this circular is important and requires your immediate attention

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer or other registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Agritrade Resources Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser(s) or transferee(s) or to the licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

This circular appears for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of Agritrade Resources Limited.

(Incorporated in Bermuda with limited liability)(Stock code: 1131)

(1) MAJOR TRANSACTION — PROPOSED ACQUISITIONOF 51% INTEREST IN MERGE MINING HOLDING LIMITED;

(2) PROPOSED FORMATION OF A JOINT VENTURE;(3) PROPOSED GRANT OF SPECIFIC MANDATES TO ISSUEAND ALLOT CONVERTIBLE PREFERENCE SHARES AND

CONVERSION SHARES;(4) CANCELLATION AND RECLASSIFICATION AND

REDESIGNATION OF AUTHORISED SHARE CAPITAL;AND

(5) NOTICE OF SPECIAL GENERAL MEETING

Financial Adviser to ARL

A notice of the SGM of Agritrade Resources Limited to be held at Room 1705, 17/F, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong on Friday, 18 December 2015 at 12:00 noon is set out on pages SGM-1 to SGM-3 of this circular. Whether or not you are able to attend the SGM, please complete and return the accompanying form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar and transfer office of Agritrade Resources Limited in Hong Kong, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time fixed for the holding of the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or any adjournment thereof (as the case may be) should you so wish.

30 November 2015

CONTENTS

– i –

Page

Definitions ................................................................................................................................ 1

Letter from the Board ............................................................................................................. 8

Additional Information........................................................................................................... 63— Risk factors........................................................................................................................... 63— Legal and regulatory requirement ........................................................................................ 73

Appendix I: Financial information of the Group ................................................................. 86

Appendix II: Financial information of the Target Group .................................................... 92

Appendix III: Unaudited pro forma statement of financial position of the Enlarged Group ................................................................................ 127

Appendix IV: Management discussions and analysis ........................................................... 138

Appendix V: Competent Person Report and Valuation Report on the Target Mine ......... 143

Appendix VI: General information ....................................................................................... 458

Notice of SGM ................................................................................................................................ SGM1

DEFINITIONS

– 1 –

Unless otherwise specified, the following terms have the following meanings in this circular:

“Acquisition” the proposed sale and purchase of the Sale Shares pursuant to the terms of the Acquisition and Subscription Agreement

“Acquisition and Subscription the share sale and subscription agreement dated 28 October Agreement” 2015 and entered into among ARL, SIL and MMHL in respect

of, among other things, the Acquisition and the Subscription, as amended from time to time

“adb” air-dried basis

“AIPL” Agritrade International Pte. Limited, a company incorporated in Singapore, which was owned by Mr. Ng Say Pek, the chairman of the Board and the non-executive Director, and his spouse as to 80% and 20% respectively and which directly and indirectly held in aggregate 860,533,333 Shares as at the Latest Practicable Date

“Announcement” the announcement of ARL dated 28 October 2015 in relation to, among other things, the Acquisition and Subscription Agreement

“ARL” or “Company” Agritrade Resources Limited (stock code: 1131), a company incorporated under the laws of Bermuda with limited liability whose shares are listed on the Main Board of the Stock Exchange

“ASP” average selling price

“Australian Standards” Standards used for risk analysis and risk management which include AS/NZ 3931:1998, AS/NZ 4360:1999, and HB 203:2004

“Board” the board of Directors

“Business Day” a day (excluding Saturday and Sunday) on which banks generally are open in Hong Kong for the transaction of normal banking business

“Business Plan and Budget” the business plan and budget of the Target Group set out in the Shareholders Agreement

DEFINITIONS

– 2 –

“Cancellation and Reclassification the cancellation of the 500,000,000 authorised but unissued and Redesignation” convertible preference shares of par value of HK$0.10 each

in the share capital of ARL and the reclassification and redesignation of the then authorised share capital of ARL of HK$500,000,000 comprising 5,000,000,000 ordinary shares of a single class of par value of HK$0.10 each into 4,600,000,000 Shares of par value of HK$0.10 each, 200,000,000 Class A Convertible Preference Shares of par value of HK$0.10 each with a notional value of HK$2.45 each and 200,000,000 Class B Convertible Preference Shares of par value of HK$0.10 each with a notional value of HK$2.45 each

“China” the People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region and Taiwan

“Class A Convertible Preference the convertible preference shares in the share capital of ARL Shares” having the rights set out in the paragraph headed “Class A

Convertible Preference Shares”

“Class A CPS Conditions has the meaning as set out in paragraph headed “Class A Fulfilment Date” Convertible Preference Shares”

“Class B Convertible Preference the convertible preference shares in the share capital of ARL Shares” having the rights set out in the paragraph headed “Class B

Convertible Preference Shares”

“Class B CPS Conditions has the meaning as set out in paragraph headed “Class B Fulfilment Date” Convertible Preference Shares”

“Competent Evaluator” a Competent Person undertaking valuations and satisfying Rule 18.23 of the Listing Rules

“Competent Person” a person satisfying the requirements of Rules 18.21 and 18.22 of the Listing Rules

“Competent Person Report” the report prepared by the Competent Person on the Target Mine in compliance with the requirements under Chapter 18 of the Listing Rules

“Competing Business” has the meaning as set out in paragraph headed “SIL’s Undertaking” in the “Letter from the Board”

“Conditions” the First Conditions and the Second Conditions

DEFINITIONS

– 3 –

“Consideration” the aggregate consideration for the Transactions payable at First Completion and Second Completion, as set out in the paragraph headed “Consideration and Payment Terms” in the “Letter from the Board”

“Conversion Shares” the Shares of ARL to be issued by ARL upon exercise by the holders of the Convertible Preference Shares of the conversion rights attached to the Convertible Preference Shares

“Convertible Preference Shares” the Class A Convertible Preference Shares and the Class B Convertible Preference Shares

“CV” calorific value

“Defaulting Shareholder” has the meaning as set out in the paragraph headed “Event of default” in the “Letter from the Board”

“Director(s)” the director(s) of ARL

“Enlarged Group” ARL and its subsidiaries as enlarged by the Transactions upon First Completion

“Fair Market Value” the highest price obtainable in an open and unrestricted market between knowledgeable and willing parties dealing at arm’s length who are fully informed and under no compulsion to buy or sell

“First Completion” the first completion of the Acquisition and the Subscription under the terms of the Acquisition and Subscription Agreement

“First Completion Date” the date which is five (5) Business Days after the date of written notification by ARL to SIL of the fulfilment of all and/or waiver of certain First Conditions to the satisfaction of ARL

“First Conditions” the conditions precedent to the First Completion as set out in the Acquisition and Subscription Agreement

“First Long Stop Date” 31 December 2015, unless otherwise extended by the mutual agreement of SIL and ARL in writing

“Ha” hectare

“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China

“HK$” or “Hong Kong Dollars” Hong Kong dollars, the lawful currency of Hong Kong

DEFINITIONS

– 4 –

“Hong Kong Takeover Codes” The Codes on Takeovers and Mergers and Share Buy-backs

“Group” ARL and its subsidiaries before the First Completion

“Indemnity Events” has the meaning as set out in the paragraph headed “SIL’s Undertaking” in the “Letter from the Board”

“Indonesian Subsidiaries” MESD, MCM and MMI

“Interim Loan Agreement” the loan agreement between ARL as lender and MMHL as borrower dated 20 July 2015 under which ARL has advanced US$6 million to MMHL

“IUP” an Izin Usaha Pertambangan (mining business licence) issued under the relevant mining law enacted in the Republic of Indonesia

“JORC” Joint Ore Reserves Committee

“Latest Practicable Date” 24 November 2015, being the latest practicable date for ascertaining certain information referred to in this circular

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

“MCM” PT Merge Continental Mining, a limited liability company incorporated under the laws of the Republic of Indonesia, an indirect wholly-owned subsidiary of MMHL

“MEMR” Ministry of Energy and Mineral Resources, Indonesia

“MESD” PT Merge Energy Sources Development, a limited liability company incorporated under the laws of the Republic of Indonesia, an indirect wholly-owned subsidiary of MMHL

“MMHL” Merge Mining Holding Limited, a company incorporated under the laws of the Cayman Islands with limited liability

“MMHL Securities Holders” the person who holds securities of MMHL from time to time

“MMI” PT Merge Mining Industri, a limited liability company incorporated under the laws of Republic of Indonesia, an indirect wholly-owned subsidiary of MMHL

“mt” million tonnes

DEFINITIONS

– 5 –

“mtpa” million tonnes per annum

“Nominee” Agritrade Mine Holdings Limited, a wholly-owned subsidiary of ARL, which is a nominee designated by ARL under the Acquisition and Subscription Agreement and a party to the Shareholders Agreement

“Non Defaulting Shareholder” has the meaning as set out in the paragraph headed “Event of default” in the “Letter from the Board”

“NPV” net present value

“PCIL” Prosper China Investments Limited, a limited liability company incorporated under the laws of British Virgin Islands

“PD Baramarta” a regional government owned company incorporated in Indonesia holding a coal contract of work

“Probable Reserves” has the meaning as defined in Chapter 18 of the Listing Rules

“PT Hutan Rindang Banua” a limited liability company incorporated in Indonesia holding a timber concession

“Reserves” has the meaning as defined in Chapter 18 of the Listing Rules

“Resources” has the meaning as defined in Chapter 18 of the Listing Rules

“Sale Shares” 2,944 fully paid-up ordinary shares in the issued share capital of MMHL

“Second Completion” the second completion of the Acquisition and the Subscription under the terms of the Acquisition and Subscription Agreement

“Second Completion Date” the date which is five (5) Business Days after the date of written notification by ARL to SIL of the fulfilment of all, and/or waiver of certain Second Conditions to the satisfaction of ARL

“Second Conditions” the conditions precedent to the Second Completion as set out in the Acquisition and Subscription Agreement

“Second Long Stop Date” the second anniversary of the First Completion, unless otherwise extended by the mutual agreement of SIL and ARL in writing

DEFINITIONS

– 6 –

“Selling Shareholder” has the meaning as set out in the paragraph headed “Tag along rights” in the “Letter from the Board”

“SGM” a special general meeting of ARL to be convened to approve, amongst others, (i) the Acquisition and Subscription Agreement, the Shareholders Agreement and the transactions contemplated thereunder (including but not limited to the Equalisation Option, and the conversion of any Convertible Preference Shares by SIL in accordance with the terms of the Acquisition and Subscription Agreement), (ii) the proposed grant of the Specific Mandates and (iii) the proposed Cancellation and Reclassification and Redesignation of the authorised share capital of ARL

“Shares” ordinary shares of HK$0.10 each in the share capital of ARL

“Shareholders” shareholders of ARL

“Shareholders Agreement” an agreement dated 28 October 2015 between Nominee and SIL and MMHL which sets out their agreed rights and obligations in respect of each other in connection with their being shareholders of MMHL, as amended from time to time

“SIL” Sino Island Limited, a company incorporated under the laws of the British Virgin Islands with limited liability

“Specific Mandates” the specific mandates proposed to be granted to the Directors by the Shareholders to allot and issue the Convertible Preference Shares and to allot and issue the Conversion Shares at the SGM

“SIL’s Offer” has the meaning as set out in paragraph headed “SIL’s Undertaking” in the “Letter from the Board”

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Subscription” the proposed subscription by ARL or its nominee for the Subscription Shares

“Subscription Shares” 4,400 new shares of MMHL to be subscribed by ARL or its nominee pursuant to the terms of the Acquisition and Subscription Agreement

“Tag Along Notice” has the meaning as set out in the paragraph headed “Tag along rights” in the “Letter from the Board”

DEFINITIONS

– 7 –

“Tag Along Shareholder” has the meaning as set out in the paragraph headed “Tag along rights” in the “Letter from the Board”

“Tagged Securities” has the meaning as set out in the paragraph headed “Tag along rights” in the “Letter from the Board”

“Target Group” MMHL, PCIL, WTL, MESD, MMI and MCM

“Target Mine” the Rantau Nangka underground coal mine owned and developed by MMHL and all its subsidiaries which include, among others, MESD, MMI and MCM, consisting of exploration and production licenses for the extraction and sale of coal

“Transactions” the Acquisition and the Subscription

“Transaction Documents” (i) the Acquisition and Subscription Agreement, (ii) the Interim Loan Agreement, and (iii) the Shareholders Agreement

“Trigger Event” has the meaning as set out in the paragraph headed “Event of default” in the “Letter from the Board”

“US$” United States dollar, the lawful currency of the United States of America

“Valuation Report” the public valuation report prepared by the Competent Evaluator on the Target Mine in compliance with the requirements of Chapter 18 of the Listing Rules

“WTL” Wiseweb Trading Limited, a limited liability company incorporated under the laws of the British Virgin Islands

LETTER FROM THE BOARD

– 8 –


Executive Directors: Registered office:Mr. Wong Man Hung, Patrick (Vice-Chairman) Clarendon HouseMr. Ng Xinwei (Chief Executive Officer) 2 Church StreetMr. Ashok Kumar Sahoo (Chief Financial Officer) Hamilton HM11Ms. Lim Beng Kim, Lulu Bermuda

Non-executive Directors: Principal place of business Mr. Ng Say Pek (Chairman) in Hong Kong:Mr. Shiu Shu Ming Room 1705, 17/F Harcourt HouseIndependent non-executive Directors: 39 Gloucester RoadMr. Chong Lee Chang WanchaiMr. Siu Kin Wai Hong KongMr. Terence Chang Xiang Wen

30 November 2015

To the Shareholders

Dear Sir or Madam,

(1) MAJOR TRANSACTION — PROPOSED ACQUISITIONOF 51% INTEREST IN MERGE MINING HOLDING LIMITED;

(2) PROPOSED FORMATION OF A JOINT VENTURE;(3) PROPOSED GRANT OF SPECIFIC MANDATES TO ISSUEAND ALLOT CONVERTIBLE PREFERENCE SHARES AND

CONVERSION SHARES;(4) CANCELLATION AND RECLASSIFICATION AND

REDESIGNATION OF AUTHORISED SHARE CAPITAL;AND

(5) NOTICE OF SPECIAL GENERAL MEETINGINTRODUCTION

Reference is made to the announcement of ARL dated 28 October 2015 in relation to, among other things, the Transactions, the proposed formation of a joint venture, the proposed grant of Specific Mandates to issue and allot Convertible Preference Shares and Conversion Shares and the proposed Cancellation and Reclassification and Redesignation of the authorised share capital of ARL.


– 9 –

The purpose of this circular is to provide you with, among other things, (i) further information in respect of the Acquisition and Subscription Agreement, the Shareholders Agreement and the transactions contemplated thereunder (including but not limited to the setting up of a joint venture, the Equalisation Option and the conversion of any Convertible Preference Shares by SIL in accordance with the terms of the Acquisition and Subscription Agreement); (ii) further information in relation to the proposed grant of the Specific Mandates; (iii) further details of the proposed Cancellation and Reclassification and Redesignation; (iv) financial information of the Group; (v) financial information of the Target Group; (vi) the unaudited pro forma statement of financial position of the Enlarged Group; (vii) the Competent Person Report; (viii) the Valuation Report; (ix) other information as required under the Listing Rules and (x) the notice of SGM.

THE ACQUISITION AND SUBSCRIPTION AGREEMENT

Date: 28 October 2015

Parties:

(i) ARL, in respect of the Acquisition, as purchaser; and in respect of the Subscription, as subscriber;

(ii) SIL, in respect of the Acquisition, as vendor; and

(iii) MMHL, in respect of the Acquisition, as target company; and in respect of the Subscription, as issuer.

ARL, as lender, and MMHL, as borrower, are parties to the Interim Loan Agreement, amounts outstanding under which will be set off against part of the Consideration as disclosed in the paragraph headed “Consideration and payment terms” below.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, as at the Latest Practicable Date, SIL and MMHL and their ultimate beneficial owner(s) were independent of ARL and its connected persons (as defined in the Listing Rules).

Acquisition of the Sale Shares and Subscription of the Subscription Shares

Pursuant to the terms and conditions of the Acquisition and Subscription Agreement, subject to the fulfilment or waiver (as the case may be) of the Conditions:

(i) in relation to the Acquisition, SIL has agreed to sell and ARL has agreed to purchase, or has agreed to designate its nominee to purchase, the Sale Shares, representing (i) 29.4% of the issued share capital of MMHL as at the Latest Practicable Date and (ii) 20.4% of the issued share capital of MMHL as enlarged by the Subscription Shares upon First Completion and assuming no other change in the issued share capital of MMHL; and


– 10 –

(ii) in relation to the Subscription, MMHL has agreed to issue and ARL has agreed to subscribe for, or has agreed to designate its nominee to subscribe for the Subscription Shares, representing (i) 44.0% of the issued share capital of MMHL as at the Latest Practicable Date and (ii) 30.6% of the issued share capital of MMHL as enlarged by the Subscription Shares upon First Completion and assuming no other change in the issued share capital of MMHL, so that, upon First Completion of the Acquisition and the Subscription, ARL or its nominee will hold 51.0% of the then issued share capital of MMHL. Second Completion of the Acquisition and the Subscription does not involve any issue of new shares by MMHL or any transfer in the shares of MMHL. Pursuant to the terms of the Acquisition and Subscription Agreement, the sale and purchase of the Sale Shares and the issuance and subscription of the Subscription Shares occur simultaneously at First Completion and are inter-conditional (ARL or its nominee is not obliged to purchase the Sale Shares if the subscription of the Subscription Shares does not occur and ARL or its nominee is not obliged to subscribe for the Subscription Shares if the sale of the Sale Shares does not occur).

The currently issued share capital of MMHL consists of 10,000 shares, 100% of which are owned by SIL. Upon subscription of the Subscription Shares, the Subscription Shares will be issued to ARL or its nominee (being 4,400 shares), taking the issued share capital in MMHL to a total of 14,400 shares. The valuation for each Subscription Share is US$6,818.18. After the simultaneous transfer at First Completion of the Sale Shares (being 2,944 shares) from SIL to ARL or ARL’s nominee, the shareholdings in MMHL will be:

Shareholder Percentage Number and Class of Shares

SIL 49% 7,056 ordinary sharesARL (or its nominee) 51% 7,344 ordinary shares TOTAL: 100% 14,400 ordinary shares

As at the Latest Practicable Date, ARL had, pursuant to the terms of the Acquisition and Subscription Agreement, designated the Nominee as its nominee to perform certain rights and obligations under the Acquisition and Subscription Agreement.

Consideration and payment terms

In the event that the First Conditions (but not the Second Conditions) are satisfied or waived (as the case may be) by the First Long Stop Date, the Consideration payable at the First Completion shall be US$50 million, and in the event that the Second Conditions are also satisfied or waived (as the case may be) by the Second Long Stop Date (in addition to the satisfaction or waiver (as the case may be) of the First Conditions), the Consideration payable at the Second Completion shall be US$103 million, and the aggregate Consideration payable at the First Completion and the Second Completion shall become US$153 million. The Consideration shall be settled in the following manner:


– 11 –

(i) subject to the satisfaction or waiver (as the case may be) of the First Conditions, at First Completion,

(a) Nominee will subscribe from MMHL, and MMHL will allot and issue to Nominee, the Subscription Shares;

(b) Nominee will receive from SIL, and SIL will transfer to Nominee, the Sale Shares;

(c) Nominee will pay a subscription price of US$30 million to MMHL (I) in cash or (II) through a combination of cash and by way of set off against the same dollar value of some or all of the principal, interest and any other amounts outstanding from MMHL to ARL under the Interim Loan Agreement; and

(d) ARL will allot and issue to SIL and SIL will receive from ARL 63,265,306 Class A Convertible Preference Shares having an aggregate notional value of US$20 million;

(ii) subject to the satisfaction or waiver (as the case may be) of the Second Conditions, at Second Completion,

(a) ARL will pay an additional payment of US$10 million to SIL in cash;

(b) ARL will allot and issue to SIL, and SIL will receive from ARL, 115,459,184 Class A Convertible Preference Shares having notional value of US$36.5 million; and

(c) ARL will allot and issue to SIL, and SIL will receive from ARL, 178,724,490 Class B Convertible Preference Shares having notional value of US$56.5 million.

The Consideration has been determined after arm’s length negotiations between ARL and SIL taking into account factors including but not limited to, (i) the estimated value of US$335 million of the Target Mine, on a 100% basis, according to the NPV valuation as of the valuation date of 1 January 2016 in the Valuation Report; (ii) coal prices, as used in the NPV valuation, as a result of the current depressed coal price, which was lowered by 16.2% from US$63.0 to US$52.8 per ton over the last twelve months1, due to the regional imbalance of coal supply and demand as well as the uncertainty in terms of coal market environment recovery; (iii) the current coal market environment; (iv) the risk in association with the development and assets of the Target Mine; and (v) the benefits of the Transactions as disclosed in the section headed “Reasons for the Acquisition and the Subscription” in this “Letter from the Board”. The board of Directors is of the opinion that the Consideration is fairly and reasonably determined and in the interests of Shareholders.

The payment terms have been determined after arm’s length negotiations between ARL and SIL. The Board believes that issuing the Convertible Preference Shares is the most suitable financial instrument compared to other alternatives. Since the Target Mine has not started commercial

1 Newcastle 6300 Benchmark coal as of 28 October 2014 and 28 October 2015


– 12 –

production, there are inherent risks and operational uncertainties in relation to the success of its operations. As the Convertible Preference Shares can only be converted after certain operational and legal criteria are met and there are no other redemption options for the Convertible Preference Shares holders, the instrument protects ARL shareholders from certain risks if the development and performance of the Target Mine are below expectations. After reviewing all financing options, including the impact on cash flow and shareholder dilution, the Board decided that deferring the dilution with a Convertible Preference Shares instrument until the Target Mine has met the conversion conditions and demonstrates stabilised production is the most prudent way to protect ARL and its shareholders’ interest. Furthermore, ARL is not bound to pay dividends on the Convertible Preference Shares and the Convertible Preference Shares holders are not entitled to voting rights. Convertible Preference Shares holders do not rank ahead of common Shareholder in the return of capital and there are no coupon payments to the Convertible Preference Shares holders.

After taking into account all of the considerations above, the Board is of the view that the issuance of Convertible Preference Shares is in the best interest of ARL and its Shareholders as a whole.

Use of Proceeds

The Acquisition and Subscription Agreement contains provisions which require the US$30 million subscription price for the Subscription Shares (once received by MMHL) to be applied as follows:

(i) firstly, to repay all of the principal, interest and any other amounts outstanding under the Interim Loan Agreement, to the extent these were not already paid by way of set-off at First Completion;

(ii) secondly, US$6 million is reserved to be used to repay existing indebtedness incurred in respect of the costs for the first mining longwall being constructed within the area of the IUPs forming the Target Mine;

(iii) thirdly, US$18 million will be used to fund capital expenses and working capital expenses of MMHL (including the development costs of the IUPs forming the Target Mine) in accordance with the agreed Business Plan and Budget. The Acquisition and Subscription Agreement imposes a further condition that accounts payable by this sum must meet the following criteria:

(a) the expenditure must have been approved or envisaged in the agreed Business Plan and Budget (and otherwise made in accordance with the Acquisition and Subscription Agreement);

(b) the expenditure must have been incurred for the purpose of the business of the Target Group in developing the IUPs which form the Target Mine; and

(c) the expenditure must be fair and reasonable (in terms of quantum and purpose).


– 13 –

Interim Loan Agreement

The Interim Loan Agreement has a principal amount of US$6 million, all of which has been advanced by ARL (as lender) and drawn down by MMHL (as borrower). The Interim Loan Agreement requires that the proceeds of the loan be applied towards acquiring mining equipment in relation to the longwall for the Target Mine and paying any longwall related costs.

Under the Interim Loan Agreement, the ultimate maturity date is 30 November 2015, although ARL may require the loan subject to the Interim Loan Agreement to be repaid earlier by issuing a notice to MMHL in the following circumstances:

(i) if the Transactions cannot be completed, in which case the loan must be repaid within 14 calendar days from the date of the notice; or

(ii) if the Transactions can be completed, in which case the loan is to be repaid at First Completion. The Interim Loan Agreement allows payment at First Completion by way of set-off, as discussed above.

Upon maturity, the outstanding loan under the Interim Loan Agreement shall be repaid by MMHL by transfer of funds to an account notified by ARL. Given the proximity of First Completion, as at the Latest Practicable Date, the Company was intending and was taking steps to extend the maturity date to 31 December 2015.

The Interim Loan Agreement is secured by:

(i) an equitable share mortgage in respect of 3,000 shares in MMHL (30%) granted by SIL to ARL under the laws of the Cayman Islands;

(ii) a pledge agreement in respect of 54,330 shares in MMI (30%) granted by MESD to ARL under the laws of Indonesia; and

(iii) a pledge agreement in respect of 30,000 shares in MESD (30%) granted by PCIL to ARL under the laws of Indonesia.

The above security will be released upon repayment of the outstanding loan under the Interim Loan Agreement, which will occur at First Completion.

First Conditions

The First Completion is conditional upon the fulfilment or waiver (as the case may be) of the following First Conditions on or before the First Long Stop Date:

(i) each of the Transaction Documents has been entered into by the parties to it;


– 14 –

(ii) the designated persons have been appointed to the boards of MMI and all actions taken by MMI since the expiry of the terms of office of its previous boards have been duly ratified by the shareholders of MMI;

(iii) installation of the equipment necessary to complete the first longwall has commenced;

(iv) all indebtedness owed by MMHL or its subsidiaries has either been repaid in full or released, except for (a) the indebtedness under the Interim Loan Agreement and (b) indebtedness in respect of costs for the first longwall;

(v) a financial consulting company has confirmed to ARL that all taxes owed by MMHL or its subsidiaries have been duly paid (including any tax penalty);

(vi) a financial consulting company has confirmed to ARL that all shares issued by MMHL or its subsidiaries have been fully paid up in cash;

(vii) Tactwill International Investment Limited has transferred all of the shares it holds in MMHL to SIL so that SIL holds 100% of the issued shares of MMHL;

(viii) all approvals required under the laws of Bermuda for the issuance of the Convertible Preference Shares have been obtained; and

(ix) all necessary approvals for the transaction contemplated under the Acquisition and the Subscription Agreement required under the Bye-laws of ARL, the Listing Rules and otherwise have been obtained, including:

(a) the passing of resolutions by the requisite majority of shareholders of ARL in a general meeting required under relevant laws, rules and regulations, including pursuant to the Listing Rules in respect of, among other things:

I. the Subscription and the Acquisition;

II. the Specific Mandates for the allotment and issuance of the Class A Convertible Preference Shares and Class B Convertible Preference Shares and the allotment and issuance of the Conversion Shares of ARL upon full conversion of the Class A Convertible Preference Shares and Class B Convertible Preference Shares; and

III. the Cancellation and Reclassification and Redesignation of the authorized share capital of ARL;

(b) the granting of the approval for (i) the issuance of the Class A Convertible Preference Shares and Class B Convertible Preference Shares and (ii) the listing of, and permission to deal in, the Conversion Shares of ARL upon full conversion of the Class A Convertible Preference Shares and Class B Convertible Preference Shares by the Stock Exchange.


– 15 –

Subject to or conditional upon the compliance with the applicable laws and the Listing Rules, all the First Conditions above may be waived by ARL in writing.

The Acquisition and Subscription Agreement includes a condition precedent to First Completion to the effect that: (i) the independent reporting accountant of ARL will by then have confirmed to ARL that all taxes underpaid by all members of the Target Group will have been duly paid (including tax penalties); and (ii) each member of the Target Group will by then have obtained and provided to ARL a certificate from each relevant tax authority that it has no outstanding tax liability.

The Directors confirm that as at the Latest Practicable Date, First Condition no. (vii) has been fulfilled.

Second Conditions

The Second Completion is conditional upon the fulfilment or waiver (as the case may be) of the following Second Conditions on or before the Second Long Stop Date:

(i) First Completion has occurred in accordance with the Acquisition and Subscription Agreement;

(ii) Ministry of Energy and Mineral Resources of the Republic of Indonesia has re-issued the MESD IUP;

(iii) SIL is not in default of any of its obligations under each of the Transaction Documents; and

(iv) MMI has commenced commercial production of run-of-mine coal.

All the Second Conditions above may be waived by ARL in writing.

The Directors confirm that as at the Latest Practicable Date, none of the above Second Conditions has been fulfilled.

If (i) the First Conditions are not fulfilled or waived by ARL (as the case may be) by the First Long Stop Date, or (ii) the Conditions are not fulfilled or waived by ARL (as the case may be) by the Second Long Stop Date, then:

(i) if First Completion has not occurred, (a) ARL shall not be bound to proceed with the subscription of the Subscription Shares and the acquisition of the Sale Shares and (b) SIL shall no longer have an entitlement to the part of Consideration payable at First Completion;

(ii) if First Completion has already occurred, SIL shall no longer have an entitlement to the part of the Consideration payable at Second Completion; and


– 16 –

(iii) the Acquisition and Subscription Agreement shall terminate and cease to be of any effect save for any provision such as those relating to the confidentiality obligations and any claims arising out of any antecedent breach of the Acquisition and Subscription Agreement.

