paths from thoseoriginally planned. This will enable us to recover from the lower than expected initial production from Dredge D2.

The Company is looking at other exploration projects both within Sierra Leone and overseas in order to further enhance its overallresource base.


A TRG supported school serving the communities around the

Company’s operations Maintenance crew servicing a slurry pump at the Sierra Rutile land plant


Company overviewTitanium Resources Group has a long association with Sierra Leone through its two mines, the Sierra Rutile Mine, which it ownsthrough its subsidiary, Sierra Rutile Limited (SRL) and the SML Bauxite mine, owned through its subsidiary Sierra MineralsLimited (SML). Mining at Sierra Rutile began in 1967 and the mine operated continuously between 1983 and 1995. The SMLBauxite mine operated continuously between 1963 and 1995.

In August 2005, the Company listed on the AIM market of the London Stock Exchange and during the first half of 2006 theCompany successfully restarted operations at both of its mines. In 2006TRG acquired an Exclusive Prospecting Licence coveringTurners’ Peninsular, a prospective area for mineral sands 40 km from the Company’s existing operations.The Company now accounts forover 65% of the exports of Sierra Leone.

StrategyTitanium Resources Group aims to create shareholder value by:� Expanding production at its existing mines� Extending the life of its mines by expanding reserve and resource bases� Evaluating potential opportunities for the acquisition of further mineral properties in Sierra Lone and around the world.� Achieving and maintaining the higher standards of health, safety and environmental performance at our operations and workingin partnership with local communities for mutual benefits by supporting the principles of sustainable development

Sierra RutileThe Sierra Rutile mine is located in the southwest of Sierra Leone near the Imperri Hills, some 30 km from the Atlantic Ocean,on low lying coastal plains about 135 km southeast of the capital Freetown. SRL holds mining leases over a land area of 580km2 inwhich nineteen separate rutile deposits have been identified.

The mining concession is one of the largest natural rutile deposits known in the world. In 2005, Mine Development Associatesestimated that proved and probable reserves at SRL were 259 million tonnes at 1.48% recoverable rutile, giving a projected mine lifeof 19 years. In addition, the mine produces ilmenite and there is potential for zircon production.

The mine currently employs two bucket ladder dredges, Dredge D1 and Dredge D2 (“Solondo”) and conventional mineralprocessing methods to produce rutile, ilmenite and small amounts of zircon concentrate. A third dredge, Dredge D3, is underdevelopment and the Company is reviewing the potential to begin dry mining in areas where dredging would be uneconomical.

Business Review


Business Review

Production capacity of 200,000 tonnes of rutile per annum currently represents a significant proportion of the world’s annualsupply of natural rutile, and this is expected to grow to more than 20% once all expansion projects are completed in 2009.The mine is self-sufficient. TRG generates its own power, operates its own port, maintains the road infrastructure, has its ownhospital and generally provides and maintains its own infrastructure and ancillary services.

TRG has a significant exploration programme at Sierra Rutile which is focused on extending the mine-life of existing dredge operationsin order to confirm a five year mine plan and delay the need for the dredges to be moved to new areas.To this end, exploration istargeting areas around the current designated dredge mining areas and a number of potential new deposits have been identified.

Sierra MineralsThe SML mining lease covers an area of 321.7km2 and is located approximately 150 km southeast of the capital Freetown.The project facilities are in Gondama, where the washing plant is located, and at the Nitti port facilities and, to a lesser extent, inMokanji. The principal deposits are in Gbonge, Gondama, Jenega, Konta andWunde. SML produces high-grade gibbsitic bauxite.

Proved and probable washed bauxite reserves in the SML lease were estimated at 12.4 million tonnes grading 53.1% alumina withan average silica content of 3% by Mine Development Associates in 2005. This reserve estimate will support production forapproximately ten years at a rate of 1.2 million tonnes of bauxite per annum. Further exploration work to increase the reserve baseis ongoing. A drilling campaign is underway in areas near to the current bauxite mining operations and within current mining areasand this has enabled the exploitation of old deposits that were abandoned and reported to be mined out by the previous operators.The mine is operated under contract by PW Mining International. The bauxite is transported by barge from the Nitti port, downthe Sherbro River, to the Atlantic Ocean to meet self-geared bulk carriers.

Turners’ PeninsularIn 2006TRG acquired a two year, renewable Exclusive Prospecting Licence covering 1,742km2 in an area called Turners’ Peninsular,40 km from the Group’s existing operations.

The licence area covers an extensive series of former beach strands the heavy mineral potential of which is indicated from datacollected by the Geological Survey of Sierra Leone (“GSSL”) in the late 1980’s. This data was obtained from a preliminary boreand test pit programme undertaken on part of the licence area. The GSSL has previously reported mineral assemblages containingup to 15% heavy minerals, comprising ilmenite, zircon, rutile and monazite with above 80% potential recorded in a number ofsamples. Encouraging levels of zircon were also observed with some sample reporting a ratio of nearly 1:1 ilmenite to zircon.Exploration of Turners’ Peninsular began in March 2007 and early results are encouraging.

A side view of the newly constructedDredge D2 showing the integral mineralseparation plant.


Social Responsibility

Health & Safety SystemIt remains our top priority to protect the health and safety of our workforce.We continue to implement a policy that is consistentwith leading global standards and is based on the principle of recording zero harm to our employees.

However, during 2007 there were two fatalities at our managed operations, a significant reduction in safety performance from theprevious year when we recorded no fatalities.

As the table below sets out, in addition to the two fatalities we saw a significant increase in bothTRIFR and LTIFR in the year.This principally resulted from the recruitment of a significant number of new employees and increased use of main and subcontractorsto deliver expansion projects at the Sierra Rutile mine at the same time as we expanded production from existing assets.

Safety Performance in 2006/07 Units 2006 2007Fatalities Number of 0 2Total Recordable Injury Frequency Rate (TRIFR) Per million hours worked 2.8 6.2Lost Time Injury Frequency Rate (LTIFR) Per million hours worked 1.6 4.7Occupational Diseases Number of 0 0

Our targets for 2008 are to record no fatalities whilst also reducing LTIR on a monthly and annual basis.We also intend to increaseworkplace inspections and training programmes for our staff and contractors to ensure that safety processes are optimised and thatcompliance is improved. Before the end of 2008 we intend to have completed Job Safety Analyses on all critical jobs to furtherimprove our understanding of the key health and safety risks at our operations.

