Long Nickel Mine
IGO 100%

Exploration and development activities have resulted in the discovery of additional reserves increasing current mine life to at least 2016.

Background

Independence Group's wholly owned subsidiary Lightning Nickel Pty Ltd ("Lightning"), acquired the Long Nickel Mine and the lease of related infrastructure and equipment from WMC Resources Ltd for $15 million in September 2002. The mine was successfully commissioned in October 2002.

The mine is located at Kambalda in Western Australia (Figure 1). The mine provides a healthy cash flow to the Company and has significant upside for further mine life extensions.

Historic production from the Long Nickel Mine represents the second largest concentration of nickel in the Kambalda region, and qualified as one of WMC's longest operating nickel mines with a 21 year mine life. Total production to closure in 1999 was 5.43 million tonnes at an average reconciled grade of 3.7% per cent nickel (203,184 nickel tonnes).

Since IGO recommissioned the mine in 2002, the mine has produced 1.65 million tonnes at a reconciled grade of 3.9% nickel (64,109 nickel tonnes). Exploration and development activities have resulted in the discovery of an additional 10 years of reserves increasing current mine life to at least 2016, based on reserves only, at a production rate of approximately 9,000 tonnes of nickel per annum.

The McLeay nickel deposit was discovered in 2005 and is still open to the south. The Moran nickel deposit was discovered in 2008. It currently has a resource of 39,400 nickel tonnes and is open to the south-east. Results to date also indicate that the Long nickel deposit is open to the north.

Tenure

The Long Complex assets are located on four Western Australian Mining Leases and a portion of East Location 48. Location 48 is one of a number of freehold land grants created in the Eastern Goldfields district in 1890.

Offtake Agreement

The Company has an agreement with BHP Billiton Nickel West Pty Ltd whereby the ore produced from the mine is delivered to the adjacent Nickel West Kambalda Nickel Operations Concentrator for toll treatment and production of nickel concentrates, which are then sold to BHP on terms set out in that agreement. The agreement expires on 27 February 2019.

Safety

The mine plan adopted by the Company incorporates a number of procedures and policies to ensure the safety of our team is not jeopardised. Five Lost Time Injuries ("LTI") occurred during 2010 and the mine has implemented new safety procedures as a result of the higher than normal injury rate on the mine. The mine has also engaged an outside consultant to perform a safety audit to ensure existing procedures comply with best practice in the industry.

Lightning's safety policy requires that operators undertake regular emergency training and teams from surrounding mines also participate in safety and training activities with Lightning's personnel.

The occupational health and safety regime is stated in the Lightning Nickel Safety Policy, which is based on the belief that profits can be made without compromising safety. It is management's conviction that a positive attitude is the key to any safety programme. Hazard identification, accident/ incident investigation, competency training, work procedures development, competency reassessment and regular workplace inspections, are carried out with the help our employees.

Ground Conditions and Seismicity

The risks of "mine-induced" seismicity are well known and understood at Long. The ore bodies are to a varying degree disrupted by a swarm of cross-cutting porphyries, some of which are stressed. When mining the discrete ore blocks within the mine, procedures to manage these conditions are built into the operating standards and are well understood by our mining team.

Lightning is a sponsor of the Australian Centre for Geomechanics Research ("ACGR") seismicity research studies. ACGR and the University of Western Australia have been undertaking ground support studies at the Long Nickel Mine with the assistance of the Company's mining and geotechnical team.

Mine Work Force

Lightning currently employs 121 full-time staff as well as 14 full-time contractors. Contract drillers are also on site on an ongoing basis and there are also currently numerous contractors on site assisting with the development of the Moran ore body. Many employees are ex-WMC Kambalda employees, who brought a pool of sound operating knowledge, experience and skills to the mine.

Lightning's work force has been very stable with a high retention rate since the commencement of mining in October 2002. All miners apart from the hand-held team are on salary, and an incentive scheme is in place to reward all on site when production and development targets are achieved.

Mine Production

Mining methods range from long-hole open stoping with mullock backfill and mechanised Jumbo flat-back stoping, to hand-held mining which is utilised to extract blocks in narrow stopes not suitable for mechanisation. Wherever necessary, non-entry, mechanised mining methods are employed for safety reasons. The spacing of stoping sub-levels and other aspects of the mining methods have been designed to minimise dilution and geotechnical risk.

Production for the year was 8,615 tonnes of nickel metal as shown in Table 1.

Independence's share of metal produced in 2009/10 was 5,204 nickel tonnes and 245 copper tonnes, resulting in revenue of $111 million.

Resources and Reserves

Lightning personnel, Cube Consulting Pty Ltd (mineral resource consultants), and MiningOne Pty Ltd (mine engineering consultants) were used to estimate resources and reserves based on industry best practice. Tabulated resource and reserve numbers have been rounded for reporting purposes.

Ore reserve tonnages and grades have been estimated at economic nickel cut-off grades in the new resource model, which takes into account the high value of the ore, its mode of occurrence, the geotechnical considerations to ensure successful and safe mining in the geological environment, forecast cost of production and estimated future nickel prices (Tables 2 and 3).