Completion

Subject to the fulfilment or waiver of the First Conditions or the Second Conditions (as the case may be), each of the First Completion and the Second Completion is expected to take place on the First Completion Date and the Second Completion Date respectively. Upon the First Completion, MMHL will become a non-wholly-owned subsidiary of ARL and the accounts of MMHL will be consolidated into the financial statements of ARL.

The following diagram shows the shareholding and corporate structure of MMHL as at the Latest Practicable Date:

MMHL

SIL ARL

100%

Nominee

100%

The following diagram shows the shareholding and corporate structure of MMHL immediately after the First Completion but before the Second Completion, assuming there will be no other changes:

49%

51%

63,265,306 Class A Convertible Preference Shares

ARL

Nominee

100%

SIL

MMHL


– 17 –

The following diagram shows the shareholding and corporate structure of MMHL immediately after the Second Completion, assuming there will be no other changes:

SIL

Nominee

51%

ARL

178,724,490 Class A Convertible Preference Shares178,724,490 Class B Convertible Preference Shares

49%

MMHL

100%

The following diagram shows the shareholding and corporate structure of MMHL after the Second Completion and immediately upon completion of conversion of all the Convertible Preference Shares held by SIL into the Conversion Shares, assuming there will be no other changes:

SIL

Nominee

51%

ARL

19.03%

49%

MMHL

100%

As set out in the diagram immediately above, in the event that the Second Completion occurs and upon conversion of all the Convertible Preference Shares held by SIL into the Conversion Shares, SIL will not become a controller of ARL for the purpose of Rule 14A.28 of the Listing Rules. SIL will however become a substantial shareholder of ARL at the listed issuer level, and MMHL will then thereby become a “connected subsidiary”, and hence a connected person, of ARL for the purpose of Rule 14A.16 of the Listing Rules, assuming that there are no other shareholding changes.


– 18 –

SIL’s Lock-up Undertakings

Pursuant to the terms of the Acquisition and Subscription Agreement, SIL agrees that;

(i) it shall not transfer the Convertible Preference Shares unless ARL has given its express consent to such transfer and such transfer is made in accordance with applicable law;

(ii) upon conversion of any Convertible Preference Shares to Conversion Shares in ARL, it will not transfer those Conversion Shares for a period of two years from the date of conversion; and

(iii) from First Completion until the date which is two years after the date of the last conversion of the Convertible Preference Shares to Conversion Shares in ARL, there shall be no change in control of SIL.

SIL’s Undertakings

After the First Completion, SIL undertakes that it will not, other than as a holder of shares in MMHL or in a company carrying on such business where the shareholding is for investment purpose only, carry on or be engaged in any business (“Competing Business”) which competes with the business carried on by MMHL or its subsidiaries in South Kalimantan, unless:

(i) SIL has offered to ARL an opportunity to participate in that Competing Business on the same terms as SIL proposes to participate in that Competing Business (on the basis that ARL will have the right to participate (own an interest in the costs and benefits of SIL’s opportunity) on an up to 50% basis, as between SIL and ARL) (“SIL’s Offer”); and

(ii) either:

(a) ARL notifies SIL that it declines SIL’s Offer; or

(b) ARL notifies SIL that it accepts SIL’s Offer, and in which case, SIL and ARL must use all reasonable endeavours to pursue the Competing Business together in accordance with SIL’s Offer; or

(c) 60 days after receiving SIL’s Offer, ARL has not accepted or declined SIL’s Offer.

SIL further undertakes that upon each of the Indemnity Events occurring, it shall pay in cash to ARL on demand a sum equal to the aggregate of:

(i) the amount which, if received by any of MMHL or its subsidiaries, would be necessary to put that company into the financial position which would have existed had the Indemnity Event not occurred; and

(ii) all losses suffered or incurred by ARL, MMHL or its subsidiaries as a result of the Indemnity Events.


– 19 –

A summary of key Indemnity Events, amongst others, are as follows:

(i) Spouse(s) of any historic transferor of shares in share capital of the Indonesian Subsidiaries makes a claim to be entitled to any of the shares in the Indonesian Subsidiaries on the basis that the spouse did not give their consent to the historic share transfer;

(ii) Any employee of the Indonesian Subsidiaries makes a claim for employee entitlements triggered by the change in control of the Indonesian Subsidiaries on First Completion;

(iii) PT Hutan Rindang Banua makes a claim against MMHL or its subsidiaries in respect of trespass in the relevant areas; and

(iv) PD Baramarta makes a claim against any of MMHL or its subsidiaries in respect of trespass in the relevant areas.

CONVERTIBLE PREFERENCE SHARES

ARL will issue to SIL (i) upon First Completion, 63,265,306 Class A Convertible Preference Shares credited as fully paid and (ii) upon Second Completion, 115,459,184 Class A Convertible Preference Shares credited as fully paid and 178,724,490 Class B Convertible Preference Shares credited as fully paid as settlement of part of the Consideration for the Acquisition and the Subscription. The Convertible Preference Shares will be issued pursuant to the Specific Mandates to be sought at the SGM.

Class A Convertible Preference Shares

The principal terms of the Class A Convertible Preference Shares are as follows:

Issuer: ARL

Notional value: HK$2.45 per Class A Convertible Preference Share

Conversion ratio: Each Class A Conver t ib le Prefe rence Share of the abovementioned notional value of an amount equivalent to HK$2.45 shall be convertible into one Conversion Share in ARL

Dividends: Each Class A Convertible Preference Share has no dividend entitlement until converted into a Conversion Share


– 20 –

Conversion right: Each Class A Convertible Preference Share is convertible at the option of the holder at any time after the Class A CPS Conditions Fulfilment Date until the earlier of:

(a) 2 years after the Class A CPS Conditions Fulfilment Date; and

(b) the date on which all of the Class A Convertible Preference Shares have been converted,

provided that no Class A Convertible Preference Shares may be converted to the extent that following such exercise:

(a) the minimum public float requirement of ARL under the Listing Rules cannot be satisfied; or

(b) a holder of Class A Convertible Preference Shares and parties acting in concert with it will trigger a mandatory offer obligations under Rule 26 of the Hong Kong Takeover Codes.

Class A CPS Conditions Class A CPS Conditions Fulfilment Date is the date on which Fulfilment Date: a notice has been served by ARL to holders of the Class A

Convertible Preference Share that sustainable production of 3.0 million tonnes of annualized production by the relevant subsidiaries of MMHL has been achieved.

No conversion of the Convertible Preference Shares will be permitted prior to the Class A CPS Conditions Fulfilment Date.

After First Completion, ARL and SIL will work together to operate the Target Mine. The coal production level will be closely monitored and measured by the management of MMHL appointed by the Board. With potentially volatile ramp-up conditions of the Target Mine, management will need to observe stabilized production at an annualized rate of 3.0 million tonnes over a period of, for instance, several months, in order for ARL to serve notice stating the sustainable production has been achieved.


– 21 –

Ranking: The Class A Convertible Preference Shares rank:

(a) pari passu to the Class B Convertible Preference Shares;

(b) pari passu to the Shares of ARL as to return of capital; and

(c) beneath the Shares of ARL and any other shares of ARL having a dividend entitlement as to dividends

Voting rights: Holders of Class A Convertible Preference Shares are not permitted to attend or vote at meetings of ARL, unless a resolution is proposed to vary the rights of holders of the Class A Convertible Preference Shares or a resolution is proposed for the winding up of ARL.

Transferability: The Class A Convertible Preference Shares may not be transferred until converted to Conversion Shares of ARL.

Redemption: Subject to applicable law, holders of Class A Convertible Preference Shares shall have no right to redeem the Class A Convertible Preference Shares.

Return of capital: On winding up of ARL, the Class A Convertible Preference Shares shall rank pari passu with the ordinary shares of ARL.

Listing: No application will be made for the listing of the Class A Convertible Preference Shares on the Stock Exchange or any other stock exchange.

Class B Convertible Preference Shares

The principal terms of the Class B Convertible Preference Shares are as follows:

Issuer: ARL

Notional value: HK$2.45 per Class B Convertible Preference Share

Conversion ratio: Each Class B Conver t ib le Preference Share of the abovementioned notional value of an amount equivalent to HK$2.45 shall be convertible into one Conversion Share in ARL

Dividends: Each Class B Convertible Preference Share has no dividend entitlement until converted into a Conversion Share


– 22 –

Conversion right: Each Class B Convertible Preference Share is convertible at the option of the holder at any time after the Class B CPS Conditions Fulfilment Date until the earlier of:

(a) 2 years after the Class B CPS Conditions Fulfilment Date; and

(b) the date on which all of the Class B Convertible Preference Shares have been converted,

provided that no Class B Convertible Preference Shares may be converted to the extent that following such exercise:

(a) the minimum public float requirement of ARL under the Listing Rules cannot be satisfied; or

(b) a holder of Class B Convertible Preference Shares and parties acting concert with it will trigger a mandatory offer obligations under Rule 26 of the Hong Kong Takeover Codes.

Class B CPS Conditions Class B CPS Conditions Fulfilment Date is the date on which Fulfilment Date: a notice has been served by ARL to holders of the Class B

Convertible Preference Share that:

(a) sustainable production of 3.0 million tonnes of annualized production by the relevant subsidiaries of MMHL has been achieved; and

(b) the mining business licence for coal mining held by PT Merge Energy Sources Development has been added to the “Clean and Clear List” (details of the requirements and criteria are set out in the paragraph headed “The Clean and Clear List” and “Clean and Clear Certificates” in “Additional Information”) maintained by the Indonesian Ministry of Energy and Mineral Resources.

No conversion of the Convertible Preference Shares will be permitted prior to the Class B CPS Conditions Fulfilment Date.

Ranking: The Class B Convertible Preference Shares rank:

(a) pari passu to the Class A Convertible Preference Shares;


– 23 –

(b) pari passu to the Shares of ARL as to return of capital; and

(c) beneath the Shares of ARL and any other shares of ARL having a dividend entitlement as to dividends.

Voting rights: Holders of Class B Convertible Preference Shares are not permitted to attend or vote at meetings of ARL, unless a resolution is proposed to vary the rights of holders of the Class B Convertible Preference Shares or a resolution is proposed for the winding up of ARL.

Transferability: The Class B Convertible Preference Shares may not be transferred until converted to Conversion Shares of ARL.

Redemption: Subject to applicable law, holders of Class B Convertible Preference Shares shall have no right to redeem the Class B Convertible Preference Shares.

Return of capital: On winding up of ARL, the Class B Convertible Preference Shares shall rank pari passu with the ordinary shares of ARL.

Listing: No application will be made for the listing of the Class B Convertible Preference Shares on the Stock Exchange or any other stock exchange.

The terms of the Convertible Preference Shares will be effective upon allotment and issuance of the Convertible Preference Shares, which is subject to the relevant First Conditions and Second Conditions as set out in the paragraphs headed “First Conditions” and “Second Conditions” respectively.

No application will be made for the listing of, or permission to deal in, the Convertible Preference Shares on the Stock Exchange or any other stock exchange.

At the First Completion and the Second Completion, ARL will allot and issue to SIL a total of 178,724,490 Class A Convertible Preference Shares. At the Second Completion, ARL will allot and issue to SIL 178,724,490 Class B Convertible Preference Shares. Each Class A Convertible Preference Share and each Class B Convertible Preference Share of the notional value of an amount equivalent to HK$2.45 shall be convertible into one Conversion Share. The issue price of each Convertible Preference Share at HK$2.45 represents:

(i) a premium of approximately 56.1% over the closing price of HK$1.57 per Share as quoted on the Stock Exchange on 28 October 2015, being the date of the Acquisition and Subscription Agreement;


– 24 –

(ii) a premium of approximately 57.7% over the average closing price of HK$1.554 per Share as quoted on the Stock Exchange for the last five trading days immediately prior to and including the date of the Acquisition and Subscription Agreement;

(iii) a premium of approximately 61.2% over the average closing price of HK$1.520 per Share as quoted on the Stock Exchange for the last ten trading days immediately prior to and including the date of the Acquisition and Subscription Agreement; and

(iv) a premium of approximately 32.4% over the audited consolidated net assets value per Share attributable to the Shareholders as at 31 March 2015 of approximately HK$1.85.

The issue price of HK$2.45 per each Convertible Preference Share was arrived at by ARL and SIL after arm’s length negotiation with reference to, among others, (i) the estimated value of the coal Target Mine; and (ii) the pro forma financials and the enlarged market capitalisation of ARL upon First Completion and Second Completion.

Conversion of the Convertible Preference Shares

Upon full conversion of the Class A Convertible Preference Shares to be issued at the First Completion, a total number of not more than 63,265,306 Conversion Shares will be issued and credited as fully paid by ARL, which represents:

(i) approximately 4.2% of the total issued share capital of ARL as at the Latest Practicable Date, and

(ii) approximately 4.0% of the enlarged issued share capital of ARL immediately after the issue and allotment of such 63,265,306 Conversion Shares upon conversion of the such Class A Convertible Preference Shares at the conversion ratio.

Upon full conversion of all Convertible Preference Shares to be issued at the First Completion and the Second Completion, a total number of not more than 357,448,980 Conversion Shares will be issued by ARL, which represents:

(i) approximately 23.5% of the total issued share capital of ARL as at the Latest Practicable Date, and

(ii) approximately 19.0% of the enlarged issued share capital of ARL immediately after the issue and allotment of such 357,448,980 Conversion Shares upon conversion of all such Convertible Preference Shares at the conversion ratio.

The Conversion Shares are to be issued pursuant to the Specific Mandates to be sought in the SGM. The Conversion Shares shall rank pari passu in all respects with the Shares. An application will be made to the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares.

13.28(2)(b)14.58(4)

AppI, Part B, 9(1)14.60(4)(a)


– 25 –

Conditionality in respect of the Convertible Preference Shares

The Class A CPS Conditions Fulfilment Date and Class B CPS Conditions Fulfilment Date must respectively be met in order for the conversion of the Class A Convertible Preference Shares and Class B Convertible Preference Shares.

Both the Class A CPS Conditions Fulfilment Date and Class B CPS Conditions Fulfilment Date will not occur until stabilized production at an annualized rate of 3.0 million tonnes is observed over a period of, for instance, several months, in order for ARL to serve notice stating the sustainable production has been achieved. This fulfilment condition will be assessed by the management of MMHL appointed by the Board.

If the required production levels are not met, it will not be possible for the Class A Convertible Preference Shares or Class B Convertible Preference Shares to be converted.

The Class B Convertible Preference Shares have an additional requirement that the mining business licence (IUP) held by MESD be added to the “Clean and Clear List” maintained by the Indonesian Ministry of Energy and Mineral Resources. The requirements to be added to the “Clean and Clear List” are set out in a number of circulars issued by the Director General of Minerals and Coal. The most recent requirements in respect of a relevant IUP are that:

(i) the IUP must have been validly issued;

(ii) the IUP must not have any overlaps with other mining concessions;

(iii) for an Exploration IUP, proof that the IUP holder has paid the deadrent required for the last year must be provided; and

(iv) for a Production Operation IUP, the following must be provided:

(a) the approval of the environmental impact assessment (known as an “AMDAL”);

(b) the exploration and feasibility studies; and

(c) proof that the IUP holder has paid the deadrent and royalties required over the last year.

There is no time limit for fulfilling the Class A CPS Conditions Fulfilment Date or Class B CPS Conditions Fulfilment Date. However, once fulfilled, the relevant Convertible Preference Shares must be converted within two years of fulfilment.

Based on the production forecast over the designated life of the Target Mine, it is expected that sustainable production of 3.0 million tonnes of annualized production will be achieved by 2018.

1st batch Q7(i)1st batch Q7(ii)

1st batch Q7(iii)

1st batch Q7(iv)


– 26 –

EFFECT ON SHAREHOLDING STRUCTURE

To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, the following chart sets out the shareholding structure of ARL (i) as at the Latest Practicable Date; and (ii) for illustration purpose, immediately upon First Completion and Second Completion assuming full conversion of the Convertible Preference Shares:—

Immediately upon Immediately upon the full conversion of the the full conversion of the Convertible Preference Class A Convertible Shares to be issued at Preference Shares to be the First Completion and issued at First Completion the Second Completion at the conversion ratio at the conversion ratio (assuming no other change (assuming no other change in the issued share capital in the issued share capital of ARL and the number of the ARL and the number of Shares owned by each of Shares owned by each of the Shareholders of the Shareholders below between the below between the Latest Practicable Date Latest Practicable Date and the date of the issue and the date of the issue As at the of the Conversion Shares of the Conversion Shares Latest Practicable Date remains unchanged) remains unchanged) Number of Number of Number of Shares % Shares % Shares %

AIPL(1) 375,173,333 24.67 375,173,333 23.68 375,173,333 19.97Amber Future Investments Limited(2) 485,360,000 31.91 485,360,000 30.64 485,360,000 25.84Berrio Global Limited(3) 48,854,000 3.21 48,854,000 3.08 48,854,000 2.60Ms. Lim Beng Kim, Lulu(4) 45,966,667 3.02 45,966,667 2.90 45,966,667 2.45Mrs. Chen Chou Mei Mei and her associates(5) 10,110,000 0.67 10,110,000 0.64 10,110,000 0.54Shieldman Limited(6) 3,760,000 0.25 3,760,000 0.24 3,760,000 0.20SIL — — 63,265,306 3.99 357,448,980 19.03

Sub-total 969,224,000 63.73 1,032,489,306 65.17 1,326,672,980 70.63

Public Shareholders 551,701,600 36.27 551,701,600 34.83 551,701,600 29.37

Total 1,520,925,600 100.00 1,584,190,906 100.00 1,878,374,580 100.00


– 27 –

Notes:

1. AIPL is owned as to 80% by Mr. Ng Say Pek, the chairman of the Board and a non-executive Director, and as to 20% by his spouse.

2. Amber Future Investments Limited is wholly-owned by AIPL.

3. Berrio Global Limited is wholly-owned by Mr. Ashok Kumar Sahoo, an executive Director.

4. Ms. Lim Beng Kim, Lulu is an executive Director.

5. Mrs. Chen Chou Mei Mei is a former non-executive Director who resigned on 24 September 2015.

6. Shieldman Limited is wholly-owned by Mr. Chong Lee Chang, an independent non-executive Director.

As illustrated above, upon conversion of all Convertible Preference Shares, there will not be a change in control in ARL.

KEY TERMS OF THE SHAREHOLDERS AGREEMENT

Following the execution of the Acquisition and Subscription Agreement, Nominee, SIL and MMHL entered into the Shareholders Agreement on 28 October 2015 regulating the rights and obligations of Nominee and SIL as shareholders of MMHL.

Date: 28 October 2015

Parties:

(i) Nominee;

(ii) SIL; and

(iii) MMHL.

To the best of the Director’s knowledge, information and belief, having made all reasonable enquiries, as at the Latest Practicable Date, SIL and MMHL, and their ultimate beneficial owners (as defined under the Listing Rules) were independent of ARL and its connected persons (as defined in the Listing Rules).

The Shareholders Agreement will take effect upon the First Completion of the Transactions (save for provisions such as those relating to confidentiality and governing laws which will take effect from the date of the Shareholders Agreement).

Parties to the Shareholders Agreement agree that any transactions pursuant to or contemplated under each of the Transaction Documents shall be subject to and conditional upon compliance with all requirements under laws and rules (including the Listing Rules) which apply to ARL, Nominee or their affiliates.

14.67(3)


– 28 –

Scope of Business

Unless otherwise approved by resolutions of Nominee and SIL, the businesses of MMHL include:

(i) the exploration, production, and sale of coal and ancillary activities by Indonesian Subsidiaries; and

(ii) coal preparation and washing and ancillary activities by Indonesian Subsidiaries.

Offer of New Securities

After completion of the Transactions, if MMHL proposes to issue new securities to any person, it shall first serve a notice on MMHL Securities Holders, who shall have the right to subscribe for such number of new securities proportional to their respective percentage of the same type of securities in MMHL within a certain period of time after the services of such notice. If a MMHL Securities Holder does not exercise such right to subscribe, MMHL must offer each other MMHL Securities Holders the right to subscribe for such number of new securities in accordance with the terms of the Shareholders Agreement. If after following the above process, offers from MMHL Securities Holder are fewer than the total number of new securities to be issued, MMHL may issue the balance to a person independent of the existing MMHL Securities Holder.

Future Capital Contribution

After First Completion of the Transactions, in the event that:

(i) a second longwall is needed and MMHL’s funds are insufficient to pay for the cost of a second longwall, such cost will be contributed by the MMHL Securities Holder by way of issue of new securities by MMHL in accordance with the procedures as set out in the paragraph headed “Offer of New Securities”, except that each MMHL Securities Holder is obliged to subscribe for the new securities to be issued. In the event that SIL fails to pay to MMHL the subscription moneys for the said new securities, Nominee may elect to (A) loan the additional funds necessary to MMHL on such terms as may be agreed between Nominee and MMHL; or (B) pay the subscription funds to MMHL on behalf of SIL, in which case the amount paid by Nominee will immediately become a debt due by SIL to Nominee; and

(ii) MMHL’s capital is insufficient, MMHL will raise additional capital as follows: (A) first, by way of bank borrowings; (B) if bank borrowings are unavailable, by way of other alternative including loans from MMHL Securities Holders; (C) next, by offering new securities in accordance with the terms of the Shareholders Agreement; and (D) next, in any other manner determined by the board of MMHL in accordance with the terms of the Shareholders Agreement.


– 29 –

Management of MMHL

The board of directors of MMHL shall comprise of a maximum of 5 directors, of which 2 directors shall be appointed by SIL and 3 directors shall be appointed by Nominee. The right of a MMHL Securities Holder to appoint a director shall cease immediately upon MMHL Securities Holder ceasing to hold at least 25% of the shares in MMHL.

The quorum of the board of directors of MMHL shall be 3 directors, including for so long as each of SIL and Nominee is entitled to appoint directors under the Shareholders Agreement, at least one director to be nominated by each of SIL and Nominee. The board of directors of MMHL shall decide by a simple majority vote and the chairman of the board is not entitled to a second or casting vote.

Each of chief executive officer, chief financial officer, chief operating officer, chief marketing officer and chief technical officer of MMHL will initially be appointed from candidates approved by both SIL and Nominee. Each of them shall have the specific powers, duties and entitlements as delegated by the board of directors.

Deed of Adherence

If MMHL proposes to issue securities to any party independent of ARL and SIL, or an existing MMHL Securities Holder proposes to dispose of the securities of MMHL to any such person, that person must execute a deed of adherence under which that person agrees to be bound by the Shareholders Agreement as if named as a party.

First Rights of Refusal

After completion of the Transactions, if a MMHL Securities Holder proposes to dispose of any number of securities of MMHL to any person independent of ARL and SIL, it shall first serve a notice on other MMHL Securities Holders setting out, among others, the price and terms of such offer. The other MMHL Securities Holders shall have the right to purchase all of the said securities in accordance with the terms of the Shareholders Agreement within a certain period of time after the services of such notice.

If the selling MMHL Securities Holder receives an offer to purchase:

(i) all of the securities to be sold, then the selling MMHL Securities Holders must sell to the other MMHL Securities Holders all of such securities on the terms as set out in the said notice;

(ii) none or fewer than all of the said securities, then the selling MMHL Securities Holder is not obliged to sell any of the said securities to the other MMHL Securities Holders, and may sell all of the said securities to the said person at a sale price not lower than the one as set out in the said notice.


– 30 –

Tag Along Rights

After completion of the Transactions, if either SIL or Nominee (the “Selling Shareholder”) proposes to dispose of any number of securities of MMHL to any person independent of ARL and SIL, the Selling Shareholder shall first serve a notice (“Tag Along Notice”) on MMHL and the other party to the Shareholders Agreement (the “Tag Along Shareholder”) setting out, among others, (i) the total number of such securities proposed to be sold and the price per such security, (ii) the terms of such proposed disposal, (iii) details of the proposed buyer who is a person independent of ARL and SIL, (iv) the date of completion of the proposed disposal and (v) the right of the Tag Along Shareholder to dispose all of its securities (“Tagged Securities”) of MMHL of the same class as the securities proposed to be sold by the Selling Shareholder (to the extent known at the date of the Tag Along Notice).

Within a certain period of time after the services of the Tag Along Notice, the Tag Along Shareholder may serve, in response, an irrevocable notice on the Selling Shareholder and MMHL specifying that the Selling Shareholder must use its reasonable endeavours to cause that person to also purchase the Tagged Securities on terms set out in the Tag Along Notice.

If the Tag Along Shareholder serves the said irrevocable notice in response to the Tag Along Notice, the Selling Shareholder must not dispose of any of its securities unless (i) the Selling Shareholder complies with the obligations on it in accordance with the terms of the Shareholders Agreement in relation to the tag along rights of the Tag Along Shareholder, and (ii) the proposed buyer acquires the Tagged Securities on the terms and conditions set out in the Tag Along Notice, provided that the terms for the disposal of the said securities by the Selling Shareholder and the Tagged Securities must be the same.

Equalisation Option

SIL shall have the option (the “Equalisation Option”) to purchase ordinary shares of MMHL held by Nominee equal to 1.0% of the total issued ordinary shares of MMHL (the “Equalisation Shares”), subject to the following conditions:

(i) the Equalisation Option may be exercised by SIL notifying Nominee that it exercises the Equalisation Option;

(ii) the Equalisation Option can only be exercised once;

(iii) the Equalisation Option can only be exercised if:

(a) sustainable production of 3.0 million metric tonnes of annualised production has been achieved as set out in the Shareholders Agreement;

(b) certain level of cost and time efficiencies in respect of underground logistics, surface logistics and loading and trans-shipment has been achieved;


– 31 –

(c) the coal produced by MMHL and is subsidiaries consistently meets the relevant specification as set out in the Shareholders Agreement;

(d) the board of MMHL has not determined to implement a spin-off or listing of MMHL on an exchange acceptable under the terms of the Shareholders Agreement; and

(e) upon completion of the transfer of the Equalisation Shares to SIL, the respective shareholding in MMHL will be held as to 50.0% by Nominee and 50.0% by SIL,

(iv) upon service of a notice to exercise the Equalisation Option, SIL becomes bound to purchase all of the Equalisation Shares then held by Nominee at the Fair Market Value as determined by:

(a) agreement between SIL and Nominee; or

(b) failing such agreement, an independent chartered accountant;

I. who is appointed by agreement between SIL and Nominee; or

II. failing such agreement who is appointed by an auditor of MMHL from time to time;

(v) completion of the purchase of the Equalisation Shares must take place within 10 business days after the date on which the Fair Market Value of the Equalisation Shares has been determined;

(vi) no Tag Along Notice may be issued in respect of an exercise of the Equalisation Option.

For the purpose of Chapter 14 of the Listing Rules, the grant of the Equalisation Option constitutes a transaction of the Company which involves a contemplated disposal of the Equalisation Shares if and at the time when the option is exercised by SIL in accordance with the above provisions. The Company will convene the SGM to approve, among other things, the Shareholders Agreement and the transactions under it (including the Equalisation Option, as if it was exercised on the grant of such option) which are therefore subject to approval by the Company’s shareholders at the SGM.

No premium is payable upon the grant of the Equalisation Option. The exercise price is the Fair Market Value as referred to above. On exercise of the Equalisation Option, the Company will make an announcement.

Based on the provisions of the Shareholders Agreement, the Directors currently anticipate that MMHL will continue to be a subsidiary of the Company immediately after the transfer of the Equalisation Shares upon exercise of the Equalisation Option, on the basis and assumption that the Company will then continue to have control over the operating and financing policies of MMHL through its contractual right to nominate three out of five directors to the board of directors of MMHL. Based on the management’s communication with the Company’s auditor, nothing has come to the attention of the Company’s auditor at this stage that the above treatment is inappropriate.

1st batch Q12

1st batch Q8


– 32 –

Event of Default

The following events would constitute a trigger event (the “Trigger Event”) under the terms of the Shareholders Agreement:

(i) a MMHL Securities Holder ceases to or threatens to cease to carry on its business;

(ii) a MMHL Securities Holder becomes insolvent under the terms of the Shareholders Agreement;

(iii) a MMHL Securities Holder suffers a change in control; and

(iv) a MMHL Securities Holder is in breach of its obligations under the Shareholders Agreement or the Acquisition and Subscription Agreement.

If a MMHL Securities Holder (“Non Defaulting Shareholder”) becomes aware that a Trigger Event has occurred in respect of any other MMHL Securities Holder (“Defaulting Shareholder”), the Non Defaulting Shareholder may give a notice to the Defaulting Shareholder and MMHL specifying sufficient details of the Trigger Event.