Occupational Health & HIV/AIDSOur programmes to address the prevention of HIV/AIDS have continued in 2007.

Our partnership with local NGOs, the MineWorkers Union and the National AIDS Secretariat of Sierra Leone has worked welland we will continue to support its work in the year ahead. Our health personnel are being trained to conduct voluntary testing andcounselling and to administer antiretroviral drugs. Our Sierra Rutile Hospital has been the cornerstone of this project with staffsupporting all the ongoing programmes. Our hospital treats approximately 2,000 people a month and we also run additional, weeklyclinics in local communities to provide basic public health needs.


We recorded no new occupational diseases at our operations in 2007.

Environment & CommunitiesIn conjunction with our local communities we have developed a number of initiatives that are starting to show success.

In 2007 we consulted widely with local communities on the best method for the rehabilitation of mined out areas and as result wehave altered our policies significantly.With the agreement of local communities it is now our current intention to use fruit trees torehabilitate land rather than Acacia trees as previously. The fruit trees provide communities with both an additional source of foodand the opportunity to develop small scale agri-businesses.We are now developing a series of trial rehabilitation plots to provideresults with which to support the development of these policies. Support amongst local communities for this programme is strong asshown by a number of community initiatives that have developed, such as making compost for the fruit tree seedlings.

We continue to facilitate the Darwin Experimental Project to enhance the practical methods for successful reclamation andconservation programmes that both conserve biodiversity and enhance the livelihood of communities.

Together with one of our shareholders we are pleased to be building a trade school to teach basic trades such as plumbing, electrical,mechanical and fabrication skills to local people.We believe the Sierra Rutile Technical andVocational Institute has a significant roleto play in supporting the long term future of both our business and local communities. By providing the next generation of skilledstaff for our mines the Institute will enable us to minimise the use of expatriate and non local labour whilst also improving incomesand work prospects for people living around our operations. Construction has started on the project and when completed the schoolwill train approximately 30 students per year.

The Sierra Rutile Foundation continues to hold discussions with the local communities on suitable sustainable projects that theFoundation can support.We have installed a bio-fuel conversion plant to make use of the significant, historic palm oil plantations inthe areas around our mine and currently some of the technical issues for production are being addressed.

With the continued support of our shareholders, the Government of Sierra Leone and other stakeholders we look forward todelivering on the opportunities we have in the year ahead.


Principal Risks

Exploration and development riskMineral exploration and development involves a high degree of risk. Success in exploiting mineral resources and reserves is theresult of a number of factors, including the level of geographical and technical expertise, the quality of land available forexploration and other factors.The economics of developing mineral properties are affected by many factors including the cost ofoperations, variations in grade, fluctuation in prices, fluctuation in exchange rates and others.

Operating risksThe activities of the group are subject to all of the hazards and risks normally associated with exploration, development andoperation of natural resource projects.These risks and uncertainties include environmental hazards, industrial accidents, labourdisputes, mechanical failures of the dredges or other key plant or machinery, grade problems, periodic interruptions due toinclement or hazardous weather conditions and other acts of God. Should any of the risks affect the Group, it may cause the costof production to increase to a point where it would no longer be economic to extract.

Estimates of mineral reserves and resourcesMineral reserves and resources estimates for projects are based on the interpretation of geological data obtained from drill holesand other sampling techniques and feasibility studies which derive estimates of costs based upon anticipated tonnage and grades tobe mined and processed.There are numerous uncertainties inherent in estimating ore reserves and assumptions that are valid at thetime of estimation may change significantly when new information becomes available. Changes in the forecast prices ofcommodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately,result in the reserves being restated.

InsuranceCommon to other mining companies, TRG is subject to risk which could result in damage to or destruction of mineral propertiesand operating assets, personal injury or death, environmental damage, delays in extraction and possible legal liability. Accordingly,TRG may suffer losses, liabilities or damages against which it cannot insure or against which it may elect not to insure because it istoo expensive relative to the perceived risk.

CompetitionThe mining industry is competitive in all of its phases. The Group faces strong competition from other mining companies inconnection with the acquisition of mineral properties, as well as for the recruitment and retention of qualified employees.


Larger companies, in particular, may have access to greater financial resources, operational experience and technical capabilities thanthe Group which may give them a competitive advantage.

Volatility of mineral pricesThe future profitability of the Group will depend on the market price of rutile and, after the offtake agreements of the Groupexpire, the price of bauxite. Mineral prices fluctuate widely and are affected by numerous factors beyond the Group’s control,including global supply and demand, political and economic conditions, advancements in mineral processing and currency exchangefluctuations. The effect of these factors on the price of rutile and bauxite cannot accurately be predicted.

Political riskThe Group’s properties are located in Sierra Leone and its operations may be affected in varying degrees by political and economicinstability, economic or other sanctions imposed by other countries, terrorism, civil wars, guerrilla activities, military repression,crime, extreme fluctuations in currency exchange rates and high inflation.Whilst there can be no certainty about the future stabilityof the country, we note that there was a successful transfer of power following the national elections in August 2007.

Protection of assets and personnelNo assurance can be given that the Group will be able to maintain effective security in connection with its assets or personnel inSierra Leone where civil war, terrorism and guerrilla activities have severely disrupted exploration and mining activities in the pastand may affect the Group’s operations or plans in the future. Unless the Government can provide the necessary degree of peace,order and security, the cost to, and the ability of, the Group to maintain effective security over its assets in Sierra Leone will beadversely affected. The Group maintains its own security team of local employees who are trained and managed by two securityspecialists.While the primary focus of the team is on loss prevention, there is a rapid reaction component to respond to anyemergency.