The resource was estimated using 2D and 3D metal accumulation of grade, thickness and density, interpolated by Ordinary Kriging into blocks for each mineralised surface. The reserve process utilises the 3D resource models to construct 3D mining stopes from which the reserve tonnes are reported, after subtracting porphyries and unextractable pillars and adding in mining depletion.

Geophysics

A portable underground electromagnetic ("EM") "Torch" system (analogous to a large metal detector), conductivity probes and a 3-component down-hole magnetic TEM probe are used to produce real time massive and matrix nickel sulphide location information, providing a vector to potential mineralisation. This technology contributed to the discovery of the McLeay and Moran deposits. It has also resulted in a reduction in drilled metres, allowed more accurate mine design and reduced the need for expensive "exploration" development.

A surface high-powered TEM transmitter is in operation, which was developed by Independence and Curtin University of Technology in Western Australia. An underground high-powered TEM transmitter and loop have also been installed, which assisted in the discovery of the Moran deposit. The Company has also commenced development of the next generation of TEM transmitter, which is expected to deliver greater reliability and higher signal strength.

During 2009 a high resolution 3 dimensional seismic survey was completed north and south of the Long ore body targeting new massive nickel sulphide deposits. Processing of the data from this survey generated a number of targets south of McLeay and Moran and elsewhere on the prospective basalt-ultramafic contact.

Exploration

Exploration during the year resulted in extensions to the high-grade Moran deposit and also identified extensions to the Long North ore body.

Significant potential exists to discover additional ore south of Moran and McLeay, as well as the largely unexplored Long North zone.

Two lava channels have been identified on the Company's Long Nickel Mine tenure (Figure 2):

Channel 1: The upper nickel channel is interpreted to contain from north to south, the Gibb, Gibb South, Victor, Victor South and McLeay deposits.

Channel 2: The lower nickel channel is interpreted to contain Long, Long North and Long South (Moran deposit).

The Company's exploration team integrates geological mapping, structural studies, magnetic, electromagnetic and seismic geophysical surveys to produce a 3-dimensional picture of the ultramafic stratigraphy in its exploration targeting.

Moran

The high-grade Moran deposit was discovered by the Company's exploration team in late 2008 and a maiden resource estimate was published in September 2009. The Moran nickel sulphides are within the same lava channel hosting the +200,000 nickel tonne Long ore body. Moran is currently interpreted to have a 620m strike length and remains open to the south-east. The deposit is located approximately 1km south of the Long ore body.

The work program for the 2010 financial year focused on extending the Moran resource to the south, where a strong DHEM anomaly and stringer sulphides intersected by hole LSU-103 supported an interpreted continuation of the system. Geotechnical problems slowed development of the Moran 525 hanging wall drill drive, limiting the amount of drilling completed during the reporting period. However, the initial hole testing the DHEM target (LSU-279) intersected 12.3m @ 7.8% Ni (7m true width). Follow-up drilling has extended the Moran ore body 140m beyond the southern boundary of the June 2009 resource.

The exploration team will continue the extensional drilling program to the south of Moran during the next financial year, utilising the 525 and 575 drill drives completed in 2010. An interpreted conductor lying within the projected lava channel south-east of Moran will be tested in the third quarter of 2010. In order to support this program, a new underground TEM transmitter loop was constructed by drilling a 335m underground diamond drill-hole between the 525 and 575 drives, allowing connection of a 1.6km circumference wire loop energized by the Company's proprietary high-powered transmitter.

Exploration drilling to the north of the 2009 resource boundary has intersected high-grade mineralisation close to existing development (LSU-325: 1.3m @ 5.0% Ni and 2.6m @ 7.9% Ni). Although the potential ore tonnage in this area appears limited, further delineation drilling is justified.

The first production from Moran occurred in June 2010.

Long North

Drilling north of the Long ore body in 2007/8 identified a new ore surface (the 07 Shoot), which was previously thought to have been stoped out by porphyry dykes.

Several extensional holes were drilled to test the prospective contact to the north and down- dip from the 07 Shoot. The first of these holes, LG137-039, intersected remobilized massive sulphide (0.3m @ 5.9% Ni) and light matrix sulphide (1.2m @ 2.4% Ni) approximately 465m north of the 07 Shoot 2009 resource boundary.

Hole LG137-041 intersected 9.3m @ 6.0% Ni (3.9m true width) 75m below the 07 Shoot, and LG137-043 intersected 1.4m @ 3.5% Ni 60m to the north of this intersection. Although hole LG137-044 intersected thin zones of nickel sulphide mineralisation down-dip from the 07 Shoot, a DHEM survey read in this hole detected strong conductors in the vicinity of these intersections. These results upgrade the prospectivity of the Long North target area, and a program of drill drive development and infill drilling is planned for the 2011 financial year.

McLeay

The McLeay ore body remains open to the south. A swarm of porphyry dykes stopes out mineralisation at the southern limit of the existing resource and creates difficult drilling conditions that have thus far prevented effective testing of the prospective contact further to the south. The new 570 drill drive will be used to extend the drilling past the porphyry swarm to test for a continuation of the McLeay ore system. The new underground transmitter loop will allow DHTEM surveying with greatly improved data quality in the underground diamond drill holes.

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