In accordance with the terms of the Shareholders Agreement, a Defaulting Shareholder:

(i) is not permitted to appoint a director of MMHL;

(ii) must, upon written notice by any Non Defaulting Shareholder, procure the resignation of any director of MMHL appointed by the Defaulting Shareholder;

(iii) may continue to attend or vote at general meetings of MMHL; and

(iv) is entitled to information about the business of MMHL and its subsidiaries to the extent permitted by law.

In accordance with the terms of the Shareholders Agreement, a Non Defaulting Shareholder may:

(i) require the Defaulting Shareholder to purchase all of its securities of MMHL at the Fair Market Value plus 20.0%. Completion of the sale and purchase must take place within 10 business days after the date on which the Fair Market Value of the said securities has been determined;

(ii) purchase all of the securities of MMHL held by the Defaulting Shareholder at the Fair Market Value less 20.0%. Completion of the sale and purchase must take place at the later of (a) 20 business days after the issue of the notice to exercise the call option by the Non Defaulting Shareholder and (b) 10 business days after the date on which the Fair Market Value of the said securities has been determined.


– 33 –

The Fair Market Value of the said securities is to be determined by:

(i) agreement between the Non Defaulting Shareholders and the Defaulting Shareholder; or

(ii) failing such agreement, an independent chartered accountant:

(a) who is appointed by agreement between Non Defaulting Shareholders and Defaulting Shareholder; or

(b) failing such agreement, who is appointed by an auditor of MMHL from time to time.

PROPOSED CANCELLATION AND RECLASSIFICATION AND REDESIGNATION OF AUTHORIZED SHARE CAPITAL

ARL currently has an authorised share capital of HK$500,000,000 divided into (i) 4,500,000,000 ordinary shares of par value of HK$0.10 each, of which 1,520,925,600 have been issued and are fully paid up, and (ii) 500,000,000 convertible preference shares of par value of HK$0.10 each, of which 240,000,000 have been issued and subsequently converted into shares of ARL in accordance with the terms thereof.

For the purpose of the proposed issue of the Convertible Preference Shares to settle part of the Consideration for the Transactions, the Board proposes to (i) cancel the 500,000,000 authorised but unissued convertible preference shares of par value of HK$0.10 each so that the Company is authorised to issue 5,000,000,000 ordinary shares of a single class of par value of HK$0.10 each, and then (ii) reclassify and redesignate the authorised share capital of ARL into 4,600,000,000 Shares of par value of HK$ 0.10 each, 200,000,000 Class A Convertible Preference Shares of par value of HK$0.10 each with a notional value of HK$ 2.45 each and 200,000,000 Class B Convertible Preference Shares of par value of HK$0.10 each with a notional value of HK$ 2.45 each.

The proposed Cancellation and Reclassification and Redesignation of the authorized share capital of ARL is subject to, and shall take effect upon, the passing of the resolutions numbered 1 and 3 set out in the notice of SGM by the Shareholders at the SGM.

AppI, Part B 22(1)


– 34 –

FUNDS RAISING ACTIVITIES IN THE PAST TWELVE MONTHS PERIOD 13.28(9)

Date ofcompletion

8 June 2015

14 July 2015

Fund raising activity

Placing of Shares under general mandate granted to the Board at the annual general meeting of ARL held on 27 August 2014

Issue of convertible bonds under general mandate granted to the Board at the annual general meeting of ARL held on 27 August 2014

Net proceeds raised

Approximately HK$98.55 million

US$20 million

Use of net proceeds

General working capital of the Group

Amount of approximately US$6 million was used as the general working capital of the Group and amount of approximately US$14 million has not been utilised as at the Latest Practicable Date and is placed in a licenced bank in Hong Kong and is intended to be used for the development and expansion of the business of the Group and/or for the general working capital of the Group

INFORMATION OF ARL

ARL is a company incorporated in Bermuda with limited liability, whose shares are listed on the main board of the Stock Exchange. ARL is an investment holding company. The principal activities of the Group are (a) mining, exploration, logistics, sale of coal and other mining-related activities; (b) shipping freight service from time chartering of leased vessels for and on behalf of customers; and (c) the provision of floating storage and relevant logistics services for crude oil and petrochemical products.

14.58(2)


– 35 –

INFORMATION OF MMHL

MMHL is an exempted company with limited liability incorporated under the laws of the Cayman Islands. MMHL, through its subsidiaries, owns a 100% interest in the Target Mine. The Target Mine will be the first large operating scale mechanized longwall underground coal mine in Indonesia with total JORC compliant Proved and Probable Reserves of 92.0 mt. The Target Mine is currently in an advanced stage of development, and production is expected to commence by the first quarter of 2016 with gradual ramp-up to annual production target of 6.0 mtpa coal, which includes 0.3 mtpa of coal contributed from the mine development work. The coal product of MMHL is thermal coal of high quality and expects to be mainly used for electricity generation. The mine’s key target customers are expected to be power producers in China, and potentially power producers in Japan and Taiwan.

The Target Mine is situated within an area previously known as the Baramarta Coal Field located about 100 km north east of Banjarmasin, South Kalimantan Province, Indonesia. It is located along the eastern flank of the extensive Barito basin in South Kalimantan. The Target Mine consists of three concessions, two of which are mining concessions (i.e. Production IUPs) held by MMI and MCM respectively, and the third an exploration concession (i.e. Exploration IUP) held directly by MESD. The Target Mine is approximately 60km from the Barito River and near the transhipment port of Taboneo.

The underground mining area of the Target Mine is accessed by a series of inclined shafts about 700 metres long, and the pit bottom infrastructure is located in the basal seam (Seam D) of three seams which are to be exploited (Seams B, C and D). The coal seams have average thickness that makes them amenable to the longwall mining technique (D seam: 2.82 meters, C Seam: 2.22 meters and B Seam: 3.77 meters). The development work for the first mining face has been completed. The longwall entry is open, two of the three planned inclined shafts were completed, and surface structures such as installations needed for development work and start-up operations are in place. The main mining equipment as well as the production belt conveyors leading from the first mining face longwall entry to the surface are currently being installed underground.

The coal reserves of the mine will be mainly extracted with fully retreating mechanized longwall mining method, a mature technology commonly used in China, the USA and other areas of the world. Longwall mining techniques recover the highest percentage of the in-ground coal and are also considered the cheapest method of underground coal mining. This mining method is competitive with most opencut coal mining operations and allows the extraction of coal resources beyond the reach of conventional opencut mines. The raw coal mined from the Target Mine is classified as a high volatile bituminous coal with moderate-to-low ash, low-to-medium sulphur content, and high CV. The average coal quality of the reserves from the Target Mine is expected to have a CV of 6,426 kcal/kg (adb), total moisture of 4.4%, ash content of 16.7%, and total sulphur of 1.1% on an air-dried basis.

ARL confirmed that, to the best of its information and belief, as of the Latest Practicable Date, no material changes on the reserves and resources of MMHL had occurred since the effective date of the Competent Person Report and there were no legal claims or proceedings that may have an influence on the rights of MMHL to explore.

14.58(2)14.60(2)

18.05(2)18.05(4)


– 36 –

The MMI Production Operation IUP

MMI holds a Production Operation IUP for coal mining located at Sungai Pinang Districts, Banjar Regency, South Kalimantan Province, covering a total area of 1,170.7 Ha. MMI’s Production Operation IUP was issued on 19 June 2013 and had has a validity period of 20 years from 12 February 2010 until 11 February 2030.

The key terms of the MMI Production Operation IUP are as follows:

Commodity Coal

Area Covered 1,170.7 Ha. located in Sungai Pinang Districts, Banjar Regency, South Kalimantan Province. Area code: KW.01.071.P.BJR 2008

Term Valid for 20 years from 12 February 2010 until 11 February 2030

Work Plan & Budget MMI must submit an annual WP&B at the latest in November (“WP&B”) on each year to Regent of Banjar cq. Head of Mines and

Energy Office

Commencement of MMI IUP does not include a provision on commencement of Production production1

Rights of the Company MMI is entitled to:

a. enter the Mining Business License Area (“WIUP”);

b. conduct production operation activities (construction, production, processing, refinery, transportation and sale) in accordance with the prevailing laws and regulations;

c. to obtain the required licensing to support the operation activities;

d. construct production operation IUP supporting facilities within or outside of the WIUP;

1 The standard IUP format as set out in DGMC Letter 1053/2009 asserts that production commences if the installed production capacity has reached 70% of the planned capacity. The absence of a provision on commencement of production does not impose any sanction


– 37 –

e. at any time, to suspend the production operation IUP in a part or certain parts of WIUP due to a reason that the production operation activities are not feasible or practical commercially, or a force majeure event has occurred causing suspension of certain parts or all of the mining activities;

f. submit an application to mine other minerals, that are not associated with the main mineral, which are found within the WIUP;

g. declare a statement that it is not interested to mine other minerals, which is not associated with the main mineral which are found within the WIUP;

h. use public facilities and infrastructure for the Production Operation IUP activities, provided that MMI has complied with the prevailing laws and regulations;

i. enter into cooperation with third parties, whether affiliated or not, in accordance with the prevailing laws and regulations; and

j. participate in the application/tender process of ex-WIUP after the term of IUP has expired and cannot be extended

Good management MMI must carry out good management in respect of:

a. investment and financial aspects;

b. mining technical operation;

c. safety, health, environment and conservation;

d. organization and employment;

e. zoning;

f. community development;

g. local content development; and

h. reporting


– 38 –

Investment and financial a. provide sufficient funding for production operation obligations activity;

b. submit investment plan for approval, consists of initial investment, investment for development studies, mining optimization and/or processing, refining, investment for replacement and development of mining and processing/refining equipment, investment for development of supporting facilities;

c. deposit reclamation and post-mining guarantee;

d. manage financial in accordance with the Indonesian accounting standard;

e. pay financial obligation, consists of state/regional income and other legitimate income in accordance with the applicable regulations; and

f. for company with foreign shareholder, to carry out divestment to the central/regional government or national private company

Mining technical operation a. carry out construction, mining, processing, refining, obligations transportation and sales, in accordance with the good

technical standard and refers to the approved Feasibility Study report, AMDAL or UKL-UPL (environmental impact assessment and monitoring plans), Reclamation Plan, Work Program and Budget, Annual Plan for Technical and Environmental;

b. carry out mining within the production operation WIUP;

c. carry out processing/refining domestically by MMI or in cooperation with a holder of IUP for processing-refining;

d. carry out transport and sales of the mining products or in cooperation with holder of IUP for transport and sales;

e. mineral and coal technical skill, development and application;

f. carry out post-mining obligation in accordance with the post-mining plan (RPT);


– 39 –

g. endeavor to value-add the produced commodity; and

h. fulfill the domestic market obligation

Safety, health, environment a. submit reclamation and post-mining plan; and conservation

b. carry out management of safety and health on mining, transportation, processing/refining plant, mining facilities, supporting facilities;

c. supervise and manage environmental impact causes by the activities of production operation and construction of supporting facilities, in accordance with the approved AMDAL, UKL-UPL, Reclamation Plan, and RKTTL;

d. guarantee the implementation of the standard of environmental quality and preserve the function and sustenance of the environment;

e. carry out coal conservation, consists of mining recovery, maximum utilization of mineral and coal potential, utilization of associated minerals, and for not conducting high grading mining;

f. appoint a mine technical head (Kepala Teknik Tambang) who will be responsible for the production operation activities (construction, production, refinery processing, and transportation and sale), as well as mining safety and health, and mining environmental management;

g. prepare mine closure plan within 2 years prior to the end of the production activities in accordance with the prevailing laws and regulations;

h. carry out mine closure program in accordance with the RPT

Organization and a. establish an office in the region; employment

b. establish an effective and efficient mining organization, of which is capable to handle mining operation, processing/refining, transportation/sales, work health, safety, and environment, government/community relations and land settlement, lead by mine technical head/mine manager;


– 40 –

c. develop the skill and knowledge of the Indonesian employee;

d. prioritize the use of local workforce

Zoning a. secure land use permit for mining activities;

b. settle the land acquisition for plot of land to be used;

c. secure the WIUP for not to be engaged in mining activities by illegal parties; and

d. report if there is any IUP within the WIUP, of which the issuance of the IUP does not conform with the applicable regulation

Development of local goods a. prioritize the use of local services; and and services

b. prioritize the use of domestic goods

State income a. pay tax income, pursuant to the tax regulations;

b. pay non-tax state income, consisting of deadrent, exploration fee, and royalties; and

c. pay regional tax, retribution and other legitimate income

Reclamation and MMI must: Mine Closure

a. prepare reclamation security and mine closure plan prior to commencing production activities accordance with the prevailing laws and regulations;

b. prepare mine closure plan within 2 years prior to the end of the production activities in accordance with the prevailing laws and regulations;

c. place mine closure bond in accordance with the life of mine; and

d. submit reclamation plan and post mining plan


– 41 –

Community Development MMI must: and Empowerment (Pengembangan dan a. prepare and submit the Community Development Pemberdayaan and Empowerment Plan (Rencana Pengembangan dan Masyarakat) Pemberdayaan Masyarakat) for local communities living

near the mining areas to Regent of Banjar;

b. establish a coherent relationship with the community;

c. assist the community development; and

d. prepare the plan for regional and community development with the local government and community

Deadrent and Royalty MMI must pay dead rents annually and royalty in accordance with the prevailing laws and regulations

Appointment of MMI must appoint a mine technical head (Kepala Teknik Technical Head Tambang) who will be responsible for the production operation

activities (construction, production, refinery processing, and transportation and sale), as well as mining safety and health, and mining environmental management

Local manpower, goods, MMI must prioritize the utilization of local manpower, and and services domestic goods and services in accordance with the prevailing

laws and regulations

Mining Service Businesses MMI must:

a. prioritize the utilization of local or national mining services companies;

b. not engage its subsidiaries and/or affiliates as its in the mining services business, unless with prior approval from the MEMR; and

c. report the utilization of mining services providers

Domestic Market Obligation MMI to prioritize domestic market demands in accordance to the prevailing laws and regulations

Domestic Processing MMI must process its production domestically.


– 42 –

Coal Sales a. Sales to an affiliate(s) has to referred to market price;

b. Long term sales contract (minimum 3 years) must obtain prior approval from MEMR.

Other obligations Among other things to:

a. choose jurisdiction at the District Court in the Banjar Regency;

b. report its investment plan;

c. report its boundary demarcation at the latest within 6 months after the issuance of the Production Operation IUP;

d. submit its production and sales report in accordance to the prevailing laws and regulations;

e. submit Technical Environmental Working Plan (RKTTL) annually prior to submitting WP&B to Regent of Banjar;

f. comply with the prevailing tax laws and regulations;

g. to implement good mining practices;

h. must provide data and information if requested by the government;

i. to manage its finances in accordance to Indonesian accounting system;

j. to prioritize domestic/local buyers;

k. submit all data obtained from the production operation IUP activities to Regent of Banjar cc the MEMR and the South Kalimantan Governor;

l. give compensation to the land owners for timbers harmed by MMI’s production activities

Suspension or revocation or The IUP can be suspended or revoked or cancelled by the cancelled of IUP Regent of Banjar if MMI does not comply with its obligations

under this IUP.


– 43 –

Extension of IUP a. Application for extension of the term of the IUP must be submitted at the latest 2 years prior to the expiry of the Production Operation IUP.

b. If within the period set out above, MMI fails to submit an extension application: (i) the Production Operation IUP will expire by law; and (ii) all the mining activities must be stopped.

c. In this case, within 6 months as of the expiry of the Production Operation IUP, MMI must remove all of its properties from the mining area, except for goods/properties used for public interest.

d. If MMI fails to remove all of its properties from the mining area, the properties will become the properties of the government;

e. As a condition for the extension of IUP, MMI must submit a proposal containing at least information regarding technical, financial, marketing, production and environmental aspect

The MMI IUP area is largely covered in forest. In order to utilise a forest area, a Borrow-Use Licence (Izin Pinjam Pakai) is required from the Ministry of Forestry. MMI has obtained this permit in respect of the forest areas it needs to utilise for its above-ground infrastructure.

The IUPs held by the Target Group overlap with the timber concession owned by PT Hutan Rindang Banua. Consequently an agreement may need to be reached with PT Hutan Rindang Banua on compensation for the areas which may be disturbed by mining activities. The Transaction Documents also contain an indemnity giving commercial protection in relation to any claims from PT Hutan Rindang Banua in this respect or any obstruction by PT Hutan Rindang Banua.

The MMI IUP is also adjacent to the Coal Contract of Work held by PD Baramarta. While MESD has entered into preliminary agreements with PD Baramarta, PD Barmarta’s cooperation may be needed to effectively exploit areas in the MMI IUP and this may need access to PD Baramarta’s Coal Contract of Work area. The Transaction Documents contain an indemnity in relation to any claims from PD Baramarta in this respect or any obstruction by PD Baramarta.

MMI will also need to settle land use rights with local land owners in order to construct its above ground facilities. As the Target Mine is an underground mine, the above ground area which needs to be settled is relatively small compared to an open-cut mine. This process is normally done progressively as land is needed.


– 44 –

The MESD Exploration IUP

MESD holds an Exploration IUP for coal mining located at Sungai Pinang District, Banjar Regency, South Kalimantan Province, covering a total area of 1,303 Ha. MESD’s Exploration IUP was issued on 19 June 2013 and has a validity period of 7 years from 9 October 2012 to 8 October 2019.

The following are the key terms of the MESD Exploration IUP:

Commodity Coal

Area Covered 1,303 Ha. located in Sungai Pinang District, Banjar Regency, South Kalimantan Province. Area code: KW.01.001.P.BJR 2013

Term Valid for 7 years from 9 October 2012 until 8 October 2019

Work Plan & Budget MESD must submit an annual WP&B at the latest in November (“WP&B”) on each year to Regent of Banjar cq. Head of Mines and

Energy Office

Upgrade to of Production 3 months before the expiry of the Exploration IUP Operation IUP

Rights of the Company MESD is entitled to:


b. conduct exploration activit ies (general survey, exploration and feasibility study) in accordance with the prevailing laws and regulations;

c. to obtain the required licensing to support the exploration activities;

d. construct supporting facilities within or outside of the WIUP;

e. at any time, to suspend the exploration IUP in a part or certain parts of WIUP due to a reason of force majeure;



– 45 –


h. use public facilities and infrastructure, provided that MESD has complied with the prevailing laws and regulations

Good management MESD must carry out good management in respect of the following matters:

a. investment and financial;




e. zoning;



h. reporting.

Investment and financial a. provide sufficient funding for exploration activities; obligations


c. deposit reclamation guarantee;


e. pay taxes and deadrent in accordance with the applicable regulations; and

f. for company with foreign shareholder, to carry out divestment to the central/regional government or national private company.


– 46 –

Mining technical operation carry out exploration in accordance with the good technical obligations standard

Environment and a. prepare environmental documents; conservation obligations

b. prepare AMDAL documents, including for feasibility study;

c. submit reclamation plan;

d. supervise and manage environmental impact

Licensing obligations a. to apply for production operation IUP no later than 3 months after the expiry of the exploration IUP;

b. suspend the activity for the failure to apply for production operation IUP; and

c. within 6 months after the expiry of the exploration IUP, to immobilize all of the property

Zoning a. to apply for permit to use forestry area, within 1 month after the issuance of the exploration permit;

b. to carry out socialization to the holder of the land title, within 1 month after the issuance of the exploration permit;

c. to establish main office or representative office in the region where the WIUP is located; and

d. to periodically relinquish the area, thus at the end of the exploration period, the acquired area is no larger than 15,000 Ha



Reclamation and MESD must: Mine Closure



– 47 –




Community Development MESD must: and Empowerment (Pengembangan dan a. prepare and submit the Community Development Pemberdayaan and Empowerment Plan (Rencana Pengembangan dan Masyarakat) Pemberdayaan Masyarakat) for local communities living




d. p repare the p lan for reg iona l and communi ty development with the local government and community

Deadrent and Royalty MESD must pay dead rents annually and royalty in accordance with the prevailing laws and regulations

Appointment of MESD must appoint a mine technical head (Kepala Teknik Technical Head Tambang) who will be responsible for the exploration


Local manpower, goods, MESD must prioritize the utilization of local manpower, and and services domestic goods and services in accordance with the prevailing


Mining Service Businesses MESD must:





– 48 –

Domestic Market Obligation MESD to prioritize domestic market demands in accordance to the prevailing laws and regulations

Domestic Processing MESD must process its production domestically

Coal Sales a. Sales to an affiliate(s) has to refer to market price;

b. Long term sales contract (minimum 3 years) must obtain prior approval from MEMR




c. report its final report no later than 6 months prior to the completion of the exploration period;

d. comply with the prevailing tax laws and regulations;

e. to implement good mining practices;

f. must provide data and information if requested by the government;

g. to manage its finances in accordance to Indonesian accounting system;

h. to prioritize domestic/local buyers;

i. submit all data and copies of data and maps obtained from the exploration IUP activities to Regent of Banjar cc the MEMR and the South Kalimantan Governor

Suspension or revocation or The IUP can be suspended or revoked or cancelled by the cancelled of IUP Regent of Banjar if the Company does not comply with its

obligations under this IUP

Once exploration activities in the MESD IUP area are concluded, MESD will need to apply for a Production Operation IUP in order to commence production. MESD will also need to obtain a Borrow-Use Permit (Izin Pinjam Pakai) from the Ministry of Forestry in respect of forest areas which it wishes to disturb (for example, in relation to above-ground facilities). As further development of the MESD IUP is still some years away, applying for these permits has not yet begun.


– 49 –

The MCM Production Operation IUP

MCM holds a Production Operation IUP for coal mining located at Sungai Pinang Districts, Banjar Regency, South Kalimantan Province. The Production Operation IUP of MMI is split into three blocks namely (i) Block I (545 Ha), (ii) Block II (163 Ha), and (iii) Block III (481.6 Ha), with total area of 1,189.6 Ha. MCM’s Production Operation IUP was issued on 19 June 2013 and has a validity period of 20 years from 12 February 2010 until 11 February 2030.

The following are the key terms of the MCM Production Operation IUP:

Commodity Coal

Area Covered 1,189.6 Ha. located in Sungai Pinang Districts, Banjar Regency, South Kalimantan Province. Area code: KW.01.075.P.BJR 2008

Term Valid for 20 years from 12 February 2010 until 11 February 2030

Work Plan & Budget MCM must submit an annual WP&B at the latest in November (“WP&B”) on each year to Regent of Banjar cq. Head of Mines and

Energy Office.

Commencement of MCM IUP does not stipulate a provision on commencement of Production production

Note:

The standard IUP format as set out in DGMC Letter 1053/2009 asserts that production commences if the installed production capacity has reached 70% of the planned capacity. The absence of a provision on commencement of production does not impose any sanction

Rights of the Company MCM is entitled to:


b. conduct production operation activities (construction, production, processing, refinery, transportation and sale) in accordance with the prevailing laws and regulations;

c. to obtain the required licensing to support the operation activities;

d. construct production operation IUP supporting facilities within or outside of the WIUP;


– 50 –

e. at any time, to suspend the production operation IUP in a part or certain parts of WIUP due to a reason that the production operation activities are not feasible or practical commercially, or a force majeure event has occurred causing suspension of certain parts or all of the mining activities;



h. use public facilities and infrastructure for the Production Operation IUP activities, provided that the Company has complied with the prevailing laws and regulations;

i. enter into cooperation with third parties, whether affiliated or not, in accordance with the prevailing laws and regulations; and

j. participate in the application/tender process of ex-WIUP after the term of IUP has expired and cannot be extended

Good management MCM must carry out good management in:

a. investment and financial;




e. zoning;



h. reporting.


– 51 –

Investment and financial a. provide sufficient funding for production operation obligations activity;


c. deposit reclamation and post-mining guarantee;


e. pay financial obligation, consists of state/regional income and other legitimate income in accordance with the applicable regulations; and

f. for company with foreign shareholder, to carry out divestment to the central/regional government or national private company

Mining technical operation a. carry out construction, mining, processing, refining, obligations transportation and sales, in accordance with the good

technical standard and refers to the approved Feasibility Study report, AMDAL or UKL-UPL, Reclamation PLan, Work Program and Budget, Annual Plan for Technical and Environmental;

b. carry out mining within the production operation WIUP;

c. carry out processing-refining domestically by MCM or in cooperation with holder of IUP for processing-refining;

d. carry out transport and sales of the mining products or in cooperation with holder of IUP for transport and sales;

e. mineral and coal technical skill, development and application;

f. carry out post-mining obligation in accordance with the post-mining plan (RPT);


– 52 –

g. endeavor to value-add the produced commodity; and

h. fulfill the domestic market obligation

Safety, health, environment a. submit reclamation and post-mining plan; and conservation obligations b. carry out management of safety and health on mining,

transportation, processing/refining plant, mining facilities, supporting facilities;

c. supervise and manage environmental impact causes by the activities of production operation and construction of supporting facilities, in accordance with the approved AMDAL, UKL-UPL, Reclamation Plan, and RKTTL;

d. guarantee the implementation of the standard of environmental quality and preserve the function and sustenance of the environment;

e. carry out coal conservation, consists of mining recovery, maximum utilization of mineral and coal potential, utilization of associated minerals, and for not conducting high grading mining;

f. appoint a mine technical head (Kepala Teknik Tambang) who will be responsible for the production operation activities (construction, production, refinery processing, and transportation and sale), as well as mining safety and health, and mining environmental management;

g. prepare mine closure plan within 2 years prior to the end of the production activities in accordance with the prevailing laws and regulations;

h. carry out mine closure program in accordance with the RPT.

Organization and a. establish office in the region; employment obligations

b. establish an effective and efficient mining organization, of which is capable to handle mining operation, processing/refining, transportation/sales, work health, safety, and environment, government/community relations and land settlement, lead by mine technical head/mine manager;


– 53 –

c. develop the skill and knowledge of the Indonesian employee;

d. prioritize the use of local workforce

Zoning a. secure land use permit for mining activities;

b. settle the land acquisition for plot of land to be used;

c. secure the WIUP for not to be engaged in mining activities by illegal parties; and

d. report if there is any IUP within the WIUP, of which the issuance of the IUP does not conform with the applicable regulation



Obligation to pay state a. pay tax income, pursuant to the tax regulations; income

b. pay non-tax state income, comprises of deadrent, exploration fee, and royalties; and

c. pay regional tax, retribution and other legitimate income

Reclamation and MCM must: Mine Closure






– 54 –

Community Development MCM must: and Empowerment (Pengembangan dan a. prepare and submit the Community Development and Pemberdayaan Empowerment Plan (Rencana Pengembangan dan Masyarakat) Pemberdayaan Masyarakat) for local communities living




d. p repare the p lan for reg iona l and communi ty development with the local government and community

Deadrent and Royalty MCM must pay dead rents annually and royalty in accordance with the prevailing laws and regulations

Appointment of MCM must appoint a mine technical head (Kepala Teknik Technical Head Tambang) who will be responsible for the production operation


Local manpower, goods, MCM must prioritize the utilization of local manpower, and and services domestic goods and services in accordance with the prevailing


Mining Service Businesses MCM must:




Domestic Market Obligation MCM to prioritize domestic market demands in accordance to the prevailing laws and regulations

Domestic Processing MCM must process its production domestically


– 55 –

Coal Sales a. Sales to an affiliate(s) has to referred to market price;

b. Long term sales contract (minimum 3 years) must obtain prior approval from MEMR




c. report its boundary demarcation at the latest within 6 months after the issuance of the Production Operation IUP;

d. submit its production and sales report in accordance to the prevailing laws and regulations;

e. submit Technical Environmental Working Plan (RKTTL) annually prior to submitting WP&B to Regent of Banjar;

f. comply with the prevailing tax laws and regulations;

g. to implement good mining practices;

h. must provide data and information if requested by the government;

i. to manage its finances in accordance to Indonesian accounting system;

j. to prioritize domestic/local buyers;

k. submit all data obtained from the production operation IUP activities to Regent of Banjar cc the MEMR and the South Kalimantan Governor;

l. give compensation to the land owners for timbers harmed by MCM’s production activities

Suspension or revocation or The IUP can be suspended or revoked or cancelled by the cancelled of IUP Regent of Banjar if MCM does not comply with its obligations

under this IUP


– 56 –

Extension of IUP a. Application for extension of the term of the IUP must be submitted at the latest 2 years prior to the expiry of the Production Operation IUP

b. If within the period set out above, MCM fails to submit an extension application: (i) the Production Operation IUP will expire by law; and (ii) all the mining activities must be stopped;

c. In this case, within 6 months as of the expiry of the Production Operation IUP, MCM must remove all of its properties from the mining area, except for goods/properties used for public interest

d. If MCM fails to remove all of its properties from the mining area, the properties will become the properties of the government;

e. As a condition for the extension of IUP, MCM must submit a proposal containing at least information regarding technical, financial, marketing, production and environmental aspect

MCM has not yet obtained a “Borrow and Use” permit (in Indonesian, an “Izin Pinjam Pakai”) from the Ministry of Forestry in relation to any above-ground forested areas which are to be disturbed. However, current plans do not envisage significant activity to occur above-ground in the MCM IUP area. Therefore, obtaining this permit is not necessary at this time.