Title to propertiesThe Company is satisfied that it has taken reasonable measures to ensure that proper title to the mining leases of SRL and SMLhas been obtained and that all grants of mineral rights for the Group’s properties have been registered in the appropriate deedsoffices. No assurance can be given, however, that any lease, licence or permit held by the Group will not be challenged or impugnedin the future.


Government regulationThe Group’s mining operations are located in Sierra Leone and are subject to its laws and regulations governing expropriation ofproperty, health and worker safety, employment standards, waste disposal, protection of the environment, mine development,land and water use, prospecting, mineral production, exports, taxes, the protection of endangered and protected species and othermatters.While the Group believes that it is in substantial compliance with all material laws and regulations currently affecting itsactivities, future changes in applicable laws, regulations, agreements or changes in their enforcement or regulatory interpretationcould result in changes in legal requirements or in the terms of existing permits and agreements applicable to the Group or itsproperties, which could have a material adverse impact on the Group’s current operations or future development projects.Whererequired, obtaining necessary permits and licences can be a complex, time-consuming process and the Group cannot assure whetherany necessary permits will be obtainable on acceptable terms, in a timely manner or at all.

Environmental regulationEnvironmental and safety legislation (e.g. in relation to reclamation, disposal of waste products, protection of wildlife andotherwise relating to environmental protection) may change in a manner that may require stricter or additional standards than thosenow in effect, a heightened degree of responsibility for companies and their directors and employees and more stringentenforcement of existing laws and regulations. There may also be unforeseen environmental liabilities resulting from mining activities,which may be costly to remedy. If the Group is unable to fully remedy an environmental problem, it may be required to stop orsuspend operations or enter into interim compliance measures pending completion of the required remedy. The potential exposuremay be significant and could have a material adverse effect on the Group.

RehabilitationCosts associated with rehabilitating land disturbed during the mining process and addressing environmental, health and communityissues are estimated and provided for based on the most current information available. Estimates may, however, be insufficientand/or further issues may be identified.

Energy cost and supplyThe Group’s operations are energy intensive and ,as a result, the Group’s costs and earnings could be adversely affected by risingenergy costs or by supply disruptions. The following factors could materially adversely affect the Group’s energy position:the unavailability of energy due to a variety of reasons including significant increases in costs of supplied fuel, interruptions inenergy supply due to equipment failure or other causes.

Principal Risks

Currency riskWhile the Group’s revenue is principally in US dollars, a significant portion of the Group’s expenses incurred in connection withthe projects will be in Sierra Leone’s local currency, the Leone. In addition, the EU loan facility is in Euros. As a result, fluctuationsin currency exchange rates could have a material adverse effect on the financial condition, results of operation or cash flow of theGroup. The Group has not entered into any hedging arrangements with respect to foreign currencies.

Dependence on key personnel, contractors, experts and other advisersThe success of the operations of the Group is dependent to a significant extent on the efforts and abilities of its management,outside contractors, experts and other advisers. The Company has a small management team and the loss of a key individual couldaffect the Group’s business.While the Company has entered into service agreements with certain of its key executives, the retentionof their services cannot be guaranteed. Accordingly, the loss of any key executive or manager of the Group may have an adverseeffect on the future of the Group’s business.

Wet discharge from the floating plant

at Sierra Rutile New plant equipment at Sierra Rutile The floating wet plant for Dredge D1


Key Performance Indicators

%

0

5

10

15

20

2006 2007

Key Performance Indicators

Mine productionFollowing the restart of our operations in 2006, we were able

to increase rutile production by 12%, ilmenite production by

14% and bauxite production by 9% in 2007.

Asset turnoverThe asset turnover ratio, which measures the efficiency of

a company's use of its assets in generating sales revenue,

has increased from 21% to 23%.

Sales increased by 32.2% compared to 2006

GearingGearing, calculated as debt to debt plus equity, remains low giving

the company considerable financial flexibility.

US$ million

0

10

20

30

40

50

60

70

2006 2007

■ Bauxite Production

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18To

nnes

mill

ion

2006 2007

■ Ilmenite Production■ Rutile Production

Tonn

esth

ousa

nds

0

10

20

30

40

50

60

70

80

90

2006 2007

%

20

21

22

23

2006 2007


EBITDAIn 2007 the company reported a loss before interest, tax,

depreciation, amortisation and exceptional items of US$0.3 million

(year ended 31 December 2006: profit of US$8.3 million).

Cash and cash equivalentsAt year end, the group had a positive cash balance of

US$25.6 million (2006, US$52.4 million).

Capital expenditureThe continued high investment reflects the fact that the company

is in a development stage. Major capital projects in the year

included Dredge D2, Dredge D3, construction of the new power

plant and upgrading of the land plant.

Long Term Injury Frequency Rate at Sierra RutileThe long term injury frequency rate rose unacceptably in 2007.

After the end of the year we introduced a number of measures

that we believe have improved performance.

US$ million

-1

0

1

2

3

4

5

6

7

8

9

2006 2007

US$ million

0

10

20

30

40

50

60

2006 2007

Jan

06Fe

b06

Mar

06Ap

r06

May

06Ju

n06

Jul0

6Au

g06

Sept

06O

ct06

Nov

06D

ec06

Jan

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b07

Mar

07Ap

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May

07Ju

n07

Jul0

7Au

g07

Sep

07O

ct07

Nov

07D

ec07

Jan

08Fe

b08

Mar

08

LTIFR January 2006 to March 2008

0

5

10

15

20

25

US$ million

0

10

20

30

40

50

60

2006 2007


Board of Directors

Walter Kansteiner III Non-Executive ChairmanMr. Kansteiner has over twenty years’ experience with African and emerging market business issues. A founding principal of TheScowcroft Group, he has advised corporations on a wide range of mergers, acquisitions and privatisations throughout Africa and hasbeen involved with transactions in telecommunications, forestry, mining, financial services, healthcare and aviation services. Previously,Mr. Kansteiner served three years as Assistant Secretary of State for African Affairs. In this capacity, he was responsible for U.S. foreignpolicy in Africa. From 1980 to 1986, Mr. Kansteiner was executive vice president of a commodity trading and processing company,which specialised in tropical commodities (coffee, cocoa and sugar). In addition to his business experience in emerging markets, from1989 to 1992, Mr. Kansteiner served in the U.S. government as the Director of African Affairs on the National Security Council staff.He also served as the Africa specialist on the Secretary of State’s Policy Planning Staff, and with the Department of Defense as amember of the strategic minerals task force. He holds graduate degrees in international economics and ethics from AmericanUniversity andVirginia Theological Seminary, respectively. He is a member of the Council on Foreign Relations, chairs the AfricaPolicy Advisory Panel (a congressionally mandated advisory group) and serves on various boards in the U.S. and Africa.

