DOTZ NANO LIMITED — Earnings Release 2014

Jan 26, 2015

31 December Annual Results Update

In 2014, the Company continued to develop the reliability, stability and productivity of its operations, with persistent focus on safety and improvements to operational competency and particularly cost reduction. These efforts gave rise to a step-change in the capability and performance of the Sydvaranger operations, resulting in new annual records for production (up 18% on 2013), sales (up 24% on 2013) and cost performance (down 20% on 2013).

Whilst the Company has been able to deliver a strong and stable operational performance, the market conditions during the 2014 year were extremely volatile, with an oversupply situation in the iron ore market developing dramatically in the second half of the year. As a result, the market price for iron ore has collapsed both quickly and precipitously, falling by more than 50% across the year.

Some key figures of the unaudited annual financial results are provided below:

Key Points:

• Sales of 2,385,000 dry metric tonnes of iron ore concentrate, a 24% increase over the prior year

• Production of 2,342,000 dry metric tonnes of iron ore concentrate, an 18% increase over the prior year

• Revenue of US$180.5 million, a decrease of 12% from US$204.6 million in the prior year

• The average sales price for 2014 was approximately US$73/dmt FOB Kirkenes, 29% lower than the prior year result of US$103/dmt FOB Kirkenes

• Unit cash operating costs (C1) of approximately US$ 72 / dmt, an improvement of 20% over the prior year result of US$ 90 / dmt

• An expected impairment of the mine properties and property, plant and equipment with a consolidated value in the order of US$260.0 million

• The expected recognition of a provision for potential future losses occurring under a contract for iron ore sales in the amount of approximately US$10.0 million

• An unrealised accounting loss of US$39.8 million on foreign exchange hedging contracts. Further explanation of this accounting loss is provided in the following section of this announcement

• Cash on hand of US$6.6 million as at 31 December 2014.

Foreign Exchange

During the period from January 2014 to July 2014, SVG entered into foreign exchange contracts to convert US dollars (USD) to Norwegian Kroner (NOK), with the NOK being the principal currency in which SVG’s expenses are denominated and USD being the currency in which product sales are received.

The contracts cover the calendar years ending 2015 and 2016 and have an aggregate face value of USD 264.0 million at an average USD:NOK contract rate of 6.34. Whilst the contract rates compare favourably to the historical 5 year actual average rate of 5.95, with the recent significant strengthening of the USD and in turn weakening of the NOK, an unrealised accounting loss of USD 39.8 million has been incurred as at 31 December 2014 and is expected to be recognised in the audited results for the year given that these must recognise the mark-to-market position. A summary of the forward hedge position is detailed in Table 2 below.

		Foreign Exchange Hedging	Foreign Exchange Hedging	Foreign Exchange Hedging
			Average
Value Date	Amount		Contract	Month end Rate	Mark to Market
			Rate
	(US$’000)		(USD / NOK)	(USD / NOK)	(USD’000)
2015	168,000		6.30	7.46	(26,289)
2016	96,000		6.41	7.45	(13,505)
Totals	264,000		6.34	7.46	(39,794)

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