FINANCIAL INFORMATION OF MMHL

Set out below is the consolidated financial information of MMHL and its subsidiaries as extracted from the audited consolidated financial statements of MMHL and its subsidiaries for each of the financial years ended 31 December 2013 and 2014 prepared based on the Hong Kong Financial Reporting Standards:

For the For the year ended year ended 31 December 31 December 2014 2013 (in HK$) (in HK$)

Turnover — —Net loss before income tax 29,818,000 12,134,000Net loss after income tax 29,818,000 12,134,000

14.58(7)


– 57 –

As at 31 December 2014. the audited consolidated net asset of MMHL amounted to approximately HK$1,562,364,000. Please refer to Appendix II for the consolidated financial statements of MMHL and its subsidiaries.

Upon the First Completion, MMHL will become a non-wholly owned subsidiary of ARL, and MMHL’s financial results will be consolidated into the financial statements of ARL.

INFORMATION OF SIL

SIL is an investment holding company incorporated under the laws of the British Virgin Islands which wholly owns MMHL. SIL is owned as to 90.0% by Mr. Jing Yu and 10% by Tactwill International Investment Limited. Upon First Completion, SIL will directly own 49% of MMHL along with the Class A Convertible Preference Shares. Upon Second Completion, SIL will directly own 49% of MMHL and the Convertible Preference Shares, which upon full conversion will represent up to 19.03% equity interest in ARL. Upon the exercise of the Equalisation Option by SIL, MMHL will become a 50% owned subsidiary of ARL with its financial results continued to be consolidated into the financial statements of ARL.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, as at the Latest Practicable Date, SIL and Tactwill International Investment Limited and their respective ultimate beneficial owner(s) were independent of ARL and were not its connected persons (as defined in the Listing Rules).

FINANCIAL EFFECTS OF THE TRANSACTIONS

Assets and liabilities

According to the annual report of ARL for the financial year ended 31 March 2015, the audited consolidated net assets of ARL as at 31 March 2015 was HK$2,506,797,000. Upon the completion of the Transactions, the net asset of the Enlarged Group is expected to increase to approximately HK$4,380,356,000.

Earnings

The Target Group recorded net loss attributable to the owner of approximately HK$29,818,000 for the year ended 31 December 2014 and approximately HK$17,889,000 for the five months ended 31 May 2015. Upon First Completion, the financial results of the Target Group will be reflected in the consolidated financial statements of the Company. The above financial effects are for illustrative purposes only and do not necessarily reflect the actual financial results and position of the Enlarged Group as a result of the First Completion. No representation is made as to the actual financial results and/or position of the Enlarged Group upon First Completion.

14.58(6)

1st batch Q9

14.58(2)

1st batch Q10

2nd batch Q1

14.66(5)


– 58 –

REASONS FOR THE ACQUISITION AND THE SUBSCRIPTION

The Transactions and subsequent consolidation of MMHL into ARL represent and are consistent with ARL’s strategy and commitment to the Indonesian coal market as well as enable ARL to tap into different markets outside Indonesia in terms of coal trading, sale, production and coal mining technique. The Transactions also represent an opportunity for ARL to acquire a quality (high CV, low inherent moisture and low sulphur content) coal mine. Its significant Reserves and Resources provide for a mine life which can drive sustainable growth and profitability.

The Board believes that the Transactions represent a growth opportunity for ARL to form a close partnership with MMHL to realise the full potential of the Target Mine. According to the Competent Person Report, the commercial operation of the Target Mine is scheduled to start in first quarter of 2016. MMHL and ARL have agreed on a Business Plan and Budget in which set out the Target Group’s vision, mission, objectives, strategies, operations, and management plans. As the Target Mine is in an advanced development stage but not yet commenced production, MMHL had recurring losses and recorded net liabilities as a result. Once in production, MMHL and ARL plan to operate the Target Mine such that it is expected to generate positive cashflow and profit as set forth in the Business Plan and Budget.

MMHL has deep operational roots in underground mining and has substantial experience in the operation of business in China which may help ARL expand its coal trading and coal related downstream businesses into other Asian markets. After completion of the Transactions, the existing management team of MMHL will be responsible for the underground mining operation and management while ARL will participate in the management of the financials, logistics, and marketing of the Target Mine. Managerial synergies are expected to be achieved by leveraging the comparative advantages and strengths of both management teams. Similarly, both ARL and SIL will jointly fund the working capital and capital expenditures via cash, bank loans, and/or available funding sources at the time as necessary and in accordance with the Shareholders Agreement.

Thus the Board believes that the Transactions will allow ARL to reintegrate its existing Indonesian coal operations and increase its overall competitiveness by leveraging economies of scale to ultimately enhance shareholder value.

14.58(8)

1st batch Q11(i)

1st batch Q11(ii)1st batch Q11(iii)


– 59 –

It is expected that the Transactions will enable ARL to achieve the following objectives:

1) Capture substantial earnings contribution from the production and sale of thermal coal. The Target Mine is expected to produce run-of-mine coal of approximately 6,426 kcal/kg CV (adb), containing 16.7% ash (adb), and 1.14% sulphur (adb) which is similar in quality to benchmark Newcastle coal (6,300 kcal/kg) and KCM coal, respectively priced at US$52.1 and US$48.0 as at the Latest Practicable Date1. Higher selling price may be realised by washing the run-of-mine coal so as to achieve lower ash content and thus higher CV. The Target Mine has been designed to accommodate the set up of a new coal handling and preparation facility should coal price drop further and sales of washed coal can generate more reasonable and sustainable profit margins. The Target Mine will generate higher ASPs than ARL’s existing thermal coal operation in Central Kalimantan, given its scaled production of higher quality coal, it may likely realise a higher profit margin.

2) Add thermal coal Reserves and Resources to ARL’s asset portfolio. MMHL, via its Indonesian Subsidiaries, hold three adjacent IUPs that are located in Banjar County, Kalimantan. As of 30 September 2015, the concession area contains a total JORC compliant Proved and Probable Reserves of 92.0 mt and Measured and Indicated Resources of 166.1 mt with the potential to increase its reserves and resources with additional drilling in the same area. Based on the current mine plan which will ramp production up to 6.0 mtpa, the life of the Target Mine is expected to be 18 years. After the Transactions, ARL’s combined Reserves will increase by 82.0% and Resources will increase by 112.9%, respectively.

3) Create business value through the strategic partnership with underground coal mining professionals and affiliates. ARL and MMHL will work jointly to realise the full potential of Target Mine and enable future value creation opportunities. MMHL has a management team with extensive experience in underground coal mining and proven track records in operating and managing such mines. The majority of management has previously worked for leading Chinese coal mining companies, and have more than 20 years, on average, of relevant experience. MMHL may contribute to the proposed partnership its industry-leading engineering, underground coal mine construction skills, access to Chinese machinery and equipment, and its ties with other cost competitive Chinese suppliers. ARL’s existing coal business will help MMHL achieve operational synergies with an established sales force, existing coal trading business, extensive contacts for third-party support and services, and ongoing relationships with government officials, authorities, and local communities.

1 KCM coal price based on monthly Indonesian price tables, as of October 2015.


– 60 –

4) Transform ARL from a single-mine operator to a multi-mine and multi-product integrated coal producer. Upon completion of the Transactions, ARL significantly transforms its single coal mine operation business into a multi coal mine business with diverse coal product types ranging from low CV, sub-bituminous to high CV bituminous thermal coal. Since the CV quality of coal products from MMHL are better than that of common Indonesian thermal coal, ARL currently intends to export the coal to regional power generators that may pay a premium for a constant supply of high CV thermal coal in the region. These generators are located in Asian countries such as China, India, South Korea, Taiwan and Japan, where strong demand for coal-generated energy power is expected in the long run. As a current operator of a multi-segment business, ARL and its management plans to allocate the proper resources from its operations to ensure it is a successful multi-mine coal producer.

5) Tap into underground coal mining opportunities in Indonesia. After completion of the Transactions, ARL and SIL will jointly operate the Target Mine, which will be the only operating large-scale mechanized longwall underground coal mine in Indonesia. The fully retreating mechanised longwall mining is a proven and accepted mining method and, due to the adoption of such methodology, the average life-of-mine operating cost of MMHL is expected to be lower. The longwall operations also allow MMHL to economically extract high CV coal with lower inherent moisture and sulphur from typical Indonesian coal. As a result, ARL can choose from a wider variety of investment opportunities for new coal mining projects in Indonesia, by applying and replicating the well-developed underground coal mining methodologies.

In light of the above, the Directors believe that the terms of the Transactions are fair and reasonable and in the interests of the Shareholders as a whole.

The above includes forward-looking statements which reflect ARL’s current views with respect to certain future events, are not a guarantee of future performance and are subject to certain risks, uncertainties and assumptions.

IMPLICATIONS UNDER THE LISTING RULES

As one or more of the applicable percentage ratios (as defined under Chapter 14 of the Listing Rules) in respect of the Transactions exceeds 25% but is less than 100%, the Transactions constitute a major transaction for ARL and is subject to approval by the Shareholders at the SGM pursuant to Chapter 14 of the Listing Rules.

2.17(1)14.63(2)(d)


– 61 –

The SGM will be convened and held for Shareholders to consider and, if thought fit, to approve the following:

(i) the Acquisition and Subscription Agreement, the Shareholders Agreement and the transactions contemplated thereunder (including but not limited to the setup of a joint venture, the Equalisation Option and the conversion of any Convertible Preference Shares by SIL in accordance with the terms of the Acquisition and Subscription Agreement);

(ii) the proposed grant of the Specific Mandates for the allotment and issue of the Class A Convertible Preference Shares and Class B Convertible Preference Shares and the allotment and issue of the Conversion Shares of ARL upon full conversion of the Class A Convertible Preference Shares and Class B Convertible Preference Shares; and

(iii) the proposed Cancellation and Reclassification and Redesignation of the authorised share capital of ARL.

To the best of the Directors’ knowledge, information and belief, as no Shareholders have a material interest in (i) the Transactions (including but not limited to the set up of a joint venture, the Equalisation Option and the conversion of any Convertible Preference Shares by SIL in accordance with the terms of the Acquisition and Subscription Agreement); (ii) the proposed grant of the Specific Mandates; and (iii) the proposed Cancellation and Reclassification and Redesignation of the authorised share capital of ARL, no Shareholders are required to abstain from voting at the SGM on the resolutions to approve the above matters.

SGM

The SGM Notice which contains, among other things, resolutions to approve:

(i) the Acquisition and Subscription Agreement, the Shareholders Agreement, and the transactions contemplated thereunder (including but not limited to the set up of a joint venture, the Equalisation Option and the conversion of any Convertible Preference Shares by SIL in accordance with the terms of the Acquisition and Subscription Agreement),

(ii) the proposed grant of the Specific Mandates for the allotment and issue of the Class A Convertible Preference Shares and Class B Convertible Preference Shares and the allotment and issue of the Conversion Shares of ARL upon full conversion of the Class A Convertible Preference Shares and Class B Convertible Preference Shares; and

(iii) the proposed Cancellation and Reclassification and Redesignation of the authorised share capital of ARL,

14.63(2)(d)


– 62 –

is set out on pages SGM-1 to SGM-3 of this circular. A proxy form is herewith enclosed for use at the SGM. Whether or not you propose to attend the SGM, you are requested to complete the proxy form and return it to the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong in accordance with the instructions printed thereon not later than 48 hours before the time fixed for holding the SGM. Completion and return of the proxy form will not prevent Shareholders from subsequently attending and voting in person at the SGM if they so wish.

VOTING BY POLL

All the resolutions set out in the notice of the SGM would be decided by poll in accordance with the Listing Rules and the bye-laws of the Company.

On a poll, every Shareholder present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy shall have one vote for every fully paid Share held. A Shareholder present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy who is entitled to more than one vote need not use all his/its votes or cast all his/its votes in the same way.

After the conclusion of the SGM, the poll results will be published on the website of the Stock Exchange at (www.hkexnews.hk) and the website of the Company at (www.agritraderesources.com).

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that (i) the terms of the Acquisition and Subscription Agreement, the Shareholders Agreement, and the transactions contemplated thereunder (including but not limited to the set up of a joint venture, the Equalisation Option and the conversion of any Convertible Preference Shares by SIL in accordance with the terms of the Acquisition and Subscription Agreement), (ii) the proposed grant of the Specific Mandates for the allotment and issue of the Class A Convertible Preference Shares and Class B Convertible Preference Shares and the allotment and issue of the Conversion Shares of ARL upon full conversion of the Class A Convertible Preference Shares and Class B Convertible Preference Shares, and (iii) the proposed Cancellation and Reclassification and Redesignation of the authorised share capital of ARL are fair and reasonable and in the interests of ARL and the Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend the Shareholders to vote in favour of all the ordinary resolution(s) to be proposed at the SGM.

FURTHER INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

Yours faithfully, By order of the Board of Agritrade Resources Limited Ashok Kumar Sahoo Executive Director and Chief Financial Officer

14.63(2)(c)

14.58(8)

ADDITIONAL INFORMATION

– 63 –

RISK FACTORS

In compliance with relevant requirements under the Listing Rules, the Company sets out below the risk factors of the Target Group for the Shareholders’ attention. The Directors believe that there are certain risks involved in the operations of the Target Group and these risks can be categorized into: (1) risks relating to the coal mining industry in Indonesia; (2) business risks relating to the Target Group and the Enlarged Group; (3) risks relating to the Indonesia and its laws and regulations applicable to the coal mining industry; and (4) regulatory compliance risks in Indonesia and in respect of the Target Group.

Any mining project involves risks inherent to the mining industry. In addition, the Target Mine is located in Indonesia, which involves a degree of sovereign risk, regulatory risk and environmental risk. There are also some risks which have been identified as having specific application to the Target Group. Additional risks and uncertainties not presently known to the Directors, or not expressed or implied below, or which the Directors currently deem immaterial, may also adversely affect the Target Group and the Enlarged Group’s business, operating results and financial condition in a material aspect.

1. RISKS RELATING TO THE COAL MINING INDUSTRY IN INDONESIA

1.1 Risks in association with the fluctuation of the coal commodity prices and future profitability

Results of the Target Group will depend on income from the sale of coal. The price of coal sold will be based on or influenced by world coal prices, which could fluctuate significantly. World coal markets are very sensitive to changes in coal production capacity, as well as in the pattern of consumption of coal of the power generation industry and other industries where coal is used as the main fuel, as well as to changes in the world economy. Coal consumption patterns in these industries are affected by the demand for goods in general, regulations in the field of environmental protection (such as emission controls) and other government regulations, technological developments, and the price and availability of coal from mines belonging to competitors and alternative energy sources.

The volatility in thermal coal prices and generally inelastic operating costs may lead to a scenario whereby costs exceed the market price for the Target Group coal. In this case, the Target Group may not be able to sell its coal and the mine would not be profitable to operate.

A prolonged decrease in the price of coal or coal prices worldwide could significantly adversely affect the business, financial condition, results of operations and business prospects of the Target Group and will also negatively impact the Enlarged Group.


– 64 –

1.2 Risks in association with the underground coal mining activities

Underground mining is generally capital intensive, technically complex, and is operationally more challenging than open-cut mining. Disturbance of the surface is less than with open-cut mining but subsidence might be unavoidable with underground longwall mining. The risks emanating from subsidence may be that surface structures could be damaged and that the flow of rivers and streams could be disturbed. Water ingress into the mine through cracks in the geological strata caused by subsidence is also possible. Additionally, coal in the upper coal seams could be sterilized resulting in a loss of coal reserve. Compensation and repair for damage at the surface, and disturbance caused to mine operation could result in additional costs. If such costs are incurred, they will have a negative impact on the business, financial condition, results of operations and business prospects of the Target Group and will also negatively impact the Enlarged Group.

1.3 Risks in association with natural disasters, terrorist attacks, infectious diseases and unexpected incidents

The Indonesian archipelago is located at the confluence of three tectonic plates. As a result, Indonesia is highly vulnerable to volcanic activity and seismic activity that may cause earthquakes or tsunamis. Various natural disasters have caused significant losses in recent years, including, among others, the 2004 Asian tsunami that hit the Aceh region and earthquakes in Yogyakarta in 2006 and in Padang in 2009. Heavy rainfall may also lead to floods and landslides.

Indonesia has a recent history of terrorist attacks, however these have mainly concentrated on metropolitan areas or holiday resorts frequented by foreigners and have not had a direct impact on the mining industry.

Indonesia has also been affected by outbreaks of infectious diseases. For example, outbreaks of Severe Acute Respiratory Syndrome occurred in 2003 and Avian Influenza occurred in 2004 and 2005 in Asia.

There are also other operational risks involved in mining operations such as fire, spontaneous combustion, explosion, trade embargoes, natural disasters, accidents, labor disputes, social and environmental problems, non-anticipated geological conditions, mine collapse, landslides, weather and other natural factors.

If any of these things happens and the insurance held by the Target Group does not cover all the risks above, then it could have a negative impact on the financial condition, operating results and prospects of the Target Group and will also negatively impact the Enlarged Group.


– 65 –

1.4 Risks in association with the infrastructure and equipment

Mining activities and operations of the Target Group will depend on machinery and the main equipment used, including longwall facilities, excavators, bulldozers, trucks carrying coal, coal crushing facilities, docking facilities and ships carrying coal and other support facilities such as land transport, ports, rivers and the sea. There may also be risks from delays in shipments of coal through barging caused by bottlenecks or barge queues which cause delays in loading coal onto ocean going vessels resulting in demurrage costs. Damage, failure, or operational difficulties with any of these may have a negative impact on the financial condition, results of operations and prospects of the Target Group and will also negatively impact the Enlarged Group.

1.5 Risks in association with liabilities for mine reclamation and rehabilitation

The Government sets reclamation standards for all types of mining (open-cut mining as well as underground). The Target Group will be required to develop mine reclamation and rehabilitation strategies based on the geological characteristics of the mines it operates. Generally speaking, the costs of reclamation increase with the impact of mining. Although there is an estimate for mine closure costs factored into the valuation, there is no guarantee that reclamation and rehabilitation work undertaken by the Target Group will be found to be satisfactory by the Government. This may lead to claims from the Government for reclamation and rehabilitation activities to be continued after the time when the Target Group may have thought those activities should end. This could increase operating costs significantly which will have a negative impact on the financial condition, results of operations and business prospects and the Target Group and will, in turn, negatively impact on the Enlarged Group.

2. BUSINESS RISKS RELATING TO THE TARGET GROUP AND THE ENLARGED GROUP

2.1 Risks in association with the mining licences

The mining licences (e.g. IUPs) owned by the Target Group may be terminated or canceled by the Government if the IUP holder fails to meet the obligations specified in the IUP within the specified time, such as the payment of royalties and taxes to the Government, and other requirements as specified in the relevant IUP. An IUP may also be terminated if the Government comes to the conclusion that the IUP was invalidly issued.

Indonesia has a history of invalidly issued mining licences. To provide commercial protection against any possible claim by the Central Government that any of the IUPs held by the Target Group has a validity issue, the majority of the Consideration for the Transactions is conditional upon production targets being reached. There are also warranties and indemnities and conditionality in the Transaction Documents which are designed to seek to address such risks. There is however no guarantee that the counterparties to the Transaction Documents will not breach the contracts or that any contractual mechanism put in place is or will be effective or adequate to address any of the risks which may arise; and if that turns out to be the case, the Enlarged Group will be adversely affected.


– 66 –

From a practical perspective, it is noted that the initial stages of the Target Mine will all occur within the MMI IUP. The MMI IUP is on the “Clean and Clear List” maintained by the MEMR. The “Clean and Clear List” is intended to identify IUPs which do not have validity issues (amongst other things). Future expansion of the Target Mine will go into the MESD IUP area. Aside from production targets being met, conversion of the Class B Convertible Preference Shares is conditional upon the MESD IUP being added to the “Clean and Clear List” (thereby signifying that the Indonesian Government does not have an issue with its validity).

2.2 Risks in association with other permits and approvals for mining business

In addition to its IUPs, the Target Group requires various ancillary permits and other approvals for running its business activities. A significant one is permission from the Minister of Forestry to conduct activities in a forest area, in the form of a licence known as a Borrow-Use Permit (Izin Pinjam Pakai). MMI has already obtained its Borrow-Use Permit for the forest areas it needs to construct mine-supporting facilities in order to support the initial stages of the Target Mine (but not yet for potential subsidence areas which may occur when the Target Mine is in production). Additional Borrow-Use Permits will be applied for as necessary by members of the Target Group as the Target Mine expands in production.

Government authorities may revoke or refuse to issue or renew licenses and approvals. If this occurs, there could be a negative impact on the financial condition, results of operations and prospects of the Target Group and consequently this will also negatively impact the Enlarged Group.

2.3 Risks in association with land use rights

An IUP does not guarantee exclusive possession of land in Indonesia. There is a possibility that others will have overlapping land use rights. This may include the rights of local villagers (in the form of land titles), the rights of other mining companies (with rights to mine for different minerals), oil and gas concession holders, plantation concession holders and others. Therefore there is a risk of claims or obstruction from various parties entitled to areas of land which may fall within the area of the IUPs. That said, as the Target Mine is an underground mine, the surface area to be disturbed is relatively small compared to an open-cut mine.

The IUPs held by the Target Group overlap with the timber concession owned by a third party, PT Hutan Rindang Banua. Consequently an agreement may need to be reached with PT Hutan Rindang Banua on compensation for the areas which may be disturbed by mining activities. The Transaction Documents contain an indemnity in relation to any claims from PT Hutan Rindang Banua in this respect or any obstruction by PT Hutan Rindang Banua.


– 67 –

The IUPs held by the Target Group have certain boundaries which are adjacent to the boundary of the Coal Contract of Work held by a third party, PD Baramarta. Although there is no overlap, MESD has entered into agreements of a high-level nature with PD Baramarta as an initial step towards seeking PD Barmarta’s cooperation if this is needed to effectively exploit areas in the Target Group’s IUP areas. As further negotiations with PD Baramarta are needed to reach agreement on the details of the cooperation, the Transaction Documents also contain indemnity provisions including an indemnity which applies in the event PD Baramarta makes a claim against any member of the Target Group in respect of trespass or other acts relating to a failure to obtain the consent of PD Baramarta for actions necessary or desirable for the Target Group to carry out its planned activities in the areas covered by or adjacent to the IUPs, or if PD Baramarta otherwise obstructs the Target Group from carrying out its planned activities in those areas.

Any overlapping rights which the Target Group is unaware of or which are subsequently granted by the relevant authorities might interfere or compete with the proposed land use activities of the Target Group and may lead to disruption, delay or cessation of ongoing exploration and mining activities. This could have a negative impact on the business, financial condition, results of operations and business prospects of the Target Group and consequently will also negatively impact the Enlarged Group.

2.4 Risksinassociationwithretainingkeyqualifiedemployees

The Target Group conducts its business activities with the support of a number of employees with significant experience. The loss of key employees could have a negative impact on operational matters and, as a result, on the financial condition, results of operations and business prospects of the Target Group which, in turn, will negatively impact the Enlarged Group.

The success of the Target Group will depend on the ability of its management, the contractors and subcontractors to attract and retain skilled and competent employees. Difficulties of the Target Group in doing this in the future could have a negative impact on the financial condition, results of operations and business prospects of the Target Group which, in turn, will negatively impact the Enlarged Group.


– 68 –

2.5 The actual project development and coal production commencement timing may be delayed

Delays in the development of the Target Mine will delay coal production. Delays may be caused by inability to obtain contractors, employees, machinery, licences and permits and other necessities. This in turn may affect capital costs and operating costs for the Target Mine impacting the financial prospects of the Target Group and ultimately the Enlarged Group.

The Target Mine will be mined using a longwall underground mining technique. This technique is more complex and involves a higher level of technology than the typical open-cut mining operations in Indonesia. As at the Latest Practicable Date, the necessary mine equipment is being installed but is not yet operational. Due to the complexity of the equipment and equipment systems involved, there may be a risk of delay for commissioning and the commencement of production. Delay in coal production will delay the Target Group’s return on investment and may negatively affect the Target Group’s cashflow and ultimately cause the Target Group to require further funding.

2.6 BusinessrisksidentifiedintheCompetentPersonReport

The “Project Risk Assessment” section of the Competent Person Report provides a project risk assessment of various aspects for the Target Mine from an operational perspective, based on Australian Standards. The Competent Person Report gave the Target Mine an overall risk assessment of “Medium”. A medium rating relates to “tolerable risks to the project, which require the application of specific risk management measures so as to not develop into high risks”. The Competent Person Report makes various recommendations as to risk management measures. A failure to adopt effective risk management measures may have an impact on the overall success of the project which could have a negative impact on the financial condition, results of operations and business prospects of the Target Group which, in turn, will negatively impact the Enlarged Group.

3. RISKS RELATING TO INDONESIA AND ITS LAWS AND REGULATIONS APPLICABLE TO THE COAL MINING INDUSTRY

3.1 The risk of political and social instability in Indonesia

As a democracy, Indonesia will continue to face various social and political problems, which can lead to political instability and social unrest. Indonesia also has a variety of political parties resulting in a situation where it is difficult for a single political party to obtain absolute victory in a general election.

Diverse political events in Indonesia often lead to political unrest. Recent events include reduction in fuel subsidies, the privatization of state assets, anti-corruption policies, decentralization and regional autonomy. In addition, separatist movements and clashes between religious groups and ethnicities could also lead to social unrest and riots or clashes in some parts of Indonesia, as happened in the provinces of Aceh, Papua and Maluku.


– 69 –

If such problems arise, they could have a negative impact on the financial condition, results of operations and business prospects of the Target Group which, in turn, will negatively impact the Enlarged Group.

3.2 The publication of new legislation can negatively affect operating performance of the Target Group

The mining sector in Indonesia has had a large amount of regulatory intervention over recent years and, as it is an important sector of the Indonesian economy, can be expected to have continuing regulatory intervention.

On January 12, 2009, the Government issued Law No. 4 of 2009 concerning Mineral and Coal Mining (the “New Mining Law”) which replaced the previous Law No. 11 of 1967 regarding Basic Provisions On Mining. The New Mining Law included many new provisions affecting mining operations including the maximum area of concessions, royalties and taxes, transactions with affiliated parties and mining companies, the use of foreign contractors and obligations for divestment of shares which are foreign owned.

Since the introduction of the New Mining Law, the Government has introduced a raft of regulations (at various levels) which further regulate the mining industry. These regulations include, but are not limited to, setting a minimum sale price for coal based on benchmark prices, allocating a certain amount of coal to fulfill domestic needs, dictating the form of certain payments and setting new mine reclamation and rehabilitation requirements.

New regulations could impose additional burdens on the Target Group or restrict the planned activities of the Target Group and, if this occurs, it will have a negative impact on the financial condition, results of operations and business prospects of the Target Group which, in turn, will negatively impact the Enlarged Group.

3.3 The risk of export controls on coal

The Indonesian Government has previously considered introducing legislation that would prohibit and/or control of certain categories of coal exports. There is no certainty when this regulation will be issued, but if the rules on the prohibition and/or control of coal exports of certain categories are issued and includes coal of a calorific value produced by the Target Group, then it could have a negative impact on the financial condition, results of operations and business prospects of the Target Group and consequently will also negatively impact the Enlarged Group.


– 70 –

3.4 Risks in association with divestment requirement

As the Target Group is involved in underground mining, prevailing regulations will require each of the Indonesian members of the Target Group to divest shares between the 5th and 15th year of production in order to gradually reduce the foreign ownership of the Target Group to a maximum of 70% foreign ownership. Arrangements and/or agreements will need to be entered into with wholly Indonesian owned minority shareholders to progressively acquire 30% of the equity of the Indonesian members of the Target Group in order to address the application of the divestment requirement. This represents a potential dilution in the relevant members of the Target Group and a commercial risk which will arise in the future.

Additional regulations restrict the ability of the Target Group to alter its Indonesian share capital without triggering immediate divestment (but do not restrict offshore changes). This reduces the flexibility for onshore structuring of investment.

3.5 Labor actions and protests

Labor activism and labor protests which frequently occur in Indonesia could disrupt operations of the Target Group and its suppliers and contractors.

These conditions could adversely affect the financial condition, results of operations and prospects of the Target Group and, in turn, the Enlarged Group.

3.6 EnvironmentalandsocialaspectsidentifiedintheCompetentPersonReport

In general, the Target Group must comply with regulations and regional legislation in Indonesia regarding safety, health and the environment. Each violation of existing regulations or additional expense arising out of changes in regulations in the environmental field could lead to additional costs and/or penalties for the Target Group and lead to revocation or suspension of the relevant IUPs.