Len Comerford Chief ExecutiveMr. Comerford is an engineering graduate of University College Cork who has been working in the mining, engineering, financingand development sectors in Africa since 1986. Mr. Comerford has worked in a number of senior roles for the P.W. Group,a specialist African construction and mining contractor based in Ireland for 13 years. His experience includes planning andimplementing mining and quarrying operations, working on feasibility and planning for mines and contract and financingnegotiations with companies including AngloGold Ashanti, Resolute Mining, Goldfields Ghana, PlacerdomeTanzania, GoldenstarResources, Redback (Chirano) Mining, Satellite Goldfields, Sierra Mineral Holdings, HSBC and BNP Paribas. Mr. Comerford iscurrently a Director of P.W. Ghana Ltd., P.W. Mining Limited and P.W. Mining International Limited. Mr Comerford was also theIrish Consul to Ghana between 1998 and 2008.

Baroness Valerie Amos Non-Executive DirectorBaroness Valerie Amos, who joined the Board in March 2008, has held a number of senior posts in the UK Government includingSecretary of State for International Development and Leader of the House of Lords. After working in Equal Opportunities,Training and Management Services in local government in the London boroughs of Lambeth, Camden and Hackney, she becameChief Executive of the Equal Opportunities Commission 1989-94. In 1995, Baroness Amos co-founded Amos Fraser Bernard andwas an adviser to the South African Government on public service reform, human rights and employment equity. She is currently aNon-executive Director of Travant Capital Partners.


Rod Baker B.SC., M.SC. Non-Executive DirectorMr Baker has over thirty five years experience as a mineral exploration geologist in many countries in five continents. He started hisprofessional career in North Sea gas as a geologist before joining the Anglo American Corporation to work in southern Africa.He then joined a South African consulting group and carried out work for clients such as Rio Tinto, Selection Trust, U.S. Steel,Falconbridge and Billiton on a number of commodities. In 1981, he became an independent consultant working largely for theUnited Nations and other clients in Africa, India and the Americas. For the last sixteen years he has been engaged mostly in pursuitof his own diamond and gold interests in South America. He has a long familiarity with Sierra Leone andWest Africa. He was also afounding director of Diamond Field Resources Inc. Mr. Baker received a B.Sc. in geology from Nottingham University and an M.Sc.in mineral exploration from Leicester University.

Raju Jaddoo Chief Financial OfficerMr Jaddoo joined the Group prior to its admission to AIM in August 2005. He had previously worked in Africa and EasternEurope on a wide range of assignments ranging from corporate finance, business consulting and strategic advice on cost improvementand revenue enhancement. His experience covers over twelve countries in Africa including western Africa. Mr Jaddoo has also workedon a number of World Bank funded assignments by providing a broad range of economic, financial, organisational and socio-economic planning services to government and private industry. He has advised and assisted international industry experts informulating innovative strategies in the provision of public services by the private sector (public private partnerships, executiveagencies, contracting out, output based contracts) in diverse fields such as transportation and logistics, power, telecommunications,ports and airports and within the resource industry. Mr Jaddoo qualified as Chartered accountant in London in 1989 and iscurrently a Fellow of the Institute of Chartered Accountants in England andWales.

Sir Sam Jonah KBE Non-Executive DirectorSir Sam Jonah was previously President of AngloGold Ashanti Limited, a NYSE listed company which is one of the world’s largestgold companies and the largest African based gold producer. He was appointed to the position of chief executive officer of AshantiGoldfields Company Limited in 1986 and oversaw its growth and listing as the first operating sub-Saharan African company on theNYSE. He became president of AngloGold Ashanti in May 2004, when Ashanti was acquired by AngloGold Limited. Sir SamJonah has been decorated with many awards and honours (including an honorary Doctor of Science) and in 2003, was conferredwith an Honorary Knighthood. He is a member of numerous advisory committees including President Thabo Mbeki’s InternationalInvestment Advisory Council of South Africa, President Kufuor’s Ghana Investors’ Advisory Council, and the United NationsSecretary General’s Global Compact Advisory Council. He is currently a director of Moto Goldmines Limited and serves on the


Board of Directors

International Investment Advisory Councils of President Thabo Mbeki (South Africa), President Kufuor (Ghana) and PresidentObasanjo (Nigeria). He is a member of the United Nations Secretary-General's Global Compact Advisory Council and an adviserto the International Finance Corporation.

Alex B. Kamara Non-ExecutiveMr. Kamara has considerable experience in the mining industry and in mechanical and electrical engineering. Mr. Kamara wasHead of Engineering at SRL 1982 to 1995, and head of the management team at the Sierra Leonean National Power Authorityfrom 2000-2002. Mr. Kamara is 68 years old and a Sierra Leonean national. Mr Kamara has also been appointed Grand Officerof the Order of the Rokel by the Government of Sierra Leone for his contribution to the engineering, mining and power sectors inthe country. Mr.Kamara is a Non-Executive Director of Cemmats Group, a Sierra Leonean company which has a number ofcontracts for the supervision of the construction of Dredge 3 and the new power house at Sierra Rutile Limited and has beenChairman of the Board of Standard Chartered Bank Sierra Leone since 2006. He was appointed as a Non-Executive Director inMarch 2008.

