QUARTERLY ACTIVITIES REPORT FOR THE PERIOD ENDED 30 SEPTEMBER 2013

Highlights: 

•  Record production volumes for the quarter.

•  New offtake agreement entered into with Vale for sales of Concentrate and

Sinter Feed.

• Acquisition  of  waste  and  tailing  disposal  property  as  part  of  SAFM’s expansion to 8 Mtpa.
• Steady Progress on Bankable Feasibility Study with an expanded scope of work.   The  Bankable Feasibility Study is  expected to be  completed by

30 April 2014.

•  Refurbishment programme successfully completed.

South American Ferro Metals Limited (ASX: SFZ) (“SAFM” or the “Company”) provides the following commentary for the three months ended 30 September 2013, to be read in conjunction with Appendix 5B.

SAFM’s Chief Executive Officer, Stephen Turner commented:

“SAFM’s production team worked expeditiously to address the recent water reticulation issues and it is pleasing to report record beneficiated production for the quarter.  During the quarter, the plant has been refurbished and performance continues to exceed daily production records.

The acquisition of the waste and tailing property marks a significant milestone in SAFM’s expansion project. Strong progress is being made on the BFS with the targeted date of completion being April 2014.  Work continues and is expected to accelerate on a number of fronts over the next two quarters.

Renewed sales focus is being placed for all SAFM’s products and it is commendable that the Company has recently signed an offtake agreement with Vale for the sale of both Sinter and Concentrate products.”

1.   Expansion project

Acquisition of waste and tailings properties

SAFM entered into an agreement for the acquisition of a 100 hectare property in the south of its Ponto Verde Mine.  The details of the acquisition were announced on 10 October 2013. An option Agreement has also been signed to acquire an additional adjoining 100 hectare area for future requirements.

A  technical  and  environmental  study  of  the  area  has  been  conducted  by  Consultoria  e

Empreendimentos de Recursos Naturais Ltda (“CERN”) confirming that there are no restrictions

A detailed study of the volume capacity ratio between waste and tailings was performed by engineering consulting firm, GeoGraphos Engenharia e Consultoria Ltda (“Geographos”).   The study concluded that the total area covered by the two land acquisitions would be sufficient in size to hold approximately  64 million cubic metres of  waste and tailing material.  This would be sufficient for the expanded mine life.

Mine Planning

Coffey International Limited (“Coffey”) has completed a desk-top-study to determine the viability of expanding the PVM mine site. They also performed a mining supply assessment inclusive of budget quotations of the mining equipment required for production of ore and handling of waste.

Based on the above study, a preliminary mine schedule has been formulated which includes the selection of mining methods and equipment and a definition of the production rate.   Further mining scheduling and design studies are scheduled for completion later this year.

Plant and Infrastructure Design

SAFM is currently evaluating two logistical solutions for transportation from the mine to the rail terminal.  Preliminary geotechnical investigations have been completed for the proposed process plant location.

CEMIG,  one  of  the  largest  Brazilian  power  generators  and  distributors,  has  completed  the feasibility study for the power supply to the mine. The study proposes the layout of the intended transmission  line  together  with  estimated  capital  costs.    Further  discussions  are  currently underway to finalise agreements over the future power supply.

Discussions are currently being held with port operators.  It is expected that the proposed port operator  will  be responsible for  all  port  services including the provision of  warehouses and stockyards.

Permits and Legal Support, including Environmental Licenses

Applications for environmental and installation licenses were submitted to the relevant environmental and regulatory agencies in July 2013.  SAFM expects these licenses to be granted at the beginning of the 2014 calendar year.

An archaeological field survey was concluded on the mine site and the resulting final report was lodged  with  the  National  Institute  of  Brazilian  Artistic  and  Historical  Heritage  (“IPHAN”)  in January 2013.   SAFM has also completed the registration of landowners along the proposed logistics corridor for the expansion.

Looking ahead

Progress will continue and is expected to accelerate on a number of fronts of the BFS with emphasis on permits and environmental licenses, land tenure and field investigations.  Work is also continuing on BFS engineering which includes the mining study and further updating of the previously completed feasibility study on power supply options.

Further metallurgical test work will take place and the report is expected to be finalised within the upcoming 5 months. The process flow sheet will be finalized based on a pellet feed product.  The metallurgical test work is to be completed during November 2013 with the finalization of the BFS at the end of April 2014.

SAFM posted record Beneficiated production during the quarter, as the plant recovered from its previous production difficulties.   The attainment of this level was impressive, especially considering the closure of its plant for a week as part of its recent refurbishment.

SAFM has successfully addressed its water reticulation problems during the past quarter coupled with the refurbishment program that was implemented, has resulted in record monthly production being recorded in October 2013.

3.   Sales volumes

Sales  of  beneficiated  products  decreased  by  42%  during  the  September  2013  quarter  to

65,740 tonnes.  This was due to lower Sinter Feed grade experienced as a result of a section of low grade ore being mined, as well as the temporary non-availability of  trucks to deliver product to customers.

On  2  September  2013,  SAFM  entered  into  an  offtake  agreement  with  Vale  for  the  supply  of

300,000 tonnes  of   concentrate   and   170,000   tonnes  of   Sinter   Feed  for  the   period  up  to

31 December 2014 at market related prices.   Vale completed a number of safety and compliance procedures for its truck drivers which resulted in a delay in the expected commencement of deliveries. Deliveries commenced in the current quarter and it is expected that SAFM will reduce its stockpiles to normalised levels by 31 December 2013.

Average weighted net selling prices increased by 14%, largely due to a 5% average increase in the net selling price for its Concentrate product over the quarter, and a higher weighted proportion of Concentrate sales.

4.   Safety and Environment

SAFM’s safety and environmental performance underpins the Company’s license to operate and grow in Brazil. There was no lost injury time during the period.