The Competent Person Report includes an Independent Environmental and Social Review and audit of the Target Mine in compliance with the Equator Principles (“EP”) and International Finance Corporation’s Performance Standards (“IFC’s PS”). The Competent Person Report also noted that there are additional steps that the Target Group would need to take to comply with requirements under Indonesian regulations for Environmental and Social Impact Assessment reports, Environmental Management Plans and Environmental Monitoring Plans. Section 18.4 of the Competent Person Report sets out a proposed Environmental and Social Action Plan for the Target Mine which contains 15 main actions to be completed and a timeframe for when these actions should be completed by. The majority of these actions should be completed to fulfill the EP/IFC requirements and reduce future environmental and social liabilities. Failure of the Target Group to implement the proposed Environmental and Social Action Plan for the Target Mine may lead to failure to meet the environmental requirements defined by a future lender which may result in difficulties in obtaining bank funding in the future and result in new or ongoing failure to meet the requirements of environmental regulations.


– 71 –

The Enlarged Group’s thermal coal mine, SEM coal mine, currently operates under existing environmental standards with consideration to air quality, waste water treatment, waste management, and energy conservation. It is the current plan of the Company that after the Target Group is consolidated and forms part of the Enlarged Group, it will aim for the Enlarged Group to maintain similar or substantially the same environmental standards that it has maintained.

A failure of the Target Group to address this risk could negatively affect the financial condition, results of operations and business prospects of the Target Group, and in turn, will negatively impact the Enlarged Group.

4. REGULATORY COMPLIANCE RISKS IN INDONESIA AND IN RESPECT OF THE TARGET GROUP

The following is based on information currently available and to the best knowledge and belief of Directors after making reasonable enquiries about doing mining business in Indonesia generally and the affairs of the Target Group.

Companies conducting business in Indonesia are subject to laws and regulations issued at the Central, Provincial and Regional levels of Government. They are also subject to Ministerial decrees and departmental circulars. In certain instances there are inconsistencies between the various items of legislation and jurisdictional overlaps between the various authorities who may oversee this legislation. It is not uncommon for laws to be enacted in Indonesia without implementing regulations for those laws being issued until years after the legislation is enacted. In the case of the Mining Law, the main implementing regulations were not enacted until a year after the original law was enacted. In other cases, implementing regulations may conflict with the laws under which they are enacted. This is also the case with several provisions in the current implementing regulations of the Mining Law. This regulatory environment prevails in many areas of industry, including the mining industry.

Furthermore, relevant Government authorities do not always actively enforce some aspects of the legislation which they have jurisdiction over. An example of this is that the Ministry of Law and Human Rights may not closely monitor all aspects of compliance with Indonesia’s Law on Limited Liability Companies and may not be particularly active, for example, in the area of director’s duties, compared to regulators in other jurisdictions. There are also practices in Indonesia which are commonly found which do not comply with the prevailing regulations. An example of this is that many (particularly smaller) Indonesian companies do not maintain a share register, notwithstanding that Indonesia’s Law on Limited Liability Companies requires such a register to be maintained. Various Government authorities may also have internal policies which differ from prevailing legislation or which impose obligations which are in addition to those required under prevailing legislation. This regulatory environment results in a situation where it may often be difficult to judge exactly what regulations might apply in any circumstance and difficult for Indonesian companies to manage their own internal compliance. Slow or unresponsive bureaucracy may also contribute in some cases to Indonesian companies going ahead with planned activities prior to obtaining all of the (often numerous) required permits for those activities. Therefore, in assessing compliance of any Indonesian company or business with the prevailing regulatory regime, it is not uncommon to find


– 72 –

some areas of non-compliance. In respect of those areas of non-compliance, there may be sanctions under prevailing laws and regulations. However, whether those sanctions will ultimately be applied depends on various factors including, for example, the seriousness of the non-compliance, whether the non-compliance has been rectified, whether the area of compliance is actively monitored by the relevant Government authority and whether the relevant Government authority chooses to provide a warning rather than impose a sanction. In many cases of minor non-compliance, the issue can be rectified without the likelihood of any regulatory consequence. In other cases, depending on the type of non-compliance, there may be the potential of sanctions which could have serious ramifications for the company involved.

One area of concern to investors in Indonesia is the area of improper payments. Indonesia regularly scores poorly in respect of transparency in surveys assessed by non-governmental organisations. To combat this, Indonesia has several laws aimed at the eradication of improper payments to Government officials. Under those laws, fines and penalties may be imposed upon both the receiver of an improper payment and the party who gave the payment. Fines for the giver of an improper payment can be up to Rp. 150,000,000 (approximately US$11,000) with imprisonment of up to five years, depending on the circumstances.

Another area of concern, particularly for companies employing expatriates, is visa and employment pass requirements. The process for obtaining employment passes in various sectors of industry can be slow which sometimes leads to companies bringing workers to Indonesia on temporary business visit visas rather than applying for a permanent employment pass (and related visa). The visa regulations are complex in their application to different situations and it may be difficult for companies to assess the correct type of visa required in any particular situation. It is common for business people from various countries conducting business in Indonesia to be interrogated by immigration authorities for having the wrong visa. For visa issues, an Indonesian company may be in violation of the Labor Law if it were found to be “housing” a foreigner working in Indonesia without a work permit (sanctions may be imposed - imprisonment for a minimum of 1 year and a maximum of 4 years and/or a fine of a minimum of Rp.100,000,000 and a maximum of Rp.400,000,000) or the Immigration Law if it were responsible for a foreigner conducting activities in Indonesia that are not in accordance with the permitted activities under their visa (sanctions may be imposed - maximum imprisonment of 5 years or a maximum fine of Rp. 500,000,000). Whether such sanctions would be imposed in any particular instance is in the discretion of the relevant authorities. In practice, Indonesian authorities in this area are normally concerned with existing non-compliance (for example, detaining persons in Indonesia without the correct visa), rather than any historic non-compliance.

During the due diligence process into the Target Group, some concerns on regulatory irregularities or alleged non-compliance or similar incidents were discussed, which are not currently anticipated by the Directors to have a material impact on the Target Group. For example, management of the Target Group had initially informed the Company that historically, it had made payments, categorised as administrative expenses, to police and local villagers at the mine site for usage of roads nearby. MMHL has subsequently issued a letter clarifying that the payments to police were for their services to its mine for safeguard and security purposes and that it was normal practice. The Directors have informed the Target Group that, if any improper payments had been made in the past, such practices must immediately cease. There were also discussions on any employees of the


– 73 –

Target Group or workers at the Target Mine working in Indonesia on business visas, rather than under the correct or valid visa and work permit. The Target Group had initially explained that there had been difficulty in obtaining visas and work permits for workers familiar with the longwall technology being installed for the Target Mine. MMHL has subsequently issued a letter clarifying that it did not hire any illegal workers in MMHL in accordance with internal policies since inception and that all of its PRC workers in MMHL possessed valid and relevant visas during their engagements. In this respect, the Directors have informed the Target Group that if there had been any visa irregularities, the Target Group should rectify as soon as reasonably practicable.

The Acquisition and Subscription Agreement includes a warranty that the Target Group has not breached any obligations imposed on it by any relevant statutes in the jurisdiction in which it carries on business in respect of its employees. The Acquisition and Subscription Agreement also includes warranties that the Target Group has conducted its business in compliance with all applicable laws and regulations and that no member of the Target Group, nor any of its officers, agents or employees has done or omitted to do any act or thing, the commission or omission of which is or could be a contravention of any law or regulation. The Acquisition and Subscription Agreement has extensive warranties dealing with anti-bribery laws. These include warranties that neither any member of the Target Group nor any employee, agent, directors, or officers of any member of the Target Group have at any time taken any action directly or indirectly, in violation of Anti-Bribery Laws. Anti-Bribery Laws is defined in the Acquisition and Subscription Agreement to mean “any national anti-bribery laws, rules and regulations thereunder applicable to any member of the Target Group, as well as any laws related to anti-bribery laws, such as breach of trust or embezzlement”. Based on the information the Directors have as at the Latest Practicable Date, the Directors are of the view that the regulatory issues identified in respect of the Target Group (whether more particularly disclosed above or otherwise) are not likely to pose a major risk to the overall operations of the Target Group or the Enlarged Group after completion of the Transactions. Further, the Directors are committed to ensuring an improved regulatory compliance environment within the Target Group upon completion of the Transactions.

LEGAL AND REGULATORY REQUIREMENT

1. Overview

1.1 Key regulations

• Law No 4 of 2009 on Minerals and Coal Mining (the “Mining Law”);

• Government Regulation 23 of 2010 on the Implementation of Mineral and Coal Mining Business Activities (as amended) (“GR23/2010”);

• numerous other regulations.

1.2 Relevant mining right

• IUP (izin usaha pertambangan or mining business licence) — the main form of mining licence issued under the Mining Law.

18.05(6)(c)


– 74 –

1.3 Types of IUPs available

There are two main forms of IUPs:

• an IUP for Exploration (Exploration IUP); and

• an IUP for Production Operation (Production Operation IUP).

The IUP for Exploration covers the phases of General Survey, Exploration and Feasibility Study.

The IUP for Production Operation covers the phases of Construction and Mining and also allows processing and refining and transportation and sales of the coal or minerals produced.

The holder of an Exploration IUP is “guaranteed” to receive a Production Operation IUP provided that they have fulfilled their obligations under their Exploration IUP and have applied in the correct form within the correct period.

1.4 IUP features

The table below gives an overview of the features of an Exploration IUP and a Production Operation IUP.

Phases Coal

Exploration IUP General Survey Granted by Tender

Exploration Term (in aggregate for all Phases): 7 years maximum

Feasibility Study Initially 5,000* Ha to 50,000 Ha

Required to relinquish so that max area is 25,000 Ha in the 4th year

Production Operation IUP Construction Up to 20 years initially

Mining + 10 years (extension 1)

Processing and + 10 years (extension 2) Refining

Transportation and Size: 15,000 Ha max Sales

Maximum Project Life 47 years


– 75 –

Constitutional Court cases handed down in 2012 have held that the provisions of the Mining Law setting the minimum sizes for IUPs for minerals and coal at 5,000 Ha are constitutionally invalid because they discriminate against smaller mining enterprises. Likewise, the tender requirements for new IUPs for minerals and coal are not allowed to discriminate against smaller mining enterprises (it is not clear yet how this will translate in practice as the full tender requirements have not been released yet).

1.5 Authority who can issue an IUP

The principles for determining who has the authority to issue IUPs is set out in Article 37 of the Mining Law as follows:

• where the IUP covers more than one Province, the Minister of Energy and Mineral Resources (MEMR);

• where the IUP is cross-Regency within a single Province, the Governor of the Province; and

• where the IUP is within a single Regency, the Regent (also known as a “Bupati”) of the Regency (or Mayor of the Municipality).

GR23/2010 goes into more detail, however GR24/2012 amended GR23/2010 so that if the relevant company which will receive an IUP is a company with foreign shareholders (or ultimate foreign shareholders, that is, a PMA company), the authority who issues the IUP will be the Minister of Energy and Mineral Resources.

1.6 Who owns the mineral?

Under Indonesia’s Constitution, the land, water and natural resources of Indonesia are under the control of the State and are to be used to the greatest benefit of the Indonesian people. The State is the ultimate owner of minerals and coal. Land titles (as opposed to mining rights) do not give the holders of the land any rights to minerals located on or under the land.

In the case of IUPs, the Mining Law provides that the mining company is entitled to own the minerals and coal “produced” provided that the necessary government royalties have been paid.

1.7 One company, one IUP

GR 23/2010 limits a company to holding only one IUP, with the exception of mining companies listed on the Indonesian stock exchange. There is, however, nothing stopping a single investor setting up a number of subsidiaries to each hold an IUP.


– 76 –

EXPLORATION IUP

1.1 Term and area

The maximum term of an Exploration IUP will be between 3 and 8 years depending on the mining commodity in question. An Exploration IUP has only one term and cannot be renewed. If exploration is not completed during the term of the Exploration IUP, the mining company will need to seek a new Exploration IUP (which will involve a tender process if it relates to ferrous minerals or coal).

The initial maximum exploration area also depends on the mining commodity. The maximum area for a Production Operation IUP is smaller than for an Exploration IUP so there may need to be relinquishment of areas which are not needed (depending on the initial size of the Exploration IUP) when moving to a Production Operation IUP. An IUP holder can also relinquish an area which is not needed voluntarily.

Holders of Exploration IUPs are required to pay “deadrent” to the Government which is a flat fee per Ha covered by the IUP.

1.2 Obligations of holder

Exploration IUP holders are required to deposit a “seriousness guarantee” of US$100,000 in a Government Bank appointed by the issuer of the IUP. Holders of IUPs are also required to submit annual work plans and budgets to the issuer of the IUP and to provide quarterly reports on their activities conducted in accordance with the annual work plans and budgets.

The more significant licence conditions under an Exploration IUP are to:

(a) deposit a “seriousness guaranty”;

(b) submit an annual work plan and budget;

(c) submit quarterly activity reports;

(d) submit a plan for community development and empowerment and report on it;

(e) pay deadrent;

(f) prepare their environmental impact assessment (AMDAL) which must be approved before a Production Operation IUP can be issued;

(g) prepare and eventually submit a feasibility study (for progressing to the Production Operation stage);

(h) prepare a reclamation and mine-closure plan based on feasibility documents;


– 77 –

(i) prioritize the use of local manpower and domestic goods and services;

(j) prioritize the use of local and Indonesian-owned mining services providers;

(k) submit exploration data to the Government including exploration activity reports;

(l) compensate holders of land titles who have had their use of the land disturbed;

(m) prepare plans for domestic processing and refining;

(n) relinquish areas of the IUP area which are not needed; and

(o) apply good mining norms.

PRODUCTION OPERATION IUP

1.1 Term and area

When the mining company has completed its exploration activities and its feasibility study, it applies for a Production Operation IUP. A Production Operation IUP covers the phases of construction and mining and also allows the holder to undertake processing and transportation and sales of the minerals or coal produced. An Exploration IUP holder is guaranteed to receive a Production Operation IUP provided that they have been in compliance with the terms of the Exploration IUP and applied correctly for the Production Operation IUP during the period required prior to the expiry of the Exploration IUP.

The maximum term and area available for a Production Operation IUP for coal are set out in the table above. Two extensions to the initial term of a Production Operation IUP are available (but may be rejected if there has not been good performance). Each extension must be applied for at least 6 months (but not more than 2 years) before the end of the current period of the IUP.

1.2 Obligations of holder

Holders of Production Operation IUPs are required to pay a royalty which is a percentage of the sales price. The royalty amount depends on the type of mineral or coal and other factors (for example, with coal there are different royalties applicable to different calorific values). Indonesia has a benchmark pricing system for coal (based on a number of indexes) and the royalty on the sale price will be calculated on the higher of the sales price and the applicable benchmark price.

The more significant licence conditions under a Production Operation IUP are:

(a) deposit mine closure and reclamation guarantee monies;

(b) submit an annual work plan and budget;


– 78 –

(c) submit quarterly activity reports;

(d) submit production reports;

(e) submit a plan for community development and empowerment and report on it;

(f) pay deadrent and royalties;

(g) prioritize the use of local manpower and domestic goods and services;

(h) prioritize the use of local and Indonesian-owned mining services providers;

(i) submit geological data to the Government;

(j) compensate holders of land titles who have had their use of the land disturbed;

(k) obtain approval for long term sales contracts (3 years or more);

(l) perform processing domestically;

(m) construct the necessary mining facilities; and

(n) apply good mining norms.

1.3 The steps to acquire a Production Operation IUP

The holder of an Exploration IUP who wishes to obtain a Production Operation IUP must apply for a Production Operation IUP at least 3 months prior to the expiry of the Exploration IUP. A number of documents are required to be submitted at the time of the application including:

(a) a map containing the boundaries and coordinates of the area in question (produced to the Government’s standards);

(b) a complete exploration report;

(c) the feasibility study for development of the mine;

(d) the reclamation and post-mining plan in respect of the mine;

(e) the proposed work program and budget;

(f) the construction plans for facilities and other infrastructure to support production activities; and

(g) details of the availability of mining specialists and geologists having at least 3 years experience.


– 79 –

It is also a requirement that the environmental impact assessment (AMDAL) be completed and approved by the Government.

There is no legislated timeframe during which a Production Operation IUP must be issued, however, because the application must be submitted at least 3 months prior to the expiry of the Exploration IUP, the concept is that the Production Operation IUP should be issued before the Exploration IUP expires (ie within 3 months). In many cases, a Production Operation IUP is applied for considerably before the end of the Exploration IUP as exploration activities have already been completed.

OTHER ASPECTS

1.1 Environmental procedures

A Production Operation IUP cannot be granted unless an Environmental Impact Assessment has been completed and approved by the Government (known as an “AMDAL”). The AMDAL includes an ongoing monitoring and reporting plan which also needs to be complied with.

There are a variety of smaller licences which are also needed for particular activities. The following are the typical environmental licenses which may be needed:

(a) a license to use ground water;

(b) a license to use surface water;

(c) a license to dispose of wastewater to water courses;

(d) a license to operate wastewater treatment facilities;

(e) a nuisance act permit; and

(f) a license to dispose of hazardous and toxic waste.

It is a condition under a Production Operation IUP and the related regulations that the mining company deposit a “mine closure guarantee” and a “reclamation guarantee” with the Government prior to commencing any production activities. The amount of the deposit is determined by the Government as part of the review of the reclamation and post-mining plan submitted with the application for the Production Operation IUP. At the end of a mining project, the mining company must perform reclamation on the land affected to restore the land to a natural state. A reclamation guarantee is also required for reclaiming land damaged by exploration activities.


– 80 –

1.2 Forestry

In order to conduct any activities in a forest area, a licence from the Ministry of Forestry known as a “Borrow and Use” permit (in Indonesian, an “Izin Pinjam Pakai”) is required. The concept is that in some areas of Indonesia where there is insufficient forest cover, in addition to reforesting the land used for mining activities when completed, additional land must be also be provided and reforested by the mining company prior to mining activities being conducted. In other areas where there is sufficient forest cover, only an additional Government levy is paid. There are numerous requirements in relation to obtaining a “Borrow and Use” permit.

Open-cut mining is prohibited in areas of forest designated as “Protected Forest” (most coal mining in Indonesia is open cut) so a “Borrow and Use” permit cannot be obtained for these areas.

There is also currently a moratorium on the issuance of “Borrow and Use” permits in certain areas of “peat land” and “primary natural forest”.

1.3 Divestment requirement

(a) Who must divest

The divestment obligation is stated in Article 97(1) of GR23/2010 to apply to holders of IUPs “in the field of foreign investment”. The current view of the government is that any company which is directly or indirectly owned by foreign entity(ies) or person(s) is subject to this divestment requirement (other than listed companies).

(b) Mechanism for divestment and valuation mechanism

Once the divestment obligation begins (see below), the shares to be divested must be offered to the following Indonesian entities (in order of priority):

(i) the Central Government (by direct offer);

(ii) Provincial, Regional or Municipal Government (by direct offer);

(iii) State or Regional-owned companies (by tender offer); or

(iv) private national business entities (by tender offer).


– 81 –

(c) Timing of ownership of divestment

The divestment obligation begins after the end of the fifth year of production in accordance with a schedule which requires divestment. However, the timing and percentage of shares to be divested is vary among mining companies based on the mining phase, technology used and whether the companies conduct its own processing activities or not.

The details of the timing and percentage of shares which are required to be divested by foreign owned mining companies are as follows:

(i) the maximum foreign shareholding in a mining company which is still undertaking exploration activities (holds an Exploration IUP) will become 75% if that mining company does any changes to its share capital (and some other changes can also trigger this requirement);

(ii) A mining company which is in production (holds a Production Operation IUP) and which undertakes open-pit mining but does not carry out its own processing and/or refining activities, must divest its foreign shareholding so that the total amount held by the Indonesian participants is as follows:

(A) 20% of the total number of shares in year 6;

(B) 30% of the total number of shares in year 7;

(C) 37% of the total number of shares in year 8;

(D) 44% of the total number of shares in year 9; and

(E) 51% of the total number of shares in year 10.

(iii) A mining company which is in production which undertakes open-pit mining and carries its own processing and/or refining activities, must divest its foreign shareholding so that the total amount held by the Indonesian participants is as follows:


(B) 30% of the total number of shares in year 10; and

(C) 40% of the total number of shares in year 15.


– 82 –

(iv) A mining company which in production which undertakes underground mining, must divest its foreign shareholding so that the total amount held by the Indonesian participants is as follows:


(B) 25% of the total number of shares in year 10; and

(C) 30% of the total number of shares in year 15.

(d) Divestment is not required if already under required threshold

It is generally understood that the divestment obligations do not need to be complied with where the required portion of shares is already held by a “private national business entity”.

As a result, the most commonly considered approach is to voluntarily divest the required portion of shares to a chosen private national business entity some time before the mandatory divestment obligation applies.

1.4 The“CleanandClearList”and“CleanandClearCertificates”

The Directorate General of Minerals and Coal maintains a list of IUPs which have been audited by the Central Government and found to have met certain requirements. This list, known as the “Clean and Clear List” is becoming increasingly important in the Indonesian mining regulatory framework.

The historical development of the “Clean and Clear List” and “Clean and Clear Certificates” is as follows:

(a) on 30 June 2011, the Director General of Minerals and Coal announced that the Directorate (ie the Central Government) had been doing a “reconciliation” (audit) of IUPs which had been issued since the introduction of the Mining Law on 12 January 2009. The vast majority of IUPs were issued at the Regional level (not Central Government level) and it took some time for the new regulations issued under the current Mining Law to be properly implemented at the Regional Levels. This first “Clean and Clear List” announcement attached a list of IUPs which the Central Government had found:

(i) did not overlap with other mining concessions;

(ii) and were issued before 1 May 2010 (which was the deadline for conversion of KPs existing under the previous mining law to IUPs under the current Mining Law as required under GR23/2010);


– 83 –

(iii) at the time, there was no legislative requirement mandating or setting out the “Clean and Clear List” process, it was just an initiative of the Directorate General. However, this process, which is essentially an audit, could be seen to be related to the process that the Central Government is going through at the moment to finalise maps which will be used to define where mining concessions will be available in the future (it is not possible to say what new areas are available until the existing areas have been properly collated and overlaps dealt with);

(b) under the first announcement, those IUP holders not on the “Clean and Clear List” were invited (together with the issuer of the IUP, in most cases the Regent) to write to the Directorate General to process their IUPs to try to get onto the “Clean and Clear List”;

(c) on 28 February 2012, a second “Clean and Clear List” announcement was made which included additional IUPs that the Central Government had found:

(i) did not overlap with other mining concessions;

(ii) were issued in the correct format (the requirement for the IUP to have been issued by 1 May 2010 was removed, most likely because it was the fault of the Regional Governments that the date was missed in many cases);

(d) on the 9 May 2012, a third “Clean and Clear List” announcement was made. This listed further IUPs which complied with the requirements under the second announcement as well as stating some further requirements for the next phase, namely (in full):

(i) the IUP must have been validly issued;

(ii) the IUP must not have any overlaps with other mining concessions;

(iii) for an Exploration IUP, proof that the IUP holder has paid the deadrent required for the last year;

(iv) for a Production Operation IUP, the following must be submitted:

(A) the approval of the environmental impact assessment (known as an “AMDAL”);

(B) the exploration and feasibility studies; and

(C) proof that the IUP holder has paid the deadrent and royalties required over the last year.

IUPs meeting these requirements would be issued with a “Clean and Clear Certificate”;


– 84 –

(e) subsequent updates to the “Clean and Clear List” have been issued. There have also been updated which have removed IUPs off of the “Clean and Clear List” (no explanation has been given for this, but it is presumably that they were subsequently found not to comply with the requirements).

However, having a “Clean and Clear Certificate” relevant under other legislation and in a practical sense. Two examples of this are as follows:

(a) an IUP holder cannot become a Registered Mining Product Exporter (allowing it to export minerals) unless the IUP is on the Clean and Clear List; and

(b) the Ministry of Forestry is currently refusing to issue Borrow and Use Permits (Izin Pinjam Pakai) to IUP holders who are not on the Clean and Clear List. A Borrow and Use Permit is required for a mining company to conduct any activities in a forested area (many IUP areas are partially or totally covered in forest).

1.5 Benchmark Pricing

On 23 September 2010, the MEMR issued Regulation No 17 of 2010 on Guidelines on the Determination of the Reference Price of Mineral and Coal Sales (“MEMR17/2010”).

Article 2(1) provides that IUP holders are obliged to sell minerals/coal based on the relevant reference price, whether for domestic or export sales, and whether the sale is being made to third parties or affiliates.

For Coal, the Director General of Mineral and Coal (“DGMC”) has issued regulations setting out the formula for calculating the coal benchmark price and issues monthly reference prices for different calorific values of coal.

1.6 Domestic market obligations

Mining companies have the obligation to meet domestic mineral and coal supply demands (or Domestic Market Obligations — DMO). The DMO currently only applies to coal.

The formulation of DMO obligation is primarily driven by how much coal domestic consumers require.

In general, the process involves the following:

(a) mining companies submit their respective work programs and budgets (RKAB) for the next relevant year to the issuers of their respective mining licenses (may be MEMR, Governor or Mayors/Regents, as applicable), with a required copy to DGMC, at the latest in November every year;


– 85 –

(b) domestic consumers of coal submit to MEMR their respective forecasted coal needs (including the coal specification) for the relevant year, which MEMR will then received at the latest in March;

(c) MEMR reviews and calculates DMO requirements based on the submission of domestic consumers and information contained in the production plan of mining companies. MEMR needs to come up with a DMO plan for the relevant year at the latest in June each year. The DMO plan (the “DMO Plan”) covers:

(i) the forecasted domestic mineral and coal for the relevant year, supplemented by a list of the consumers and their respective coal/mineral volume and specification needs; and

(ii) the minimum coal and mineral DMO Percentage for the mining companies.

In recent years, DMO requirements have only been imposed on larger scale coal mining companies (not every IUP holder has been subject to a DMO).

1.7 Mining services

Mining services are regulated under the implementing regulations of the Mining Law. Notable features of these regulations are that:

(a) mining companies have to undertake on their own (and cannot contract out) certain coal/mineral extraction and loading activities;

(b) local and national mining contractors are given preferential treatment in securing mining service contracts, compared to foreign-owned mining contractors; and

(c) there are requirements for a mining company which wishes to use a subsidiary or affiliated company as its mining contractor.

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

– 86 –

1. FINANCIAL SUMMARY

The audited consolidated financial statements of the Group for each of the three years ended 31 March 2015, 2014 and 2013 and the unaudited condensed consolidated financial statements of the Group for the six months ended 30 September 2015 are respectively disclosed in the following documents which have been published on the website of ARL (www.agritraderesources.com) and the website of the Stock Exchange (w_____________________________________ww.hkexnews.hk):

• the annual report of ARL for the year ended 31 March 2013 published on 25 July 2013 (pages 50 to 111);

• the annual report of ARL for the year ended 31 March 2014 published on 28 July 2014 (pages 54 to 107);

• the annual report of ARL for the year ended 31 March 2015 published on 30 July 2015 (pages 70 to 127); and

• t h e i n t e r i m r e s u l t s a n n o u n c e m e n t o f A R L f o r t h e s i x m o n t h s e n d e d 30 September 2015 published on 25 November 2015.

No qualified opinion has been issued for the audited consolidated financial statements of the Group for each of the three years ended 31 March 2013, 2014 and 2015.

2. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The principal activities of the Group are (a) mining, exploration, logistics, sale of coal and other mining-related activities; (b) shipping freight service from time chartering of leased vessels for and on behalf of customers; and (c) the provision of floating storage and relevant logistics services for crude oil and petrochemical products.

Prospect on the existing mining business of Senamas Energindo Mineral coal mine (“SEM coal mine”)

As reported by Indonesian Coal Mining Association in October 2015, for the first three quarters of 2015, due to the reduced demand from some consumer countries, the coal exports from Indonesia have dropped by 20% to 235 million tonnes (2014: 293 million tonnes) as compared to the same period in 2014. For the same period, the total coal production in Indonesia was approximately 308 million tonnes. Due to the continued weakening of the Indonesian coal prices, it was predicted that the annual production for 2015 will be below 400 million tonnes as compared to the annual target of 425 million tonnes previously set by the government. Nevertheless, the decline in production was considered as one of the drivers to restore the coal prices to a better position in the future.