Wayne Malouf Executive Vice-ChairmanFrom 2002 to 2004, Mr. Malouf was the chief executive officer of SRL. In this capacity, he oversaw the company’s negotiationsfor financing arrangements with the European Commission, the Government of Sierra Leone and OPIC. He founded a law firmfocusing on commercial transactions and litigation. He has extensive experience in international business transactions and hasnegotiated and concluded commercial transactions involving mining and other industries around the world. Mr. Malouf has a B.A.and J.D. from St. Mary’s University in Texas and has an M.A. in social sciences with a concentration in international relations andeconomics from the University of Chicago. After the end of the year Mr. Malouf resigned as Executive Vice-Chairman in order todevote more time to other commitments, but he remains a Non-Executive Director of the Company.

John Bonoh Sisay Director Corporate AffairsIn March 2008 Mr. Sisay joined the Board of TRG as an Executive Director having previously held a senior position within thecompany. Mr. Sisay started his career as a graduate trainee at the Central Selling Organization (CSO) of De Beers ConsolidatedMines, Ltd where he learned the contours of the mining industry, in particularly with regards to diamonds. After working at theCSO, Mr. Sisay joined America Minerals Fields, now part of First Quantum, and worked on new acquisitions for the company,particularly in the Democratic Republic of Congo. Mr. Sisay joined Sierra Rutile Limited in 2001.


Advisers

Company SecretaryAudrey Irene [email protected]

Contact detailsAudrey Irene Hoe-RichardsonBoulevard Royal 25-BL-2449 LuxembourgGrand Duche de Luxembourg

Registered Agents and OfficeSHRMTrustees (BVI) LimitedTrinity ChambersP.O. Box 4301RoadTownTortolaBritish Virgin Islands

Nominated advisersNabarroWells & Co. LimitedOld Change House,128 QueenVictoria StreetLondon EC4V 4BJ

StockbrokersArbuthnot Securities LimitedArbuthnot House20 Ropemaker StreetLondon EC2Y 9AR

SolicitorsFaegre & Benson LLP7 Pilgrim StreetLondon EC4V 6LB

AuditorsBDO De Chazal Du Mee10, Frere Felix DeValois StreetPort LouisMauritius

RegistrarsComputershare Investor Services (Channel Islands) LimitedP.O. Box 83Ordnance House31 Pier RoadSt HelierJersey JE4 8PWChannel Islands

Company number629748


Directors’ Report

The Directors submit their report and the audited financial statements of the Company for the period ended 31 December 2007.

Results and dividendThe results of the Company are shown on page 29.The Directors have not paid a dividend during the year (2007: $nil).

Principal activities and review of the businessThe Company’s principal activity is exploring for, producing and marketing industrial minerals, primarily rutile and bauxite, inSierra Leone,West Africa. The Company owns the Sierra Rutile mine and the SML Bauxite mine in Sierra Leone and is exploringfor mineral sands deposits on the nearby Turners’ Peninsular.

Health, Safety, Environment and CommunitiesThe Company has agreed to take on the same performance obligations as members of the International Council on Mining &Metals and seeks continual improvement in non-financial performance so as to enhance shareholder value.

Employee Policies and InvolvementOur operations aim to record zero accidents causing harm to any individual through the following standards:� We provide adequate control of health and safety risks and regular monitoring to assess the appropriateness of these risksover time

� We provide appropriate training, equipment and maintenance to prevent accidents� We consult with employees at all levels to ensure that their instruction, supervision and levels of competency are appropriate totheir position

� We review and report on health and safety at our operations as part of internal management practice and externalcommunications

� The SRL mine site has a fully staffed and equipped clinic which is funded by the company and provides free healthcare foremployees, their dependants and the local population

Corporate GovernanceThe Directors intend, where practicable for a company of Titanium Resources’ Group’s size and nature, to comply with theCombined Code.


The Directors have established audit and remuneration committees. The Company has departed from certain aspects of theguidelines set out in the Combined Code and the Corporate Governance Guidelines for AIM companies published by the QCA inthat the Non-Executive Directors have been granted options. However, the options are not subject to performance criteria. In theopinion of the Directors, these options are not considered to be material enough to either the Company or each Non-ExecutiveDirector concerned to impair the independence of the Company’s Non-Executive Directors.

As at 31 December 2007, the Board comprised three Executive Directors and three Non-Executive Directors.The Board meets monthlythroughout the year and as and when issues arise which require Board attention.The Company’s independent Directors are Rod Baker,Sir Sam Jonah andWalter Kansteiner. After the end of the year Alex Kamara and Baroness Amos were appointed as independent Directors,John Sisay as an Executive Director and Wayne Malouf resigned as an Executive Director.Wayne Malouf continues as a Non-ExecutiveDirector of the Company.

Remuneration CommitteeThe remuneration committee chaired by Mr. Baker and comprising Mr. Kansteiner, both Non-Executive Directors, determines theterms and conditions of service, including the remuneration and grant of options to Directors (both Executive and Non-Executive)and others under the Share Option Scheme and any other future share option schemes and arrangements adopted by the Company.The committee meets at least once a year.

Audit CommitteeThe audit committee chaired by Mr. Kansteiner and consisting of Sir Sam Jonah and Mr. Baker, both Non-Executive Directors,has primary responsibility for monitoring the quality of internal controls, for ensuring that the financial performance of theCompany is properly measured and reported on and for reviewing reports from the Company’s auditors relating to the Company’saccounting and internal controls. The audit committee meets at least three times a year. The Company has adopted a code forDirectors’ dealings appropriate for a company whose shares are admitted to trading on AIM and will take all reasonable steps toensure compliance by the Directors and any relevant employees.

Directors and their interestsThe names of the Directors who held office during the year and after the year end are listed below.Mr.Walter Kansteiner (appointed 16 February 2005) Mr. Raju Jaddoo (appointed 19 July 2005)Mr. Len Comerford (appointed 1 May 2006) Sir. Samuel E Jonah (appointed 4 August 2005)Mr.Wayne Malouf (appointed 16 February 2005) Mr. Rod Baker (appointed 4 August 2005)Baroness Valerie Amos (appointed 10 March 2008) Mr. Alex Kamara (appointed 10 March 2008)Mr. John Sisay (appointed 10 March 2008)


None of the Directors held shares as at December 31, 2007. Directors hold the following options to subscribe for common shares.Exercise price Date of Grant Date of Expiry Number of shares

MrWalter Kansteiner 47p 15 August 2005 15 August 2010 399,999MrWayne Malouf 47p 15 August 2005 15 August 2010 1,500,000Mr Raju Jaddoo 47p 15 August 2005 15 August 2010 300,000Sir Samuel E Jonah 47p 15 August 2005 15 August 2010 174,999Mr Rod Baker 47p 15 August 2005 15 August 2010 174,999Mr Len Comerford 77.75p 1 May 2006 1 May 2011 750,000

Share CapitalDetails set out in the notes to financial statements.