App1, Part B31(3)

1st batch Q13

App1, Part B(29)


– 87 –

Despite the unfavourable market condition in 2015, according to the latest BP Statistical Review of World Energy issued in June 2015, being one of the most widely respected and authoritative publications in the field of energy economics used for reference by the media, academia, world governments and energy companies, the coal consumptions for China and India has kept increasing for the past consecutive 10 years until 2014. The annual coal consumption for China and India in 2014 has accounted for 60% of the global total coal consumption in 2014. Coal demand from these two countries keeps increasing as they have opened many new coal-fired power plants to supply electricity to their immense populations. The strategic geographical location of the SEM coal mine positions it towards the giant emerging markets like China and India.

According to the annual Medium-term Coal Market Report released in December 2014 by International Energy Agency (IEA), being an autonomous international organization comprising 29 member countries to work to ensure reliable, affordable and clean energy, it is forecasted that the global demand for coal over the next five years will continue marching higher, breaking the 9-billion tonne level by 2019. Global coal demand is estimated to exceed global coal production over the next five years. With rising global demand for lower-rank coal and power plants seeking to control operating costs in view of escalating energy prices, SEM is well poised to capture this growth upside with its energy-efficient, cleaner burning coal in an environmentally responsible manner.

The Group will continuously adopt the growth strategy through capacity enhancement and market expansion and will strive to carry out measures to increase its mine production capacity like upgrade of logistics facilities and further investment in production infrastructure facilities. Backed by efficient mining processes and large mineable reserves, SEM is on the track for steady growth in annual production capacity with sustainable demand growth from regular customers.

Having considered the above and taking into account of the profitable track records of the SEM coal mine in the past years, the Company remains optimistic about the outlook of the SEM coal mine and considers that the SEM coal mine will have a promising business prospect and will continue to contribute growing profit and cashflows to the Group in the future.


– 88 –

Prospect on the developing mining business of the Target Mine

The Target Mine is at an advanced stage of development, and production from the longwall is expected to commence by the first quarter of 2016. As a result, no revenue has been generated to date; however, the expected product from the Target Mine is thermal coal of high quality, with an expected average coal quality with CV of 6,426 kcal/kg (adb), total moisture of 4.4%, ash content of 16.7%, and total sulphur of 1.1% on an air-dried basis. ARL and MMHL may consider a coal preparation plant, subject to further studies, to achieve higher coal product quality, i.e. lower ash content and very consistent product. Thermal coal products of such expected high CV and low impurity are typically preferred by power producers in Japan, Taiwan and China, which is expected to achieve higher price than selling domestically. ARL is of the view that the Target Mine’s coal product can also be sold to Indonesia power producers before implementing the coal preparation process, thereby helping the Enlarged Group to generate cash flow immediately after production commences.

Based on the Competent Person Report and the Valuation Report on the Target Mine set out in Appendix V of this circular, the quality of the coal from the Target Mine is similar in quality to benchmark Newcastle coal and KCM coal which are priced at US$52.1/t and US$ 48.0/t1, respectively. Notwithstanding the low price environment, ARL believes the Target Mine’s coal product could generate modest margins and that the outlook remains promising going forward and in line with ARL’s existing SEM coal mine.

Furthermore, the Target Mine’s coal product will be attractive to power producers in markets such as China, Japan and Taiwan. As the Enlarged Group invests into developing the Target Mine and subsequently its export business post completion of the Transactions, the management believes the expansion of its customer portfolio and reduction in the dependence on domestic Indonesian market will be beneficial to achieve long-term, sustainable growth and creating value for the Shareholders.

Prospect on the shipping business

The Group completed its acquisition of a very large crude carriers grade oil tanker (the “VLCC”) in February 2015 and has subsequently entered into floating storage unit service agreements with sizeable global commodity trading houses for leasing out the VLCC for storage of crude oil for a period till March 2016, with an option to renew for another six months thereafter. According to the Straits Times, energy shipments and the demand of oil storage are expected to surge in the region over the next few years due to the boom of Southeast Asia region and increase in regional energy usage. Following such trends, the Group believes that the Group’s floating storage business for petrochemical products will have a promising prospect for the coming years and will promote the long term diversified growth of the Group in the future.

1 KCM coal price based on monthly Indonesian price tables, as of October 2015.


– 89 –

Moreover, the global crude oil price has continuously dropped recently, which has a positive impact on tanker rates in a number of ways: (i) lower oil prices encourage stockpiling of crude oil; (ii) a contango price structure for crude oil futures encourages buying and could lead to additional floating storage of oil if the spread between the current and future oil price continues to widen; (iii) lower oil and fuel prices, if sustained, could translate into higher oil demand over time; and (iv) reduced bunker prices positively affect tanker earnings by lowering voyage operating costs. All these factors result in increased tanker ton mile demand. The Group believes that this global demand for oil and attendant increase in ton miles over longer trade distances will support continued demand for tanker capacity and it is expected that the VLCC will further diversify the income streams of the Group’s shipping business and will contribute positively to the revenue and profit of the Group for the coming years.

As the global shipping and logistics segment is facing a structural change, the market is subject to challenges but new opportunities are also emerging at the same time. The Group has been in continuous discussion and negotiation with major oil trading companies in relation to term storage contracts for its oil storage business, which can bring stable cashflows to the Group. Moreover, the Group will closely monitor the market development of this sector and seek the best opportunities for any further expansion of the shipping segment through acquisition of new vessels and chartering of vessels in the Southeast Asia region to meet the growing market need in the region. The Group expects to continue to capitalise on and potentially grow its long-term relationships with international energy companies and other customers, and believes that reputation and proven track record for safe, reliable and efficient operations position us favorably to capture additional opportunities to meet our customers’ future chartering needs.

MarketandbusinessdiversificationandexpansionintotheChinamarket

According to the Premier of the State Council of China, the growth in GDP of China for 2015 is expected at 7%, reaching approximately RMB68 trillion for 2015. Further, as proposed by the China leaders and announced in the 12th National People’s Congress of China, various important national strategies and policies will be implemented including the “One Belt and One Road” policy and the “Internet +” policy.

In view of the market potential in China, the Company seeks to capitalize on such momentum and intends to diversify and further expand its business into this profitable and growing market by setting up a new China Division in April 2015. The objective of the China Division is to explore any potential China projects with promising prospects (including but not limited to projects related to China national policies and/or China natural resources) which can bring immediate contribution to the Group and directly integrate with the current national policies of China. The management of the Company believes that the set-up of the China Division is the first step to explore and move forward to the China market and is in the interests of the Company and its shareholders as a whole.


– 90 –

ARL is in active discussions and negotiations with various parties for any potential investment and cooperation opportunities. As appropriate, any further announcement(s) will be made by the Group in compliance with the requirements of the Listing Rules to inform the shareholders of the Company in relation to the updates and progress of the China Division.

3. STATEMENT OF INDEBTEDNESS

As at the close of business on 30 September 2015, being the latest practicable date for the purpose of this statement of indebtedness prior to the publication of this circular, the Enlarged Group had the following outstanding indebtedness:

(a) bank borrowings of approximately HK$334,849,000, which were secured by certain property, plant and equipment of the Group and corporate guarantees of the Company and its certain subsidiaries; and a non-controlling owner of a subsidiary and its related company;

(b) unsecured convertible bonds in the carrying amount of HK$109,594,000 with principal amount in the nominal value of US$20,000,000 (equivalent to approximately HK$154,800,000);

(c) obligation under finance leases of approximately HK$65,094,000, which were secured by the lessor’s charge over the leased assets;

(d) amount due to a director of the MMHL of approximately HK$331,733,000 which was unsecured, interest-free and repayable on demand; and

(e) amount due to a non-controlling owner of a subsidiary of the Company and its related companies of approximately HK$973,000 which was unsecured, interest-free and repayable on demand.

As at the close of business on 30 September 2015, being the latest practicable date for the purpose of this statement of indebtedness, the Enlarged Group had no material contingent liabilities.

Save as aforesaid or otherwise disclosed herein, and apart from intra-group liabilities and normal trade and other payables in the ordinary course of business, the Enlarged Group did not have any material mortgages, charges, debentures, loan capital, debt securities, loans, bank overdrafts or other similar indebtedness, finance lease or hire purchase commitments, liabilities under acceptances, acceptance credits, which are either guaranteed, unguaranteed, secured or unsecured, or guarantees or other contingent liabilities as at close of business on 30 September 2015.

Save as disclosed, the Directors confirmed that there has been no material changes in the indebtedness, contingent liabilities and commitments of the Enlarged Group from 30 September 2015 up to the Latest Practicable Date.

1st batch Q17App1, Part B(28)


– 91 –

4. WORKING CAPITAL

The Directors are of the opinion that, in the absence of unforeseen circumstances and after taking into account the financial resources and banking facilities available to the Enlarged Group (including its internally generated funds), the Enlarged Group will have sufficient working capital to satisfy its present requirements for at least twelve months from the date of this circular.

5. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of ARL since 31 March 2015, being the date to which the latest published audited accounts of ARL were made up, save as disclosed in the interim results announcement of the Company for the six months ended 30 September 2015 published on 25 November 2015 or otherwise publicly disclosed.

6. ACQUISITION OF 8% EQUITY INTEREST IN PT RIMAU INDONESIA

On 27 August 2015, AIPL and Tiger Courage Limited, a wholly-owned subsidiary of ARL, entered into a sale and purchase agreement relating to the sale and purchase of 8% equity interest in PT Rimau Indonesia, a foreign investment company (PMA) established in Indonesia on 1 October 2004 which is principally engaged in trading of mineral resources in Indonesia and holds 95% equity interest in SEM coal mine, at a consideration of HK$180 million. The consideration for the transaction is HK$180 million which shall be satisfied by the allotment and issue of 100 million Shares to AIPL (or its nominee(s)) at the price of HK$1.80 per Share upon completion. The transaction constituted a discloseable and connected transaction for the Company and completed on 28 October 2015.

App1, Part B(30)

App1, Part B(32)

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

– 92 –

A. THE FOLLOWING IS THE TEXT OF A REPORT, PREPARED FOR THE SOLE PURPOSE OF INCLUSION IN THIS CIRCULAR, RECEIVED FROM THE INDEPENDENT REPORTING ACCOUNTANTS, BDO LIMITED, CERTIFIED PUBLIC ACCOUNTANTS, HONG KONG.

852 2218 8288852 2815 2239

852 2218 8288852 2815 2239

852 2218 8288852 2815 2239

852 2218 8288852 2815 2239

30 November 2015

The Board of DirectorsAgritrade Resources Limited

Dear Sirs

We set out below our report on the financial information of Merge Mining Holding Limited (the “Target Company”) and its subsidiaries as set out in Note 19 of Section C (hereinafter collectively referred to as the “Target Group”) which comprises the Target Group’s consolidated statements of financial position and the Target Company’s statements of financial position as at 31 December 2012, 2013 and 2014 and 31 May 2015, and the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows of the Target Group for each of the three years ended 31 December 2012, 2013 and 2014, and for the five months ended 31 May 2015 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory information (the “Financial Information”), prepared on the basis set out in Note 2 of Section C below, for inclusion in the circular of Agritrade Resources Limited (the “Company”, together with its subsidiaries collectively referred to as the “Group”) dated 30 November 2015 (the “Circular”) in connection with the proposed acquisition of 51% equity interest in the Target Company.

The Target Company was incorporated in the Cayman Islands as a limited liability company on 18 December 2008. During the Relevant Periods, the Target Company is engaged in investment holding and the Target Group is principally engaged in holding of exploration and mining permits in Indonesia.

The Target Company and all companies comprising the Target Group during the Relevant Periods have adopted 31 December as their financial year end dates. As at the date of this report, the Target Company has direct or indirect interests in the subsidiaries comprising the Target Group as set out in Note 19 of Section C below, all of which are private entities.


– 93 –

As at the date of this report, no audited financial statements have been prepared for the Target Company and its subsidiaries incorporated in the British Virgin Islands (“BVI”) and Indonesia since their respective dates of incorporation as there is no statutory requirement for them to prepare audited financial statements under the relevant rules and regulations in their jurisdiction of incorporation.

For the purpose of this report, the director of the Target Company has prepared the consolidated financial statements of the Target Group for the Relevant Periods (the “Underlying Financial Statements”), in accordance with the basis of preparation set out in Note 2(a) of Section C below and the significant accounting policies set out in Note 4 of Section C below which conform with the Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) that are materially consistent with those of the Group.

The Financial Information has been prepared by the director of the Target Company based on the Underlying Financial Statements with no adjustment made thereon.

The director of the Target Company is responsible for the preparation and the true and fair presentation of the Financial Information in accordance with the basis of preparation set out in Note 2(a) of Section C below and the significant accounting policies set out in Note 4 of Section C below, the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), and for such internal control as the director of the Target Company determines is necessary to enable the preparation of the Financial Information that is free from material misstatement, whether due to fraud or error. The directors of the Company are responsible for the contents of the Circular in which this report is included.

Our responsibility is to form an independent opinion on the Financial Information based on our procedures and to report our opinion to you.

For the purpose of this report, we have examined the Underlying Financial Statements and have carried out appropriate procedures on the Financial Information as we considered necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

Opinion in respect of the Financial Information

In our opinion, the Financial Information, for the purpose of this report, prepared on the basis set out in Note 2 of Section C below and in accordance with the significant accounting policies set out in Note 4 of Section C below, gives a true and fair view of the state of affairs of the Target Group and of the Target Company as at 31 December 2012, 2013 and 2014 and 31 May 2015, and of the consolidated results and consolidated cash flows of the Target Group for the Relevant Periods.


– 94 –

Corresponding Financial Information

For the purpose of this report, we have also reviewed the unaudited corresponding interim financial information of the Target Group comprising the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the five months ended 31 May 2014, together with the notes thereon (the “Corresponding Financial Information”), for which the director of the Target Company is responsible, in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA.

The director of the Target Company is responsible for the preparation of the Corresponding Financial Information in accordance with the same basis adopted in respect of the Financial Information. Our responsibility is to express a conclusion on the Corresponding Financial Information based on our review.

A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the Corresponding Financial Information.

Based on our review, for the purpose of this report, nothing has come to our attention that causes us to believe that the Corresponding Financial Information is not prepared, in all material aspects, in accordance with the same basis adopted in respect of the Financial Information.

Emphasis of Matter

Without qualifying our opinion in respect of the Financial Information, we draw attention to Note 2(a) of Section C below, which indicates that the Target Group incurred loss of HK$5,967,000, HK$12,134,000, HK$29,818,000, HK$3,926,000 and HK$17,889,000 for the years ended 31 December 2012, 2013 and 2014 and five months ended 31 May 2014 (unaudited) and 2015 respectively. The Target Group also recorded net current liabilities of approximately HK$178,586,000, HK$184,049,000, HK$304,136,000 and HK$331,340,000 as at 31 December 2012, 2013 and 2014 and 31 May 2015 respectively. The Target Company also recorded net current liabilities and net liabilities of approximately HK$3,711,000, HK$4,799,000, HK$5,313,000 and HK$5,319,000 as at 31 December 2012, 2013 and 2014 and 31 May 2015 respectively. These conditions indicate the existence of a material uncertainty that may cast significant doubt on the Target Group’s and the Target Company’s ability to continue as a going concern.


– 95 –

B. FINANCIAL INFORMATION

1. Consolidated Statements of Comprehensive Income

Year ended 31 December Five months ended 31 May Notes 2012 2013 2014 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Other income and gains 7 25 208 22 1,751 2Administrative expenses (5,992) (12,342) (29,840) (5,677) (17,891)

Loss before income tax expense 8 (5,967) (12,134) (29,818) (3,926) (17,889)

Income tax expense 11 — — — — —

Loss and total comprehensive income for the year/period 12 (5,967) (12,134) (29,818) (3,926) (17,889)

Loss per share— Basic and diluted (HK$) 13 (596.7) 1,213.4 (2,981.8) (392.6) (1,788.9)


– 96 –

2. Consolidated Statements of Financial Position

As at As at 31 December 31 May Notes 2012 2013 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000

Non-current assets Property, plant and equipment 15 125,519 118,425 209,742 218,465 Prepaid lease payments for land 16 7,759 7,279 6,799 6,599 Mining property 17 2,192,708 2,192,708 2,192,708 2,192,708 Exploration and evaluation assets 18 5,093 5,996 6,220 6,220

Total non-current assets 2,331,079 2,324,408 2,415,469 2,423,992

Current assets Other receivables, deposits and prepayments 1,375 15,106 30,518 30,581 Prepaid lease payments for land 16 480 480 480 480 Amount due from immediate holding company 20 77 77 77 77 Cash and cash equivalents 351 6,956 21,973 4,857

Total current assets 2,283 22,619 53,048 35,995

Current liabilities Other payables and accruals 3,859 3,793 29,072 39,364 Amount due to director 20 177,010 202,875 328,112 327,971

Total current liabilities 180,869 206,668 357,184 367,335

Net current liabilities (178,586) (184,049) (304,136) (331,340)

Total assets less current liabilities 2,152,493 2,140,359 2,111,333 2,092,652

Non-current liabilities Other payables — — 792 — Deferred tax 21 548,177 548,177 548,177 548,177

Total non-current liabilities 548,177 548,177 548,969 548,177

Net assets 1,604,316 1,592,182 1,562,364 1,544,475

Capital and reserves Share capital 22(a) 77 77 77 77 Reserves 22(b) 1,604,239 1,592,105 1,562,287 1,544,398

Total equity 1,604,316 1,592,182 1,562,364 1,544,475


– 97 –

3. Statements of Financial Position of the Target Company

As at As at 31 December 31 May Notes 2012 2013 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000

Non-current assets Investments in subsidiaries 19 — — — —

Current assets Other receivables, deposits and prepayments — 13,932 26,316 26,316 Amount due from immediate holding company 20 77 77 77 77 Amounts due from subsidiaries 19 10,479 18,219 116,904 131,609 Cash and cash equivalents 2 4,830 19,011 2,315


Current liabilities Other payables and accruals 3,761 3,761 3,761 3,761 Amount due to director 20 10,508 38,096 163,860 161,875



Net liabilities (3,711) (4,799) (5,313) (5,319)

Capital and reserves Share capital 22(a) 77 77 77 77 Accumulated losses 22(b) (3,788) (4,876) (5,390) (5,396)

Totaldeficiencyinshareholder’s fund (3,711) (4,799) (5,313) (5,319)


– 98 –

4. Consolidated Statements of Changes in Equity

Equity attributable to owner of the Target Company

Share Retained capital profits Total HK$’000 HK$’000 HK$’000 (Note 22(a))

At 1 January 2012 77 1,610,206 1,610,283

Loss for the year — (5,967) (5,967)Other comprehensive income for the year — — —

Total comprehensive income for the year — (5,967) (5,967)

At 31 December 2012 and 1 January 2013 77 1,604,239 1,604,316







Loss for the period — (17,889) (17,889)Other comprehensive income for the period — — —

Total comprehensive income for the period — (17,889) (17,889)

At 31 May 2015 77 1,544,398 1,544.475

At 1 January 2014 77 1,592,105 1,592,182

Loss for the period — (3,926) (3,926)Other comprehensive income for the period — — —

Total comprehensive income for the period — (3,926) (3,926)

At 31 May 2014 (Unaudited) 77 1,588,179 1,588,256


– 99 –

5. Consolidated Statements of Cash Flows

Year ended 31 December Five months ended 31 May 2012 2013 2014 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Cashflowsfromoperatingactivities Loss before income tax expense (5,967) (12,134) (29,818) (3,926) (17,889) Adjustments for: Interest income (18) (204) (22) (10) (2) Depreciation of property, plant and equipment 94 74 355 85 147 Amortisation of prepaid lease payments 480 480 480 200 200

Operating loss before working capital changes (5,411) (11,784) (29,005) (3,651) (17,544) Decrease/(increase) in other receivables, deposits and prepayments 316 (137,731) (15,412) (13,103) (63) (Decrease)/increase in other payables and accruals (32,622) (66) 26,071 10,780 9,500

Net cash used in operating activities (37,717) (25,581) (18,346) (5,974) (8,107)

Cashflowsfrominvestingactivities Purchases of property, plant and equipment (8,413) (12,312) (91,672) (26,179) (8,870) Proceeds from disposals of property, plant and equipment — 19,332 — — — Additions of exploration and evaluation assets (228) (903) (224) (224) — Interest received 18 204 22 10 2

Net cash generated from/(used in) investing activities (8,623) 6,321 (91,874) (26,393) (8,868)

Cashflowsfromfinancingactivities Increase/(decrease) in amount due to a director 41,745 25,865 125,237 50,380 (141)

Net cash generated from/(used in) financingactivities 41,745 25,865 125,237 50,380 (141)

Net (decrease)/increase in cash and cash equivalents (4,595) 6,605 15,017 18,013 (17,116)

Cash and cash equivalents at beginning of year/period 4,946 351 6,956 6,956 21,973

Cash and cash equivalents at end of year/period 351 6,956 21,973 24,969 4,857

Analysis of cash and cash equivalents balances Bank balances and cash 351 6,956 21,973 24,969 4,857


– 100 –

C. NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

General information

The Target Company was incorporated in the Cayman Islands as a limited liability company on 18 December 2008. Its registered office and principal place of business are located at Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman KYI-l I 12, Cayman Islands. The Target Company is an investment holding company. The Target Group, comprising the Target Company and its subsidiaries, is principally engaged in mining activities in Indonesia.

2. BASIS OF PRESENTATION AND PREPARATION

(a) Basis of preparation

The Financial Information set out in this report has been prepared in accordance with HKFRSs (including all applicable HKFRS, Hong Kong Accounting Standards (“HKASs”) and interpretations) issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the Financial Information includes applicable disclosures required by the Listing Rules. The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Financial Information, the Target Group has adopted all these new and revised HKFRSs throughout the Relevant Periods.

The Financial Information has been prepared under the historical cost convention.

The Target Group incurred loss of HK$5,967,000, HK$12,134,000, HK$29,818,000, HK$3,926,000 and HK$17,889,000 for the years ended 31 December 2012, 2013 and 2014 and five months ended 31 May 2014 (unaudited) and 2015 respectively. The Target Group also recorded net current liabilities of approximately HK$178,586,000, HK$184,049,000, HK$304,136,000 and HK$331,340,000 as at 31 December 2012, 2013 and 2014 and 31 May 2015 respectively. The Target Company also recorded net current liabilities and net liabilities of approximately HK$3,711,000, HK$4,799,000, HK$5,313,000 and HK$5,319,000 as at 31 December 2012, 2013 and 2014 and 31 May 2015 respectively. These conditions indicate the existence of a material uncertainty that may cast significant doubt on the Target Group’s and the Target Company’s ability to continue as a going concern and therefore, the Target Group and the Target Company may not be able to realise assets and discharge liabilities in the normal course of business. The director of the Target Company with outstanding advances to the Target Group has agreed that he would not demand repayment of his amounts due by the Target Group unless and until the Target Group is able to meet its financial obligations as they fall due. In addition, based on the Target Group’s cash flow forecasts, the director of the Target Company is satisfied that the Target Group has sufficient resources to continue in operations for a period of not less than twelve months from the date of this report. Accordingly, the Financial Information has been prepared on a going concern basis.

(b) Functional and presentation currency

The director of the Target Company considered that the functional currency of the Target Company is United States dollars. The Financial Information is presented in Hong Kong dollars (“HK$”) as the director of the Target Company considered it is more beneficial to the users of the Financial Information. All values are rounded to the nearest thousand (“HK$’000”) except when otherwise indicated.


– 101 –

3. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS

New/revised HKFRSs that have been issued but are not yet effective and not early adopted

The following new/revised HKFRSs, potentially relevant to the Financial Information, have been issued, but are not yet effective and have not been early adopted by the Target Group.

HKFRSs (Amendments) Annual Improvements 2010-2012 Cycle2



Amendments to HKAS 1 Disclosure Initiative3

Amendments to HKAS 16 Clarification of Acceptable Methods of Depreciation and HKAS 38 and Amortisation3

HKFRS 9 (2014) Financial Instruments5

HKFRS 15 Revenue from Contracts with Customers4

1 Effective for annual periods beginning on or after 1 July 20142 Effective for annual periods beginning, or transactions occurring, on or after 1 July 20143 Effective for annual periods beginning on or after 1 January 20164 Effective for annual periods beginning on or after 1 January 20175 Effective for annual periods beginning on or after 1 January 2018

The Target Group is in the process of making an assessment of the potential impact of these pronouncements. The director of the Target Company so far concluded that the application of these pronouncements will have no material impact on the Target Group’s Financial Information.

4. SIGNIFICANT ACCOUNTING POLICIES

(a) Consolidation and business combination

The consolidated financial information includes the financial information of the Target Company and its subsidiaries comprising the Target Group made up to respective period end dates during the Relevant Periods.

The consolidated financial statements comprise the financial statements of the Target Company and its subsidiaries. Inter-company transactions and balances between group companies together with unrealised profits are eliminated in full in preparing the consolidated financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of impairment on the asset transferred, in which case the loss is recognised in profit or loss.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective dates of acquisition or up to the effective dates of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Target Group.

Acquisition of subsidiaries or businesses is accounted for using the acquisition method. The cost of an acquisition is measured at the aggregate of the acquisition-date fair value of assets transferred, liabilities incurred and equity interests issued by the Target Group, as the acquirer. The identifiable assets acquired and liabilities assumed are principally measured at acquisition-date fair value. The Target Group’s previously held equity interest in the acquiree is re-measured at acquisition-date fair value and the resulting gains or losses are recognised in profit or loss. The Target Group may elect, on a transaction-by-transaction basis, to measure the non-controlling interest that represents present ownership interest in the subsidiary either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other non-controlling interests are measured at fair value unless another measurement basis is required by HKFRSs. Acquisition-related costs incurred are expensed unless they are incurred in issuing equity instrument in which case the costs are deducted from equity.


– 102 –

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(a) Consolidation and business combination (Continued)

Any contingent consideration to be transferred by the acquirer is recognised at acquisition-date fair value. Subsequent adjustments to consideration are recognised against goodwill only to the extent that they arise from new information obtained within the measurement period (a maximum of 12 months from the acquisition date) about the fair value at the acquisition date. All other subsequent adjustments to contingent consideration classified as an asset or a liability are recognised in profit or loss.

Changes in the Target Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Target Group’s interest and the non-controlling interest are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Target Company.

When the Target Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest; and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interest. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for in the same manner as would be required if the relevant assets or liabilities were disposed of.

Subsequent to acquisition, the carrying amount of non-controlling interests that represent present ownership interests in the subsidiary is the amount of those interests at initial recognition plus such non-controlling interest’s share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

(b) Subsidiaries

A subsidiary is an investee over which the Target Company is able to exercise control. The Target Company controls an investee if all three of the following elements are present: power over the investee, exposure, or rights, to variable returns from the investee, and the ability to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

In the Target Company’s statement of financial position, investments in subsidiaries are stated at cost less impairment loss, if any. The results of subsidiaries are accounted for by the Target Company on the basis of dividend received and receivable.


– 103 –


(c) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Target Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised as an expense in profit or loss during the financial period in which they are incurred.

Property, plant and equipment are depreciated so as to write off their cost net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The useful lives are as follows:

Buildings — Over the shorter of the leases, or the estimated useful life of 50 yearsOffice equipment — 4 yearsVehicles — 8 years

Construction in progress is stated at cost less impairment losses. Cost comprises direct costs of construction as well as borrowing costs capitalised during the periods of construction and installation. Capitalisation of these costs ceases and the construction in progress is transferred to the appropriate class of property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided for in respect of construction in progress until it is completed and ready for its intended use.

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal.

(d) Prepaid lease payments for leasehold land under operating leases

Prepaid lease payments for leasehold land under operating leases represent up-front payments to acquire long-term interests in lessee-occupied properties. These payments are stated at cost and are amortised over the period of the lease on a straight-line basis as an expense.


– 104 –


(e) Exploration and evaluation assets

Exploration and evaluation assets are recognised at cost on initial recognition. Subsequent to initial recognition, exploration and evaluation assets are stated at cost less any accumulated impairment losses. Exploration and evaluation assets include the cost of mining and exploration rights and the expenditures incurred in the search for mineral resources as well as the determination of the technical feasibility and commercial viability of extracting those resources. When the technical feasibility and commercial viability of extracting mineral resources become demonstrable, previously recognised exploration and evaluation assets are reclassified as mining structures and mineral properties under property, plant and equipment. These assets are assessed for impairment annually and before reclassification.

Impairment of exploration and evaluation assets

The carrying amount of the exploration and evaluation assets is reviewed at least annually and adjusted for impairment in accordance with HKAS 36 “Impairment of Assets” and whenever one of the following events or changes in circumstances indicate that the carrying amount may not be recoverable (the list is not exhaustive):

— the period for which the Target Group has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed;

— substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned;

— exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the Target Group has decided to discontinue such activities in the specific area; or

— sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

An impairment loss is recognised in profit or loss whenever the carrying amount of an asset exceeds its recoverable amount.

(f) Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to lessee. All other leases are classified as operating leases.

The Target Group as lessee

Assets held under finance leases are initially recognised as assets at their fair value or, if lower, the present value of the minimum lease payments. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to profit or loss over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.

The total rentals payable under the operating leases are recognised in profit or loss on a straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease.


– 105 –


(g) Mining property

Mining property is stated at cost less accumulated amortisation and any impairment losses and is amortised on the units-of-production method utilising only proven and probable coal reserves in the depletion base.

(h) Impairment of tangible and intangible assets excluding goodwill

At the end of each reporting period, the Target Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment losses (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Target Group estimates the recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGU, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.


– 106 –


(i) Financial instruments

(i) Financial assets

The Target Group classifies its financial assets at initial recognition, depending on the purpose for which the asset was acquired. Financial assets, other than financial assets at fair value through profit or loss, are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. Regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers, and also incorporate other types of contractual monetary asset. Subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses.

(ii) Impairmentlossonfinancialassets

The Target Group assesses, at the end of each reporting period, whether there is any objective evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence of impairment may include:

— significant financial difficulty of the debtor;— a breach of contract, such as a default or delinquency in interest or principal

payments;— granting concession to a debtor because of debtor’s financial difficulty; and— it becoming probable that the debtor will enter bankruptcy or other financial

reorganisation.

For loans and receivables, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of financial asset is reduced through the use of an allowance account. When any part of financial asset is determined as uncollectible, it is written off against the allowance account for the relevant financial asset.

Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.


– 107 –


(i) Financial instruments (Continued)

(iii) Financial liabilities

The Target Group classifies its financial liabilities, depending on the purpose for which the liabilities were incurred. All of the Target Group’s financial liabilities are financial liabilities at amortised costs which are initially measured at fair value, net of directly attributable costs incurred.

Financial liabilities at amortised cost

Financial liabilities at amortised cost are subsequently measured at amortised cost, using effective interest method. The related interest expense is recognised in profit or loss.

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

(iv) Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period.

(v) Equity instruments

Equity instruments issued by the Target Company are recorded at the proceeds received, net of direct issue costs.

(vi) Derecognition

The Target Group derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKAS 39.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

(j) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.


– 108 –


(k) Income taxes

Income taxes for the relevant periods comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of reporting period.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for goodwill and recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the end of reporting period.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Target Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Income taxes are recognised in profit or loss except when they relate to items recognised in other comprehensive income in which case the taxes are also recognised in other comprehensive income or when they relate to items recognised directly in equity in which case the taxes are also recognised directly in equity.

(l) Foreign currency

Transactions entered into by group entities in currencies other than the currency of the primary economic environment in which they operate (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise.

On consolidation, income and expense items of foreign operations are translated into the presentation currency of the Target Group (i.e. Hong Kong dollar) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rates approximating to those ruling when the transactions took place are used. All assets and liabilities of foreign operations are translated at the rate ruling at the end of reporting period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity as translation reserve (attributed to non-controlling interests as appropriate). Exchange differences recognised in profit or loss of group entities’ separate financial statements on the translation of non-current monetary items forming part of the Target Group’s net investment in the foreign operation concerned are reclassified to other comprehensive income and accumulated in equity as translation reserve.


– 109 –


(l) Foreign currency (Continued)

On disposal of a foreign operation, the cumulative exchange differences recognised in the translation reserve relating to that operation up to the date of disposal are reclassified to profit or loss as part of the profit or loss on disposal.

Fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the end of reporting period. Exchange differences arising are recognised in the translation reserve.

(m) Employeebenefits

(i) Terminationbenefits

Termination benefits are recognised on the earlier of when the Target Group can no longer withdraw the offer of those benefits and when the Target Group recognises restructuring costs involving the payment of termination benefits.

(ii) Short-termemployeebenefits

Short term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. Short term employee benefits are recognised in the year when the employees render the related service.

(n) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.


– 110 –


(o) Related parties

(a) A person or a close member of that person’s family is related to the Target Group if that person:

(i) has control or joint control over the Target Group;(ii) has significant influence over the Target Group; or(iii) is a member of key management personnel of the Target Group or the Target

Company’s parent.

(b) An entity is related to the Target Group if any of the following conditions apply:

(i) The entity and the Target Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party.(iv) One entity is a joint venture of a third entity and the other entity is an associate of the

third entity.(v) The entity is a post-employment benefit plan for the benefit of the employees of the

Target Group or an entity related to the Target Group.(vi) The entity is controlled or jointly controlled by a person identified in (a).(vii) A person identified in (a)(i) has significant influence over the entity or is a member of

key management personnel of the entity (or of a parent of the entity).

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:

(i) that person’s children and spouse or domestic partner;(ii) children of that person’s spouse or domestic partner; and(iii) dependents of that person or that person’s spouse or domestic partner.

(p) Revenue recognition

(i) Interest income is recognised on a time-apportioned basis by reference to the principal outstanding using the effective interest method.

(ii) Sundry income is recognised on an accruals basis.


– 111 –

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATES UNCERTAINTY

In the application of the Target Group’s accounting policies, the director is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

(a) Reserve estimates and amortisation of mining rights

Reserves are estimates of the amount of products that can be economically and legally extracted from the Target Group’s mining rights. In order to calculate reserves, estimates and assumptions are required about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand and commodity prices.

Estimating the quantity and/or grade of reserves requires the size, shape and depth of ore bodies or fields to be determined by analysing geological data such as drilling samples. This process and the determination of appropriate amortisation method of mining right may require complex and difficult geological judgments and calculations to interpret the data as well as consideration of the production plan.

(b) Carrying value of non-current assets and impairment of assets

Non-current assets, including property, plant and equipment, and prepaid lease payments were carried at cost less accumulated depreciation and amortisation, where appropriate, and impairment losses. These carrying amounts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In estimating the recoverable amounts of assets, various assumptions, including future cash flows to be associated with the non-current assets and discount rates, are made. If future events do not correspond to such assumptions, the recoverable amounts will need to be revised, and this may have an impact on the Target Group’s results of operations or financial position.

(c) Useful lives of property, plant and equipment

Management determines the estimated useful lives of and related depreciation charges for its items of property, plant and equipment. This estimate is based on the actual useful lives of assets of similar nature and functions. It could change significantly as a result of significant technical innovations and competitor actions in response to industry cycles. Management will increase the depreciation charges where useful lives are less than previously estimated lives, or will write off or write down technically obsolete or non-strategic assets that have been abandoned or sold.

(d) Going concern

The Financial Information has been prepared on a going concern basis and the details are set out in Note 2.


– 112 –

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATES UNCERTAINTY (Continued)

(e) Impairment of mining right and exploration and evaluation assets

The Target Group’s mining right and exploration and evaluation assets are assessed annually to determine for any indication of impairment. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is the higher of the fair value less costs of disposal and value in use. The assessment requires the use of estimates and assumptions such as long-term selling prices, discount rates, future capital requirements and operating performance. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. Fair value for mineral assets is generally determined as the present value of estimate future cash flows arising from the continued use of the asset, which includes estimates such as the cost of future expansion plans and eventual disposal, using assumptions that an independent market participant may take into account. Cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

(f) Income taxes

The Target Group is subject to income taxes in various jurisdictions. The Target Group carefully evaluates tax implications of transactions in accordance with prevailing tax regulations and makes tax provision accordingly. However, judgement is required in determining the Target Group’s provision for income taxes as there are many transactions and calculations of which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(g) Determination of functional currency

The Target Group measures foreign currency transactions in the respective functional currencies of the group entities. In determining the functional currencies of the group entities, judgment is required to determine the currency that mainly influences sales prices for goods and services and of the country whose competitive forces and regulations mainly determines the sales prices of its goods and services.

6. TURNOVER AND SEGMENT REPORTING

The Target Group had no turnover during the Relevant Periods.

No segment reporting information is shown as the Target Group is only engaged in mining activities in Indonesia.

7. OTHER INCOME AND GAINS Five months ended Year ended 31 December 31 May 2012 2013 2014 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Bank interest income 18 204 22 10 2Exchange gains, net — — — 1,741 —Sundry income 7 4 — — —

25 208 22 1,751 2


– 113 –

8. LOSS BEFORE INCOME TAX EXPENSE

This is arrived at after charging/(crediting):

Five months ended Year ended 31 December 31 May 2012 2013 2014 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Auditor’s remuneration — — — — —Amortisation of prepaid lease payments 480 480 480 200 200Depreciation of property, plant and equipment 94 74 355 85 147Exchange losses/(gains), net 450 6,782 7,877 (1,741) 9,767Staff costs (including director’s remuneration (Note 10)) (Note 9) 2,179 1,368 12,475 2,689 4,840

9. STAFF COSTS


Salaries and bonuses 1,963 1,183 10,964 2,238 4,280Other staff benefits 216 185 1,511 451 560

2,179 1,368 12,475 2,689 4,840

10. DIRECTOR’S REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

Director’s remuneration


Director’s fee — — — — —

Other emoluments:Salaries and other benefits 605 88 260 108 86

605 88 260 108 86


– 114 –

10. DIRECTOR’S REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS (Continued)

Details of director’s remuneration are as follows:

Salaries and other Fees benefits Total HK$’000 HK$’000 HK$’000

Year ended 31 December 2012

YU Jing — 605 605

Total — 605 605


YU Jing — 88 88

Total — 88 88


YU Jing — 260 260

Total — 260 260

Five months ended 31 May 2015

YU Jing — 108 108

Total — 108 108

Five months ended 31 May 2014 (unaudited)

YU Jing — 86 86

Total — 86 86

No director waived any emoluments during each of the Relevant Periods.


– 115 –

10. DIRECTOR’S REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS (Continued)

Five highest paid individuals

Of the five individuals with the highest emoluments in the Target Group, one of them was director of the Target Company during each of the Relevant Periods, whose emoluments are included in the analysis presented above. The emoluments of the remaining four individuals for each of the Relevant Periods are as follows:


Salaries and bonuses 891 316 1,350 547 428

The number of non-director, highest paid individuals whose emoluments fell within the following bands:


HK$Nil to HK$1,000,000 4 4 4 4 4

11. INCOME TAX EXPENSE

(a) No provision for profits tax has been made in this Financial Information as the Target Group has no assessable profit during the Relevant Periods.

(b) The income tax expense for each of the Relevant Periods can be reconciled to the loss before income tax expense per the consolidated statements of comprehensive income as follows:


Loss before income tax expense (5,967) (12,134) (29,818) (3,926) (17,889)

Tax on profit before income tax expense calculated at IndonesiaCorporate Income tax rate of 25% (1,492) (3,034) (7,455) (982) (4,472)Tax effect of expenses not deductible for tax purpose 1,492 3,034 7,455 982 4,472

Income tax expense — — — — —


– 116 –

12. LOSS ATTRIBUTABLE TO OWNER OF THE TARGET COMPANY

The consolidated loss from ordinary activities attributable to owner of the Target Company for the Relevant Periods include loss of HK$509,000, HK$1,088,000, HK$514,000 and HK$24,000 (unaudited) and HK$6,000 for the years ended 31 December 2012, 2013 and 2014 and five months ended 31 May 2014 (unaudited) and 2015 respectively which has been dealt with in the financial statements of Target Company.

13. LOSS PER SHARE

The calculations of basic and diluted loss per share attributable to owner of the Target Company are based on the following data:

Five months ended Year ended 31 December 31 May 2012 2013 2014 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(Unaudited)

L________ossLoss attributable to owner of the Target Company for the purpose of basic and diluted loss per share (5,967) (12,134) (29,818) (3,926) (17,889)

Five months ended Year ended 31 December 31 May 2012 2013 2014 2014 2015

(Unaudited)

N_______________________________umber of sharesWeighted average number of ordinary shares for the purpose of basic and diluted loss per share 10,000 10,000 10,000 10,000 10,000

As the Target Company had no potential dilutive ordinary shares issued during the Relevant Periods, the basic and diluted loss per share are equal for each of the three years ended 31 December 2012, 2013 and 2014 and the five months ended 31 May 2014 (unaudited) and 2015.

14. DIVIDEND

No dividend was declared and paid during the Relevant Periods.


– 117 –

15. PROPERTY, PLANT AND EQUIPMENT

Office Construction Target Group Buildings equipment Vehicles in progress Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Cost:At 1 January 2012 — 117 505 116,839 117,461Additions — 15 — 8,398 8,413

At 31 December 2012 and 1 January 2013 — 132 505 125,237 125,874Additions — 5 183 12,124 12,312Disposals — — — (19,332) (19,332)

At 31 December 2013 and 1 January 2014 — 137 688 118,029 118,854Additions 9,469 31 — 82,172 91,672

At 31 December 2014 and 1 January 2015 9,469 168 688 200,201 210,526Additions — 8 — 8,862 8,870

At 31 May 2015 9,469 176 688 209,063 219,396

Accumulated depreciation:At 1 January 2012 — 69 192 — 261Provided for the year — 29 65 — 94

At 31 December 2012 and 1 January 2013 — 98 257 — 355Provided for the year — 14 60 — 74

At 31 December 2013 and 1 January 2014 — 112 317 — 429Provided for the year 270 14 71 — 355

At 31 December 2014 and 1 January 2015 270 126 388 — 784Provided for the period 113 7 27 — 147

At 31 May 2015 383 133 415 — 931

Net book values:At 31 May 2015 9,086 43 273 209,063 218,465

At 31 December 2014 9,199 42 300 200,201 209,742

At 31 December 2013 — 25 371 118,029 118,425

At 31 December 2012 — 34 248 125,237 125,519


– 118 –

16. PREPAID LEASE PAYMENTS FOR LAND

As at the end of each Relevant Periods, the Target Group’s prepaid lease payments represent leasehold land held in Indonesia under medium-term land use rights and are analysed for reporting purpose as follows:

As at As at 31 December 31 May 2012 2013 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000

Cost and carrying amount:As at beginning of year/period 8,719 8,239 7,759 7,279Amortisation (480) (480) (480) (200)

As at end of year/period 8,239 7,759 7,279 7,079

Analysis for reporting purposes as:


Non-current 7,759 7,279 6,799 6,599Current 480 480 480 480

8,239 7,759 7,279 7,079

17. MINING PROPERTY

HK$’000

Cost and carrying amount:As at 1 January 2012, 31 December 2012, 2013 and 2014 and 31 May 2015 2,192,708

The mining property represents mining rights to conduct mining activities in the location of Sungai Pinang Districts, Banjar Regency, South Kalimantan Province. The mining license has had a validity period of 20 years from February 2010 until February 2030.

The mining right is subject to impairment review whenever there are indications that the mining right’s carrying amount may not be recoverable.

No amortisation is charged to profit or loss during the Relevant Periods as no mining activity has been commenced.


– 119 –

18. EXPLORATION AND EVALUATION ASSETS


Cost and carrying amount:As at beginning of year/period 4,865 5,093 5,996 6,220Additions 228 903 224 —

As at end of year/period 5,093 5,996 6,220 6,220

19. INVESTMENTS IN SUBSIDIARIES AND AMOUNTS DUE FROM SUBSIDIARIES


Unlisted shares, at cost — — — —

The amounts due are unsecured, interest-free and repayable on demand.

As at 31 December 2012, 2013 and 2014 and 31 May 2015, the director of the Target Company assessed that the recoverable amount of the investments in subsidiaries is not less than the carrying amount reflected in the Target Company’s statements of financial position, and accordingly no provision for impairment is required.

The particulars of the Target Company’s subsidiaries as at the date of this report are as follows:

Place and date of Issued and fully Proportion of incorporation/ paid share effective equity establishment and capital/ interest held by form of legal registered the Target Name of subsidiary entity capital Company* Principal activities

Held directlyProsper China Investments Limited BVI/ US$1 100% Investment 8 July 2003/ holding limited liability company

Wiseweb Trading Limited BVI/ US$1 100% Investment 2 July 2003/ holding limited liability company

Held indirectlyPT Merge Energy Sources Indonesia/ IDR 100% Holding Development 13 March 2006/ 92,800,000,000 exploration and limited liability company mining permits

PT Merge Mining Industri Indonesia/ IDR 100% Holding 8 January 2008/ 18,110,000,000 exploration and limited liability company mining permits

PT Merge Continental Mining Indonesia/ IDR 100% Holding 8 January 2008/ 18,110,000,000 exploration and limited liability company mining permits

* This is no change of effective interest held by the Target Company during the Relevant Periods.


– 120 –

20. AMOUNTS DUE FROM/TO IMMEDIATE HOLDING COMPANY AND A DIRECTOR

The balances are unsecured, interest-free and repayable on demand.

21. DEFERRED TAX

The followings are the major deferred tax liabilities recognised and movements during the Relevant Periods.

Mining property HK$’000

Carrying amount:As at 1 January 2012, 31 December 2012, 2013 and 2014 and 31 May 2015 548,177

22. SHARE CAPITAL AND RESERVES

(a) Share capital The Target Company Number of shares Amount HK$’000

Ordinary shares with par value of US$1 each

Authorised: At 1 January 2012, 31 December 2012, 2013 and 2014 and 31 May 2015 10,000 77

Issued and fully paid: At 1 January 2012, 31 December 2012, 2013 and 2014 and 31 May 2015 10,000 77

(b) Reserves

The Target Group

Details of the movements in the reserves of the Target Group during the Relevant Periods are set out in the consolidated statements of changes in equity.

The Target Company

The movements in the reserves of the Target Company during the Relevant Periods are as follows:

Accumulated losses HK$’000

At 1 January 2012 (3,279)Loss for the year (509)

At 31 December 2012 and 1 January 2013 (3,788)Loss for the year (1,088)

At 31 December 2013 and 1 January 2014 (4,876)Loss for the year (514)

At 31 December 2014 and 1 January 2015 (5,390)Loss for the period (6)

At 31 May 2015 (5,396)


– 121 –

23. OPERATING LEASES

Operating lease payments represent rental payables by the Target Group for its office premises. Leases are negotiated and rentals are fixed for an average term of one to two years.

The lease payments recognised as expenses during each of the Relevant Periods are as follows:

Five months ended Year ended 31 December 31 May 2012 2013 2014 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Operating leases for office premises and staff quarters 559 556 623 226 271

The total future minimum lease payments under non-cancellable lease contracts are as follows:

As at 31 December As at 31 May 2012 2013 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000

Not later than one year 490 343 603 538Later than one year but not later than five years 328 8 452 223

818 351 1,055 761

The above lease commitments only include commitments for basic rentals and do not include commitments for contingent rents, if any, as it is not possible to determine in advance the amount of such additional rentals.

24. RELATED PARTY TRANSACTIONS

Save for those disclosed elsewhere in the Financial Information, details of transaction between the Target Group and other related parties are disclosed below.

Compensation of key management personnel

Members of key management personnel of the Target Group during the Relevant Periods comprised only the director whose remunerations are set out in Note 10.

25. CAPITAL COMMITMENT

As at the end of each Relevant Periods, the Target Group had no capital commitment.


– 122 –

26. CAPITAL RISK MANAGEMENT

The Target Group’s objective of managing capital is to safeguard the Target Group’s ability to continue as a going concern in order to provide returns for shareholder and benefits for other stakeholders and to maintain an optimal capital structure to reduce cost of capital.

The Target Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

The Target Group monitors its capital structure on the basis of the gearing ratio. This ratio is calculated as total liabilities divided by total assets.

The gearing ratio as at the end of each reporting period is as follows:


Total liabilities 729,046 754,845 906,153 915,512

Total assets 2,333,362 2,347,027 2,468,517 2,459,987

Gearing ratio 31% 32% 37% 37%

27. FINANCIAL RISK MANAGEMENT

The main risks arising from the Target Group’s financial instruments in the normal course of the Target Group’s business are credit risk, liquidity risk, cash flow interest rate risk and currency risk.

These risks are limited by the Target Group’s financial management policies and practices described below.

(a) Credit risk

The Target Group’s credit risk is primarily attributable to its receivables. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

In this regard, the director of the Target Company considers the Target Group’s credit risk is significantly reduced.

The credit risk on liquid funds is limited as the counterparties are reputable and credit-worthy banks.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statements of financial position after deducting any impairment allowance. The Target Group does not provide any other guarantee which would expose the Target Group to credit risk.

(b) Liquidity risk

The Target Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term. The Target Group maintains a reasonable level of cash and cash equivalents. The Target Group finances its working capital requirements mainly through funds advanced from a director.


– 123 –

27. FINANCIAL RISK MANAGEMENT (Continued)

(b) Liquidity risk (Continued)

The following table details the remaining contractual maturities at the end of each reporting period of the Target Group’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates, or if floating, based on rates current at the end of each reporting period) and the earliest date the Target Group can be required to pay.

Target Group Total More than 2 contractual Within 1 More than 1 years but Carrying undiscounted year or on year but less less than 5 amount cashflows demand than2years years HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2012Other payables and accruals 3,859 3,859 3,859 — —Amount due to director 177,010 177,010 177,010 — —

180,869 180,869 180,869 — —

Total More than 2 contractual Within 1 More than 1 years but Carrying undiscounted year or on year but less less than 5 amount cashflows demand than2years years HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


206,668 206,668 206,668 — —


At 31 December 2014Other payables and accruals 29,864 29,864 29,072 792 —Amount due to director 328,112 328,112 328,112 — —

357,976 357,976 357,184 792 —


At 31 May 2015Other payables and accruals 39,364 39,364 39,364 — —Amount due to director 327,971 327,971 327,971 — —

367,335 367,335 367,335 — —


– 124 –


(b) Liquidity risk (Continued)

Target Company Total More than 2 contractual Within 1 More than 1 years but Carrying undiscounted year or on year but less less than 5 amount cashflows demand than2years years HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


14,269 14,269 14,269 — —



41,857 41,857 41,857 — —



167,621 167,621 167,621 — —


At 31 May 2015Other payables and accruals 3,761 3,761 3,761 — —Amount due to director 161,875 161,875 161,875 — —

165,636 165,636 165,636 — —


– 125 –


(c) Cashflowinterestraterisk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Target Group’s exposure to cash flow interest rate risk is minimal as the Target Group does not have any long non-current financial assets or borrowings which bear floating interest rates, and the Target Group’s income and operating cash flows are substantially independent of changes in market interest rates.

(d) Currency risk

The functional currency of the Target Group is United States dollars. Since most of the Target Group’s operations are transacted in the functional currencies of the respective group entities, the director of the Target Company considers the Target Group has no significant exposure to risk resulting from changes in foreign exchange rates.

(e) Fair value estimation

All financial instruments are carried at amounts not materially different from their fair values at 31 December 2012, 2013 and 2014 and 31 May 2015.

28. SUMMARY OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES BY CATEGORY

The carrying amounts of the Target Group’s financial assets and financial liabilities as recognised at 31 December 2012, 2013 and 2014 and 31 May 2015 may be categorised as follows:


Financial assets:Loans and receivables (including cash and cash equivalents), at amortised cost 1,803 8,207 26,252 9,199

Financial liabilities:Other financial liabilities, at amortised cost 180,869 206,668 357,976 367,335


– 126 –

29. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company or any of its subsidiaries in respect of the any period subsequent to 31 May 2015.

Yours faithfullyFor and on behalf of

BDO LimitedCertified Public AccountantsHong Kong

Lam Siu FungPractising Certificate number: P05308

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION OF THE ENLARGED GROUP

– 127 –

I. UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

1. Introduction

The accompanying illustrative and unaudited pro forma consolidated statement of financial position of the Enlarged Group (defined below) (the “Unaudited Pro Forma Financial Information”) has been prepared by the directors of the Company in accordance with Rule 4.29 of the Listing Rules on the basis of the notes set out below to illustrate the effect of the proposed acquisition of 51% equity interest in Merge Mining Holding Limited (the “Target Company”) and its subsidiaries (collectively referred to as the “Target Group”) (the “Transactions”) by Agritrade Resources Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) pursuant to the share sale and subscription agreement dated 28 October 2015 (the “Acquisition and Subscription Agreement”) and shareholders agreement dated 28 October 2015 (the “Shareholders Agreement”), as if the Transactions had taken place on 31 March 2015. The Group and the Target Group are collectively referred to as the Enlarged Group.

The Unaudited Pro Forma Financial Information has been prepared based on (i) the audited consolidated statement of financial position of the Group as at 31 March 2015 as extracted from the Company’s published annual report for the year ended 31 March 2015; and (ii) the audited consolidated statement of financial position of the Target Group as at 31 May 2015 as extracted from the accountant’s report set out in Appendix II to this circular, after making unaudited pro forma adjustments as summarised in the accompanying notes that are directly attributable to the Transactions and not related to future events or decisions, and are factually supportable.

The Unaudited Pro Forma Financial Information is prepared based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes only. Accordingly, because of its hypothetical nature, the Unaudited Pro Forma Financial Information may not give a true picture of the actual financial position of the Enlarged Group that would have been attained had the Transactions been completed on 31 March 2015 or any future date.

The Unaudited Pro Forma Financial Information should be read in conjunction with the financial information of the Group as set out in the published annual report of the Company for the year ended 31 March 2015 and as set out in Appendix I to this circular, the Company’s announcement dated 28 October 2015 and other financial information included elsewhere in this circular.


– 128 –

2. Unaudited Pro Forma Consolidated Statement of Financial Position The Target The Group Group as at as at Unaudited Pro forma 31 March 31 May pro forma The Enlarged 2015 2015 adjustments Group HK$’000 HK$’000 HK$’000 Notes HK$’000 (Audited) (Audited) (Unaudited) (Unaudited) (Note 1) (Note 2)Non-current assetsProperty, plant and equipment and mining property 3,135,187 2,411,173 141,467 7 5,687,827Prepaid lease payments for land 15,232 6,599 21,831Exploration and evaluation assets — 6,220 6,220

Total non-current assets 3,150,419 2,423,992 5,715,878

Current assetsInventories 32,100 — 32,100Trade receivables 187,994 — 187,994Other receivables, deposits and prepayments 320,533 30,581 351,114Prepaid lease payments for land — 480 480Amount due from immediate holding company/vendor — 77 77Amounts due from related parties 73,046 — 73,046Cash and cash equivalents 265,062 4,857 — 3 and 7 269,919

Total current assets 878,735 35,995 914,730

Current liabilitiesTrade payables 201,115 — 201,115Other payables, accruals and deposits received 162,155 39,364 27,987 10 229,506Consideration payable — — 77,000 3 77,000Provision for close-down, restoration and environmental costs 5,349 — 5,349Secured bank borrowings 192,537 — 192,537Amount due to director — 327,971 (327,971) 8 —Amounts due to related parties 1,087 — 1,087Tax payable 162,405 — 162,405Obligation under finance leases 60,418 — 60,418

Total current liabilities 785,066 367,335 929,417

Net current assets/(liabilities) 93,669 (331,340) (14,687)

Total assets less current liabilities 3,244,088 2,092,652 5,701,191

Non-current liabilitiesDeferred tax 572,559 548,177 35,367 7 1,156,103Secured bank borrowings 154,647 — 154,647Obligation under finance leases 10,085 — 10,085

Total non-current liabilities 737,291 548,177 1,320,835

NET ASSETS 2,506,797 1,544,475 4,380,356

Capital and reserves Share capital 135,460 77 (77) 9 135,460 Reserves 1,464,729 1,544,398 403,159 4 2,255,120 327,971 8 (1,872,369) 9 415,219 7 (27,987) 10

Equity attributable to owners of the Company 1,600,189 1,544,475 2,390,580Non-controlling interests 906,608 — 1,083,168 7 1,989,776

TOTAL EQUITY 2,506,797 1,544,475 4,380,356


– 129 –

Notes to the Unaudited Pro Forma Financial Information:

1. The amounts are extracted from the audited consolidated statement of financial position of the Group as at 31 March 2015, as set out in the published annual report of the Company for the year ended 31 March 2015. The unaudited consolidated statement of financial position of the Group as at 30 September 2015 is not adopted for the purpose of this Unaudited Pro Forma Financial Information as the related unaudited interim results announcement was published after the Latest Practicable Date.

2. The amounts are extracted from the audited consolidated statement of financial position of the Target Group as at 31 May 2015, as set out in Appendix II to this circular.

3. Pursuant to the Acquisition and Subscription Agreement, the Group shall acquire 51% equity interest in the Target Company. The Transactions involve an aggregate nominal consideration of US$153 million (equivalent to approximately HK$1,184 million), comprising an initial nominal consideration of US$50 million (the “First Consideration”) and a conditional nominal consideration of US$103 million (the “Second Consideration”) (collectively referred to as the “Considerations”).

The First Consideration shall be payable and settled by the Company after fulfilment of the First Conditions (as defined in this circular) in the following manner:

(a) US$30 million (equivalent to approximately HK$232 million) to the Target Company in cash or through a combination of cash and by way of set off against the same dollar value of some or all of the principal, interest and any other amounts outstanding from the Target Group to the Company under a separate loan agreement (the “Interim Loan Agreement”) between the Company as lender and the Target Company as borrower dated 20 July 2015. The Interim Loan Agreement entered subsequent to 31 March 2015 has no impact on this Unaudited Pro Forma Financial Information;

(b) US$20 million (equivalent to approximately HK$155 million) being settled by 63,265,306 class A convertible preference shares (the “Class A Convertible Preference Shares”) to be issued by the Company to the vendor.