Substantial ShareholdersSo far as the Directors are aware, the following had an interest in 3% or more of the voting capital of the Company as at31 December 2007:Holder No. of common shares %Ospraie Management LLC 113,156,497 48%HSBC client Holdings Nominee (UK) Limited 24,313,900 10%Leopard Titanium Limited 23,427,856 10%Nortrust Nominees Limited 23,025,000 10%Euroclear Nominees Limited 7,197,738 3%LBPB Nominees Limited 6,275,000 3%

Going ConcernThe Board, after making suitable enquiries, is satisfied that the Company has adequate resources to continue in operational existencefor the foreseeable future. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements.

Annual General MeetingThe AGM of the Company will be held at 9:00 am (British Summer Time) on 27 June at the Hilton London Metropole,225 Edgware Road, LondonW2 1JU.

Directors’ Report


The notice convening the meeting is sent to shareholders with this report. Resolutions relating to the meeting are set out in theNotice of Meeting.

Proxy VotingProxy cards have been sent to shareholders together with the Notice of Meeting.

Statement of Directors’ ResponsibilitiesThe Directors are required to prepare financial statements that give a true and fair view of the state of affairs of the Company atthe end of its financial year and of the profit or loss of the Company for the year. In preparing these financial statements, theDirectors are required to:� Select suitable accounting policies and apply them consistently;� Make judgments and estimates that are reasonable and prudent;� State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained inthe financial statements; and

� Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company willcontinue in business.

The Directors are also responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time thefinancial position of the Company and to enable them to ensure that the financial statements comply with the provisions in theInternational Accounting Standards and International Financial Reporting Standards. They are also responsible for safeguarding theassets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

AuditorsA resolution for the re-appointment of BDO De Chazal Du Mee as auditors of the Company is to be proposed at the forthcomingannual general meeting.

Mr Raju Jaddoo, Director3 June 2008


Independent Auditors’ Report to the Members

This report is made solely to the members of Titanium Resources Group Ltd (the “Company”), as a body. Our audit work has been undertakenso that we might state to the Company's members those matters we are required to state to them in an auditors’ report and for no other purpose.To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's membersas a body, for our audit work, for this report, or for the opinions we have formed.

Report on the Financial StatementsWe have audited the financial statements of Titanium Resources Group Ltd and its subsidiaries (the “Group”) on pages 29 to 63 which comprisethe balance sheets at December 31, 2007 and the income statements, statements of changes in equity and cash flow statements for the year thenended, and a summary of significant accounting policies and other explanatory notes.

Directors’ Responsibility for the Financial StatementsThe directors are responsible for the preparation and fair presentation of these financial statements in accordance with International FinancialReporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriateaccounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance withInternational Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The proceduresselected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether dueto fraud or error. In making those risk assessments, the auditors consider internal control relevant to the group’s preparation and fair presentation ofthe financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used andthe reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements on pages 29 to 63 give a true and fair view of the financial position of the Group at December 31, 2007and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory RequirementsWe have no relationship with or interests in the group other than in our capacity as auditors, tax and business advisers and dealings in theordinary course of business.

We have obtained all information and explanations we have required.

In our opinion, proper accounting records have been kept by the group as far as it appears from our examination of those records.

Port Louis, Mauritius. BDO De Chazal Du Mée3 June 2008 Chartered Accountants


2007 2006Notes USD’000 USD’000

ASSETSNon-current assetsProperty, plant and equipment 5 142,348 92,665Intangible assets 6 13,150 13,115Non-current receivables 9 753 753Deferred tax assets 10(a) 86,879 86,373

243,130 192,906

Current assetsInventories 11 14,890 15,054Trade and other receivables 12 21,562 14,275Current tax assets 18(d) 211 –Cash and cash equivalents 28(c) 25,731 52,393

62,394 81,722

Total assets 305,524 274,628

EQUITY AND LIAB I L IT I ESCapital and reservesShare capital 13 237,041 198,160Revenue reserve 4,154 20,869

Equity holders’ interest 241,195 219,029

L IAB I L IT I ESNon-current liabilitiesBorrowings 15 44,119 36,856Provisions for liabilities and charges 16 2,833 2,150

46,952 39,006

Current liabilitiesTrade and other payables 17 17,233 16,464Current tax liabilities 18(d) – 85Borrowings 15 144 44

17,377 16,593

Total liabilities 64,329 55,599

Total equity and liabilities 305,524 274,628

These financial statements have been approved for issue by the Board of Directors on:

Directors}The notes on pages 33 to 63 form an integral part of these financial statements.Auditors’ report on page 28.

Consolidated Balance SheetDECEMBER 31, 2007


2007 2006Notes USD’000 USD’000

Sales 2(o) 67,849 51,304Cost of sales 20 (72,261) (44,621)

Gross (loss)/profit (4,412) 6,683Other income 22 2,618 2,812Administrative and marketing expenses 20 (6,281) (7,078)

(8,075) 2,417Exceptional item 23 (2,445) (2,200)Finance costs 24 (6,497) (1,694)

Loss before taxation 19 (17,017) (1,477)Taxation 18(a) 302 35,923

(Loss)/profit for the year attributable to equity holders of the Group (16,715) 34,446

(Loss)/earnings per share (USD)– basic 26(a) (0.07) 0.16

– diluted 26(b) (0.07) 0.15

The notes on pages 33 to 63 form an integral part of these financial statements.Auditors’ report on page 28.

Consolidated Income StatementFOR THE YEAR ENDED DECEMBER 31, 2007


Revenue reserve/Share capital (deficit) Total

USD’000 USD’000 USD’000

Balance at January 1, 2007 198,160 20,869 219,029Issue of share capital 34,658 – 34,658Employee share options:– value of employee services 3,984 – 3,984– shares issued on exercise of options 239 – 239Loss for the year – (16,715) (16,715)

At December 31, 2007 237,041 4,154 241,195

Balance at January 1, 2006 194,951 (13,577) 181,374Employee share options:– value of employee services 3,209 – 3,209Profit for the year – 34,446 34,446

At December 31, 2006 198,160 20,869 219,029


Consolidated Statement of Changes in EquityFOR THE YEAR ENDED DECEMBER 31, 2007


2007 2006Notes USD’000 USD’000

Cash flows from operating activitiesCash (absorbed in)/generated from operations 28(a) (5,913) 7,308Interest received 2,182 2,542Interest paid (81) (60)Tax paid (500) (71)

Net cash (used in)/generated from operating activities (4,312) 9,719

Cash flows from investing activities

Purchase of property, plant and equipment (57,399) (37,215)Purchase of intangible assets (78) (167)Proceeds from disposal of plant 14 –Loans and advance granted – (26)Investments in financial assets – (2,200)

Net cash used in investing activities (57,463) (39,608)

Cash flows from financing activities

Issue of ordinary shares 34,658 –Proceeds from exercise of options 355 –Proceeds from long-term borrowings – 2,556

Net cash from financing activities 35,013 2,556

Net decrease in cash and cash equivalents (26,762) (27,333)

Movement in cash and cash equivalents

At January 1, 52,349 79,682Decrease (26,762) (27,333)

At December 31, 28(c) 25,587 52,349


Consolidated Cash Flow StatementFOR THE YEAR ENDED DECEMBER 31, 2007


1. GENERAL INFORMATION

Titanium Resources Group Ltd is a public limited liability company incorporated and domiciled in the British Virgin Islands. The address of itsregistered office is at P.O. Box 4301, Trinity Chambers, Road Town, Tortola, British Virgin Islands.

These financial statements will be submitted for consideration and approval at the forthcoming Annual Meeting of shareholders of the Group.

2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistentlyapplied to all the years presented, unless otherwise stated.

(a) Basis of preparation

The financial statements of Titanium Resources Group Ltd have been prepared in accordance with International Financial Reporting Standards(IFRS). Where necessary, comparative figures have been amended to conform with change in presentation in the current year. The financialstatements are prepared under the historical cost convention, except that available-for-sale investments are stated at their fair value.

Amendments to published standards, Standards and Interpretations issued but not yet effective

Certain standards, amendments to published standards and interpretations have been issued that are mandatory for accounting periods beginningon or after January 1, 2008 or later periods but which the Group has not early adopted.

Except for IFRS 8, ‘Operating segments’, the revised IAS 1, ‘Presentation of Financial Statements’ and the amendment to IAS 23 ‘Borrowing costs’(effective for periods on or after January 1, 2009), these standards, amendments and interpretations are not relevant to the Group’s operations.

IFRS 8 and the revised IAS 1 are disclosure requirements only and will not when adopted, affect the results of the Group. The amendment toIAS 23 eliminates the alternative treatment of expensing borrowing costs on qualifying assets. The revised IAS 1 affects the presentation of ownerchanges in equity and of comprehensive income.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requiresmanagement to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgementor complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 4.

(b) Investment in subsidiaries

Consolidated financial statements

The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company(its subsidiaries) made up to December 31, each year. Control is achieved where the Company has the power to govern the financial and operatingpolicies of an investee enterprise so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year areincluded in the consolidated income statement from the date of their acquisition or up to the date of their disposal.

Notes to the Consolidated Financial StatementsFOR THE YEAR ENDED DECEMBER 31, 2007



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The consolidated financial statements have been prepared in accordance with the purchase method. The excess of the cost of acquisition over thefair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair valueof the net assets of the subsidiary acquired, the difference is recognised directly in the income statement in the year of acquisition. The results ofsubsidiaries which are not consolidated are brought into the financial statements to the extent of dividends received.

All significant intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealisedlosses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those adoptedby the Group.

(c) Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation. The cost of self-constructed assets includes the cost ofmaterials, direct labour and an appropriate proportion of production overheads. Cost also includes environmental decommissioning costs that arerecognised as a liability.

Depreciation is provided on a straight-line basis over the estimated useful lives of the assets.

Where an item of property, plant and equipment comprises major components with different useful lives, the components are accounted for asseparate items of property, plant and equipment.

Subsequent expenditure relating to an item of property, plant or equipment is capitalised when it is probable that the future economic benefitsfrom the use of the asset will increase by more than the expenditure incurred. All other subsequent expenditure is recognised as an expense in theperiod in which it is incurred.

Deposit, exploration, evaluation, mine development expenditure and deferred project expenditure

In respect of deposit, minerals, exploration, evaluation, and deferred project, expenditure is charged to the income statement as incurred except where:– it is expected that the expenditure will be recouped by future exploitation or sale; or– substantial exploration and evaluation activities have identified a mineral resource but these activities have not reached a stage which permits a

reasonable assessment of the existence of commercially recoverable reserves in which case the expenditure is capitalised.

Expenditure relating to both deposit and dam development and mine development are accumulated separately for each identifiable area of interest.Such expenditure comprises net direct costs and an appropriate portion of related overhead expenditure.

Expenditure is carried forward when incurred in areas where economic mineralisation is indicated, but activities have not yet reached a stage whichpermits reasonable assessment of the existence of economically recoverable reserves, and active and significant operations in relation to the areaare continuing. Each such project is regularly reviewed. If the project is abandoned or it is considered unlikely that the project will proceed todevelopment, accumulated costs to that point are written off immediately.



Deposit, exploration, evaluation, mine development expenditure and deferred project expenditure (continued)

Each area of interest is limited to a size related to a known or probable mineral resource capable of supporting a mining operation. Projects areadvanced to development status when it is expected that accumulated and future expenditure can be recouped through project development or sale.

Expenditure relating to other expenses consists primarily of costs which provides benefit to the development of the Mine in general and is notspecifically identifiable to a particular project.

Mining leases

The Group’s mining leases are of sufficient duration (or convey a legal right to renew for sufficient duration) to enable all reserves on the leasedproperties to be mined in accordance with current production schedules.

(d) Amortisation and depreciation

Amortisation of deferred project expenditure is based on the estimated useful life of the asset to which the expenditure relates.

Depreciation is provided at rates calculated to write off the cost of fixed assets to their residual value over their estimated useful lives as follows:

Building – 4%Infrastructure – 5%Plant, machinery & equipment – 5% to 20%Vehicles – 3 to 5 yearsMineral rights – Based on the estimated life of reservesExploration, evaluation and mine developmentexpenditure, and expenditure on mineral rights – Based on the estimated life on proven and probable reserves

Changes in estimates are accounted for over the estimated remaining economic life of the remaining commercial reserves of each project as applicable.

(e) Intangible assets

(i) Goodwill

Goodwill represents the excess of cost of acquisition over the Group’s interest in the fair value of the net identifiable assets of the acquiredsubsidiaries at the date of acquisition.

Goodwill on acquisitions of subsidiaries is included in intangible assets. Any net excess of the Group’s interest in the net fair value of acquiree’snet identifiable assets over cost is recognised in the income statement.

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. On disposal of a subsidiary, the attributableamount of goodwill is included in the determination of the gains and losses on disposal.

Goodwill is allocated to cash-generating units for the purpose of impairment testing.




(ii) Computer software

Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software and areamortised over their estimated useful lives estimated to be five years.

(f) Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject toamortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverableamount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at thelowest levels for which there are separately identifiable cash flows (cash-generating units).

(g) Foreign currencies

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using United States Dollars, the currency of the primaryeconomic environment in which the entity operates (‘functional currency’). The consolidated financial statements are presented in United StatesDollars, which is the Group’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions.Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates ofmonetary assets and liabilities denominated in foreign currencies are recognised in the income statement except when deferred in equity asqualifying cash flow hedges and qualifying net investment hedges.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date the fair value was determined.

(h) Financial instruments

(i) Financial assets

Categories of financial assets

The Group classifies its financial assets as available-for-sale financial assets.

The classification depends on the purpose for which the investments were acquired. Management determines the classification of its financialassets at initial recognition.

(a) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.They are included in non-current assets unless management intends to dispose of the investment within twelve months of the balance sheet date.



(h) Financial instruments (continued)

(a) Available-for-sale financial assets (continued)

Initial measurement

Purchases and sales of financial assets are recognised on trade date, the date on which the Company commits to purchase or sell the asset. Investmentsare initially measured at fair value plus transaction costs for all financial assets except those that are carried at fair value through profit or loss.

Subsequent measurement

Available-for-sale financial assets are subsequently carried at their fair values.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured aremeasured at cost.

Unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are recognised in equity. Whenfinancial assets classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement asgains and losses on financial assets.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Group establishes fairvalue by using valuation techniques. These include the use of recent arm’s length transactions and reference to other instruments that aresubstantially the same.

Impairment of financial assets

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired.In the case of financial assets classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost isconsidered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulativeloss – measured as the difference between acquisition cost and the current fair value, less any impairment loss on that financial asset previouslyrecognised in equity – is removed from equity and recognised in the income statement.

If the fair value of a previously impaired debt security increases and the increase can be objectively related to an event occurring after theimpairment loss was recognised, the impairment loss is reversed and the reversal recognised in the income statement. Impairment losses for aninvestment in an equity instrument are not reversed through the income statement.

(ii) Long-term receivables

Long-term receivables with fixed maturity terms are measured at amortised cost using the effective interest rate method, less provision forimpairment. The carrying amount of the asset is reduced by the difference between the asset’s carrying amount and the present value of estimatedcash flows discounted using the effective interest rate. The amount of loss is recognised in the income statement. Long-term receivables withoutfixed maturity terms are measured at cost. If there is objective evidence that an impairment loss has been incurred, the amount of impairment lossis measured as the difference between the carrying amount of the asset and the present value (PV) of estimated cash flows discounted at thecurrent market rate of return of similar financial assets.




(iii) Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, lessprovision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will notbe able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’scarrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of provision isrecognised in the income statement.

(iv) Trade payables

Trade payables are stated at fair value and subsequently measured at amortised cost using the effective interest method.

(v) Borrowings

Borrowings are recognised initially at fair value being their issue proceeds net of transaction costs incurred.

Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value isrecognised in the income statement over the period of the borrowings using the effective interest method.

Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares arerecognised in the income statement as interest expense.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at leasttwelve months after balance sheet date.

(vi) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with originalmaturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

(vii) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity asdeduction, net of tax, from proceeds.



(i) Inventories

Inventories are stated at the lower of cost or net realisable value where cost is defined as follows:Titanium bearing minerals – Production cost and attributable overheadsConcentrates – Production costWashed bauxite – Production cost and attributable overheadsStockpiles – Production costMaterials – Average costFuel and sundry expenses – Purchase costGoods-in-transit – Invoice cost excluding freight

Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses.

(j) Deferred income taxes

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability ina transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss, it is notaccounted for.

Deferred income tax is determined using tax rates that have been enacted by the balance sheet date and are expected to apply in the period whenthe related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which deductible temporarydifferences can be utilised.

(k) Agricultural Development Fund

The Group commits the higher of 0.1% (one tenth of one percent) of gross sales revenue in US dollars for each year (for rutile and ilmenite, it isbased on gross sales free alongside ship at the Sierra Leone Port of Shipment) or USD75,000 and this shall be used exclusively for the developmentof agriculture in the areas affected by operations under the mining lease or in areas adjacent thereto within the same chiefdom. The annualamounts are paid over to the separate fund set up and controlled by the GOSL, chiefdom representatives, and the Company’s representatives.

(l) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalised until such time as the assetsare substantially ready for their intended use or sale. Other borrowing costs are expensed.

(m) Retirement benefit obligations

Short-term employee benefits

The cost of all short-term employee benefits is recognised during the period i

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