The completion of the Transactions will be upon the approval by the shareholders of the Company at a special general meeting and other conditions precedent to be agreed under the Acquisition and Subscription Agreement, subject to applicable and relevant regulations and rules.

After the completion of the Transactions, the Second Consideration is conditional, which shall be payable and settled by the Company in the following manner upon the fulfilment of the Second Conditions (as defined in this circular) to the vendor:

(a) US$10 million (equivalent to approximately HK$77 million) in cash;

(b) US$36.5 million (equivalent to approximately HK$283 million) being settled by 115,459,184 Class A Convertible Preference Shares to be issued by the Company; and


– 130 –

(c) US$56.5 million (equivalent to approximately HK$437 million) being settled by 178,724,490 class B convertible preference shares (the “Class B Convertible Preference Shares”) to be issued by the Company.

Both Class A Convertible Preference Shares and Class B Convertible Preference Shares (collectively the “CPSs”) are neither transferable nor redeemable and with no dividend entitlement. The CPSs are accounted for as equity instruments of the Group.

Holders of Class A Convertible Preference Shares may convert the convertible preference shares into ordinary shares of the Company at HK$2.45 per share at any time within 2 years after a notice has been served by the Company to the holders that the Target Group achieved sustainable production of 3 million tonnes of annualised production after the completion of the Transactions.

Holders of Class B Convertible Preference Shares may convert the convertible preference shares into ordinary shares of the Company at HK$2.45 per share at any time within 2 years after a notice has been served by the Company to the holders that (i) the Target Group achieved sustainable production of 3 million tonnes of annualised production after the completion of the Transactions; and (ii) the mining business license for coal mining held by a subsidiary of the Target Group has been added to the “Clean and Clear List” maintained by the Indonesian Ministry of Energy and Mineral Resources.

The Target Group has not commenced any production up to the date of this circular.

For the purpose of this Unaudited Pro Forma Financial Information, the US$30 million (equivalent to approximately HK$232 million) cash consideration in the First Consideration is considered as paid on 31 March 2015. The US$10 million (equivalent to approximately HK$77 million) cash consideration in the Second Consideration is assumed to be payable within 12 months from 31 March 2015 and recognised as the Enlarged Group’s consideration payable as at that date.

4. For the purpose of this Unaudited Pro Forma Financial Information, the fair value of the CPSs included in the First Consideration and the Second Consideration as at 31 March 2015 is estimated by the directors of the Company (the “Directors”) with reference to an independent valuation report prepared by Flagship Consulting (Hong Kong) Limited (“Flagship”), an independent firm of professionally qualified valuers, as follows;

HK$’000

Class A Convertible Preference Shares included in the First Consideration 77,755Class A Convertible Preference Shares included in the Second Consideration 127,712Class B Convertible Preference Shares included in the Second Consideration 197,692

403,159


– 131 –

Fair value of the CPSs is determined by using the Equity Allocation Method, an option pricing method treating common shares and preference shares as call options on equity value with exercise prices based on the preference shares’ liquidation preference. The key assumptions adopted in the Equity Allocation Method include (i) expected volatility of the Company’s daily stock price ranging from 61.8% to 65.2% which is estimated based on the Company’s historical share price movement before the valuation date, (ii) stock price of the Company as at 31 March 2015, (iii) exercise price of the CPSs of HK$2.45 each, (iv) expected maturity ranging from 2 years to 5 years, (v) expected dividend yield of 2.61% which is estimated based on the Company’s historical dividend yield and (vi) expected interest rate ranging from 0.46% to 1.08% which is estimated based on the bond yield of Hong Kong Monetary Authority Exchange Fund Notes. In determining the fair value of the CPSs, the directors of the Company have also taken into account the possibilities of fulfilling the conversion conditions as set out in Note 3 above. The possibilities adopted in the calculation of the fair value of the CPSs included in the First Consideration and the Second Consideration are 100% and 90% respectively.

The fair value of the CPSs to be issued may be different from its fair value used in preparing this Unaudited Pro Forma Financial Information.

5. Pursuant to the Shareholders Agreement, the vendor shall have the option to purchase ordinary shares of the Target Company equal to 1% of the total issued ordinary shares from the Target Company (the “Equalisation Option”), at fair market value, if the following conditions, among others, are met:

(i) Sustainable production of 3 million metric tonnes of annualised production has been achieved as set out in the Shareholders Agreement;

(ii) Certain level of cost and time efficiencies in respect of underground logistics, surface logistics and loading and trans-shipment has been achieved;

(iii) The coal produced by the Target Group consistently meets the relevant specification as set out in the Shareholders Agreement;

(iv) The board of the Target Company has not determined to implement a spin-off or listing of the Target Group on an exchange acceptable under the terms of the Shareholders Agreement; and

(v) Upon completion of the transfer of the equalisation shares to the vendor, the respective shareholding in the Target Company will be held as to 50% by the Group and 50% by the vendor.


– 132 –

For the purpose of this Unaudited Pro Forma Financial Information, in the opinion of the Directors, the Equalisation Option will not be exercised by the vendor. The fair value of the Equalisation Option as at 31 March 2015 is estimated by the Directors with reference to an independent valuation report prepared by Flagship on the basis that if the fair market value of the 1% of the total issued ordinary shares of the Target Company is determined correctly, the Equalisation Option is always at-the-money when exercise, meaning that the exercise of the Equalisation Option will not lead to any transfer of economic benefit. The fair value of the Equalisation Option only comes from the time value which should not be significant. Additionally, the exercise of the Equalisation Option is also conditional subject to certain conditions which will further reduce the fair value of the Equalisation Option. Hence, the fair value of the Equalisation Option is determined as nominal.

6. For the purpose of this Unaudited Pro Forma Financial Information, the aggregate amount of the fair value of the Considerations is as follows:

HK$’000

First Consideration:Cash of US$30 million payable to the Target Group (Note 7(ii)) 232,000Class A Convertible Preference Shares 77,755

Second Consideration:Cash of US$10 million payable to the vendor 77,000Class A Convertible Preference Shares 127,712Class B Convertible Preference Shares 197,692

712,159

The final consideration for the Transactions is estimated by the Directors to be the maximum considerations payable with the assumption that all conditions applied to the settlements of the Consideration will be satisfied either on the assumed completion date of the Transactions of 31 March 2015 or within 12 months thereafter.

7. Upon completion of the Transactions, the identifiable assets and liabilities of the Target Group will be accounted for in the consolidated financial statements of the Enlarged Group at fair value under the purchase method of accounting in accordance with Hong Kong Financial Reporting Standard 3 (Revised) “Business Combinations” (“HKFRS 3 (Revised)”) issued by the HKICPA (as defined below).


– 133 –

For the purpose of the Unaudited Pro Forma Financial Information, the Directors have estimated the fair value of the identifiable assets and liabilities of the Target Group, with reference to an independent valuation report prepared by Flagship. The pro forma fair values of assumed identifiable assets acquired and liabilities of the Target Group are as follows:

Carrying Fair value amount adjustment Fair value HK$’000 HK$’000 HK$’000

Property, plant and equipment and mining property 2,411,173 141,467 2,552,640Prepaid lease payments for land 7,079 — 7,079Exploration and evaluation assets 6,220 — 6,220Other receivables, deposits and prepayments 30,581 — 30,581Amount due from immediate holding company/vendor 77 — 77Cash and cash equivalents (Note (ii)) 236,857 — 236,857Other payables, accruals and deposits received (39,364) — (39,364)Amount due to director (Note (8)) — — —Deferred tax liabilities (Note (i)) (548,177) (35,367) (583,544)

2,104,446 106,100 2,210,546

Notes: (i) It represented the deferred tax liabilities arising from the fair value adjustment of mining property in the aggregate amount of HK$141,467,000 with reference to the applicable tax rate of 25% in Indonesia.

(ii) The amount comprised the cash and cash equivalents of the Target Group of HK$4,857,000 as at 31 May 2015 and the cash consideration paid by the Group to the Target Group of HK$232,000,000 (Note 6).

In determining the fair value of the mining property of the Target Group, income approach — Greenfield method, using discounted cash flows of the Target Group’s mine, with the following key assumptions was adopted:

— The prevailing coal price ranges from US$43-US$63 per tonne;— The coal price will grow steadily with a long-term sustainable rate at 3% per annum; and— Discount rate of 17%.


– 134 –

In assessing the fair values of other identifiable assets and liabilities of the Target Group, property, plant and equipments are made reference to their book value as they are mainly either newly developed or under development. Prepaid lease payments for land, exploration and evaluation assets, current assets and current liabilities are made refererce to their respective book value as they already reflected the fair value. Deferred tax liabilities is mainly at 25% of the mining property of the Target Group.

Gain on bargain purchase from the Transactions is calculated as follows:

HK$’000

Fair value of the Considerations (Note 6) 712,159Fair value of net identifiable assets and liabilities of the Target Group (per above) (2,210,546)Non-controlling interests (49% of fair value of net identifiable assets and liabilities of the Target Group per above) 1,083,168

Gain on bargain purchase arising from the Transactions (415,219)

In order to attract the Group to acquire the interest in the Target Group with an aim to obtaining sufficient working capital to commence mining activities, the purchase price was determined based on a discounted price, resulting in a gain on bargain purchase.

The fair value of the Considerations and the net identifiable assets and liabilities of the Target Group will be reassessed upon the completion of the Transactions and as a result of the reassessment, the actual gain on bargain purchase arising from the Transactions may be different from the estimated amount as presented above.

8. Pursuant to the Acquisition and Subscription Agreement, all indebtedness of the Target Group shall either been repaid in full or fully released by the relevant creditors upon the completion of the Transactions. For the purpose of the Unaudited Pro Forma Financial Information, the amount due to a director of the Target Company of HK$327,971,000 is assumed to be released by a waiver and recognised in profit or loss or other reserves upon the completion of the Transactions.

9. The adjustment represents the elimination of the pre-acquisition reserves and share capital of the Target Group.

10. The adjustment reflects the estimated legal and professional expenses of approximately HK$27,987,000 that are directly attributable to the Transactions and the amount is included in other payables, accruals and deposits received.


– 135 –

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, BDO Limited, Certified Public Accountants, Hong Kong.

II. INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

852 2218 8288852 2815 2239

852 2218 8288852 2815 2239

852 2218 8288852 2815 2239

852 2218 8288852 2815 2239

30 November 2015The Board of DirectorsAgritrade Resources Limited

Dear Sirs,

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Agritrade Resources Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 31 March 2015 and related notes as set out on pages 128 to 134 in Appendix III of the circular dated 30 November 2015 (the “Circular”) issued by the Company (the “Unaudited Pro Forma Financial Information”), in connection with the proposed acquisition of 51% equity interest in Merge Mining Holding Limited (the “Target Company”) and its subsidiaries (collectively referred to as the “Target Group”) pursuant to the Acquisition and Subscription Agreement and the Shareholders Agreement dated 28 October 2015 (the “Transactions”). The Group and the Target Group are collectively referred to as the “Enlarged Group”. The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro forma Financial Information are described in Appendix III to the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the Transactions on the Group’s financial position as at 31 March 2015 as if the Transactions had taken place at 31 March 2015. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Company’s published annual report for the year ended 31 March 2015. Information about the Target Group’s financial position has been extracted by the Directors from the financial information of the Target Group as at 31 May 2015 as set out in the accountant’s report included in Appendix II to the Circular.


– 136 –

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting accountants comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of the Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of the Transactions on unadjusted financial information of the Group as if the Transactions had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Transactions would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the Transactions, and to obtain sufficient appropriate evidence about whether:


– 137 –

• the related unaudited pro forma adjustments give appropriate effect to those criteria; and

• the Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Enlarged Group and the Transactions, in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

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

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled on the basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully

BDO LimitedCertified Public AccountantsHong Kong

APPENDIX IV MANAGEMENT DISCUSSIONS AND ANALYSIS

– 138 –

MANAGEMENT DISCUSSIONS AND ANALYSIS ON THE TARGET GROUP

FOR THE YEARS ENDED 31 DECEMBER 2012, 2013 AND 2014 AND THE FIVE MONTHS ENDED 31 MAY 2015

FINANCIAL REVIEW

During the reporting periods the Target Mine is under development and the Target Group has not generated any revenue. Accordingly, the following paragraphs only contain discussions on selected items of the financial information of the Target Group.

Consolidated Statements of Comprehensive Income

Year ended 31 December Five months ended 31 May 2012 2013 2014 2014 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Other income and gains 25 208 22 1,751 2Administrative expenses (5,992) (12,342) (29,840) (5,677) (17,891)

Loss before income tax expense (5,967) (12,134) (29,818) (3,926) (17,889)

Income tax expense — — — — —

Loss and total comprehensive income for the year/period (5,967) (12,134) (29,818) (3,926) (17,889)

14.67(7)1st batch Q15


– 139 –

Consolidated Statements of Financial Position


Non-current assets Property, plant and equipment 125,519 118,425 209,742 218,465 Prepaid lease payments for land 7,759 7,279 6,799 6,599 Mining property 2,192,708 2,192,708 2,192,708 2,192,708 Exploration and evaluation assets 5,093 5,996 6,220 6,220

Total non-current assets 2,331,079 2,324,408 2,415,469 2,423,992

Current assets Other receivables, deposits and prepayments 1,375 15,106 30,518 30,581 Prepaid lease payments for land 480 480 480 480 Amount due from immediate holding company 77 77 77 77 Cash and cash equivalents 351 6,956 21,973 4,857


Current liabilities Other payables and accruals 3,859 3,793 29,072 39,364 Amount due to director 177,010 202,875 328,112 327,971



Total assets less current liabilities 2,152,493 2,140,359 2,111,333 2,092,652

Non-current liabilities Other payables — — 792 — Deferred tax 548,177 548,177 548,177 548,177

Total non-current liabilities 548,177 548,177 548,969 548,177

Net assets 1,604,316 1,592,182 1,562,364 1,544,475

Capital and reserves Share capital 77 77 77 77 Reserves 1,604,239 1,592,105 1,562,287 1,544,398

Total equity 1,604,316 1,592,182 1,562,364 1,544,475


– 140 –

Selected items of statements of comprehensive income

(a) Fivemonthsended31May2015comparedtofivemonthsended31May2014

As the Target Mine is under development and as a result, the Target Group has not generated any revenue during the reporting periods, the financial results of the Target Group for the five months ended 31 May 2015 and the five months ended 31 May 2014 only comprised of other income and administrative expenses incurred in the correspondent periods.

Other income for the Target Group for the five months ended 31 May 2015 decreased to HK$2,000 from HK$1.8 million for the five months ended 31 May 2014. This was primarily due to the depreciation of Indonesian Rupiah (“IDR”) against US$ during the five months ended 31 May 2015 which resulted in foreign exchange losses recognised in administrative expenses as a consequence of the settlement of the US$ denominated intercompany balances by IDR; while there was an appreciation of IDR against US$ during the five months ended 31 May 2014 which resulted in foreign exchange gains recognised in other income settlement of intercompany balances.

The administrative expenses for the Target Group for the five months ended 31 May 2015 increased to HK$17.9 million compared to HK$5.7 million for the five months ended 31 May 2014. The increase in administrative expenses is mainly due to the recognition of exchange losses recognised as stated above; and there were more staff employed as the development work at the Target Mine progressed.

(b) Years ended 31 December 2012, 2013 and 2014

Since the Target Mine is under development and the Target Group has not generated any revenue during the reporting periods, the Target Group recorded a net loss of HK$6.0 million, a net loss of HK$12.1 million and a net loss of HK$29.8 million for the years ended 31 December 2012, 2013 and 2014, respectively, which mainly represented administrative expenses incurred.

The administrative expenses for the Target Group for the year ended 31 December 2014 increased to HK$29.8 million, from HK$12.3 million for the year ended 31 December 2013, and from HK$6.0 million for the year ended 31 December 2012, respectively.

The increase in administrative expenses during year ended 31 December 2013 as compared to the year ended 31 December 2012 was mainly due to the increase in net exchange losses as a result of the depreciation of IDR against US$. The increase in administrative expenses during year ended 31 December 2014 as compared to the year ended 31 December 2013 was mainly due to the increase in staff costs as a result of more staff employed as the development at the Target Mine progressed.


– 141 –

Selecteditemsofstatementsoffinancialposition

Mining property

Mining property of the Target Group remained at HK$2,192.7 million as at 31 December 2012, 2013 and 2014 and 31 May 2015. Mining property represented mining licenses which constitute the rights to conduct mining activities in the Target Mine over the Target Mine’s mine estimated life of 18 years. No amortisation is charged during the reporting periods and therefore no changes were recorded in carrying amount as mining activity has not yet commenced.

Exploration and Evaluation Assets

The exploration and evaluation assets represent the capitalized expenditures in relation to exploration and evaluation activities in the Target Mine. The exploration and evaluation assets for the Target Group have no significant change during the reporting periods.

Liquidity and Financial Sources

As at 31 December 2012, 2013 and 2014 and 31 May 2015, the Target Group had bank balances and cash of approximately HK$0.4 million, HK$7.0 million, HK$22.0 million and HK$4.9 million, respectively.

The Target Group’s total current liabilities as at 31 December 2012, 2013 and 2014 and 31 May 2015 were HK$180.9 million, HK$206.7 million, HK$357.2 million and HK$367.3 million, respectively. The total current liabilities primarily comprised of amount due to a director, representing shareholder’s loans which are unsecured, interest-free and repayable on demand. As the Target Mine is under development and the Target Group has not generated any revenue during the reporting periods, the Target Group had limited sources of financing to fund the construction of the underground mining site of the Target Mine. The director of the Target Group injected capitals to the Target Group in the form of shareholder loans for the Target Mine’s capital expenditures and working capitals. As at 31 May 2015, the Target Group had an amount due to a director of approximately HK$328.0 million, however, the director of the Target Group confirmed that the amount will be written off before the First Completion.

Capital Structure, Gearing and Charge on Assets

The Target Group’s capital structure consisted of share capital and reserves.

The Target Group monitors its capital structure on the basis of the gearing ratio, which is calculated as total liabilities divided by total assets. As at 31 December 2012, 2013, 2014 and 31 May 2015, the gearing ratio of the Target Group was 31%, 32%, 37% and 37% respectively. Given the amount due to a director of the Target Group will be written off before the First Completion, the gearing ratio of the Target Group will be significantly reduced.

As at 31 December 2012, 2013, 2014 and 31 May 2015, there was no charge on the assets of the Target Group.


– 142 –

Foreign Currency Risk

Foreign currency risk is the risk that fair value or future cash flows will fluctuate due to movements in foreign exchange rates. Due to the pre-production status of the Target Mine, the Target Group has limited exposure to foreign currency risk. Most of the exposure comes from expenditures related to equipment and supplies procurement. The Target Group did not have hedging policy in respect of the foreign currency risk during the reporting periods. ARL and the management will consider implementing hedging policies in the future as and when appropriate.

Significant Investment, Material Acquisitions and Disposals of Subsidiaries or Associated Companies

During the reporting periods, Target Group has no significant investment or material acquisitions or disposals of subsidiaries and associates.

Employees and Remuneration Policies

The Target Group had 42 staff members, 41 staff members; 155 staff members, and 78 staff members as at 31 December 2012, 2013 and 2014 and 31 May 2015, respectively. Since 2014, the Target Group also employed agents for completion of its works. Yet the number of works provided by these agents is unknown. Staff costs for the years ended 31 December 2012, 2013 and 2014 were HK$2,179 thousands, HK$1,368 thousands and HK$12,475 thousands, respectively. Staff costs for the five months ended 31 May 2014 and 2015 were HK$2,689 thousands and HK$4,840 thousands, respectively. The Target Group’s remuneration policy is in line with prevailing market practice on performance of individual staff and the Target Group operates a bonus plan to reward the staff on a performance related basis.

As at 31 December 2012, 2013, 2014 and 31 May 2015, the Target Group had no capital expenditure contracted but not provided for the Target Mine needs further capital investment to develop and achieve sustainable production of 3.0 million tonnes of annualized production. According to SRK, the estimated capital investment needed to achieve 1.2 million tonnes is approximately $68.65 million, which includes capital expenditures needed for future upgrading of surface structures and for ongoing mine development. To achieve 6.0 million tonnes of production, including the second longwall, an additional $121.04 million would be required. Subject to financing environment, the Company will secure the funding first through external debt and second through investment by shareholders.

DEVELOPMENT REVIEW

The Target Mine is under development during the reporting periods. Major development activities include mine designs, site preparation, surface plant facilities, mine power supply facilities, inclined shafts and seam panel developments.

MAJOR EVENTS

In early 2015, the project was approved by MEMR and received the Clean and Clear certificate (“CNC”) under the name of MMI. In May 2015, MMI obtained the Coal Export License (“ET-Batubara’) from the Ministry of Trade of the Republic of Indonesia.

APPENDIX V COMPETENT PERSON REPORT AND VALUATION REPORT ON THE TARGET MINE

– 143 –

Competent Person’s Reportand Valuation Report

for theRantau Nangka Coal Project

South KalimantanIndonesia

Report prepared for

Agritrade Resources Limited

Prepared by

Project Number: SCN462November 2015

14.58(6)


– 144 –

Competent Person’s Reportand Valuation Report

for the Rantau Nangka Coal Projectin South Kalimantan, Indonesia

Agritrade Resources Limited80RafflesPlace#45-01/02/03

UOB Plaza 1Singapore 048624

Telephone No: +65 6225 9618

SRK Consulting (China) LimitedB1205 COFCO Plaza

8 Jianguomen Nei DajieDongcheng District

Beijing 100005, ChinaTelephone No: +86 10 6511 1000

Bruno Strasser, [email protected]

Project No.: SCN462November 2015

Compiled by: Endorsed by:

Bruno Strasser Dr. Yonglian SunPrincipal Consultant Corporate Consultant

Authors:Bruno Strasser, Jan Smolen, Kevin Holley, Anthony Stepcich, Peter Fairfield, Andy Li, Roger Hou, Simon Wu, Bonnie Zhao

Peer Reviewed by:Dr. Yonglian Sun, Corporate Consultant, Internal ReviewDavid Lawrence, Principal Consultant, External Review


– 145 –

EXECUTIVE SUMMARY

Agritrade Resources Limited (“Agritrade” or “the Company”) commissioned SRK Consulting China Limited (“SRK”) to review the Rantau Nangka Coal Project (“Rantau Nangka” or “the Project”) located near Banjar Baru, Kalimantan, Indonesia. The Rantau Nangka Coal Project is 100% owned and developed by Merge Mining Holding Ltd. (“MMHL”) through its subsidiaries.

SUMMARY OF PRINCIPAL OBJECTIVES

Purpose and principle objectives of this Report is to provide Agritrade Resources Limited, their shareholders, potential investors and the Hong Kong Exchange and Clearing Limited (“HKEx”) with a Competent Person’s Report (“CPR”) and Competent Valuation Report (“CVR”) according to the requirements of Chapter 18 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”). Both the CPR and CVR have been consolidated into this single report (the “Report”). The Company will include this Report with documents it plans to submit to the HKEx in relation to a proposed acquisition.

OUTLINE OF WORK PROGRAM

The work program involved the following three phases:

• Phase 1: Review project information provided and from previous reports, and undertake a site visit to Rantau Nangka in Banjar Baru, Indonesia;

• Phase 2: Review, reconcile, and validate existing exploration data, geological model and the Coal Resources in accordance with the 2012 edition of the Joint Ore Reserves Committee Code (“JORC”);

• Phase 3: Carry out a mining assessment and estimate the Coal Reserves in accordance with the JORC Code based on the latest mining plans; provide an economic analysis and valuation of the project, and prepare the Report

RESULTS

Overall

The report prepared for Agritrade is considered a CPR including Valuation in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, Joint Ore Resource Committee Code (“JORC Code”) and the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (“VALMIN Code”).


– 146 –

The Project owned by Merge Mining Holding Ltd. (“MMHL”) holds three coal exploration and mining concessions: one of the concessions, an “Exploration IUP” is held through PT Merge Energy Sources Development (“MESD”); the other two concessions are mining concessions or Indonesian “Production IUPs”, which are held through PT Merge Mining Industri (“MMI”) and PT Merge Continental Mining (“MCM”). MESD further has a framework agreement (Nota Kesepahaman Antara Perusahaan Daerah Baramarta Dengan PT. Merge Energy Source Development, 2009, or the “Agreement”) with the previous holder of the mining rights in the area, PD Baramarta, which allows for “cross border” underground mining and development work into PD Baramarta’s area in individually negotiated defined locations.

The Rantau Nangka Coal Project is in an advanced stage of development. As of September 2015 development work for the first panel in Seam D was complete. The longwall entry had been opened, and the main mining equipment was at site but not installed underground. Two of the three planned inclined shafts were completed and surface structures including installations needed for development work and start-up operation were in place. Installation of the production belt conveyors leading from the Seam D longwall entry to the surface was in progress.

The mining operation will be legally based on mining cooperation agreements between MESD, and MMI, and between MESD and MCM. According to these agreements, MMI and MCM will grant full management rights to MESD.

SRK reviewed the Coal Resource of the Project using verification reports prepared by Heilongjiang Coal Geology Survey Institute, an exploration report prepared by R&D Centre for Mineral and Coal Technology (“TekMIRA”), and other information prepared by Zoucheng Huajian Design Institute of Yankuang Coal Group (“Zoucheng Institute”). In addition, coal samples were taken from the mine workings for data verification. SRK prepared new coal seam model which was used to update the Coal Resource estimate in accordance with the JORC Code 2012. A site visit was undertaken in June and September 2015 to complement this review. The coal seams, Seam A, B, C, and D and D up provide the coal resource.

The review of the available borehole information and quality data was supplemented with confirmatory data from the new underground samples. Additional observations and measurements at selected highwall sections in the neighbouring PT Pama Persada Nusantara (“PT Pama”) open pit coal mine and from the newly accessible underground workings were also incorporated into the model. SRK is of the opinion that the results from the Coal Resource estimate represent a realistic picture of the tonnage and quality of the coal within the concession areas.

SRK used the latest updated mining plans provided by MESD and considered modifying factors as required by JORC to re-estimate the Coal Reserves. For Coal Reserve reporting SRK was further assuming that there is reasonable expectation that all permits required for mining over the life of the mine (“LOM”) will be granted and received within the anticipated timeframe as required by the mine plans. Coal from three coal seams, Seam B, Seam C and Seam D was considered to be economically minable under the project’s planning assumptions, i.e., to be defined as a Coal Reserve. The results of the reserve estimate totalling 92.0 Mt are considered to provide a sound basis for economical operation of the mine over the planned LOM. Coal from Seam A was not included in the Coal Reserves.


– 147 –

SRK’s mining assessment concludes that access to the project site and infrastructure in the area are good. Contracts for coal transport and barging have still to be negotiated and signed, but the services on offer for coal transport should easily accommodate the tonnage to be produced by the Rantau Nangka mine. The surface facilities at the mine as planned are partly constructed. The surface facilities are basic but are considered sufficient to serve the needs of initial mine operations. Underground, the development works as planned and visited by SRK are making good progress. The mine design and the main mining equipment proposed is comparable and of similar standard as found in coal mines in China, where the mine design was done and from where equipment has and will be purchased. SRK considers the mining method and technology proposed suitable for the mine and the expected conditions.

The mining studies undertaken consider that the run-of-mine (“ROM”) coal received at the surface and after screening will be a marketable product with acceptable ash, sulphur, and moisture contents. SRK would assume that this could be achieved, but some small loss of coal in order to limit dilution of coal during the extraction process should be considered.

The planned annual production of the mine is 6.0 million tonnes (“Mt”). SRK would expect that such production goal could be achieved once operation in the longwall faces is well tuned and if the effective operating hours as assumed in the mining studies can be actually achieved. The need for a third mining face to support production in case of a shortfall in the two planned faces should not be excluded.

Mining Assets, Concessions and Permits

The Exploration IUP was issued to MESD by Banjar Baru on 19 June 2013. Exploration IUP 471/2013 consists of one exploration block.

On 19 June 2013, the Banjar Baru issued two approvals for updated production (“Approval of Updating Production IUP Area”) in the IUP areas held by PT Merge Mining Industri (“MMI”) and PT Merge Continental Mining (“MCM”) concessions. Mining Concession 470/2013, held by MMI, consists of one block, and Mining Concession 469/2013, held by MCM, consists of three blocks. All blocks together cover a total area of 23.603 square kilometres (“km2”).

In addition to the MMHL’s mining concessions, there is an additional area between the boundaries of the MMHL’s concessions and the limits of PD Baramarta’s open pit operations where PD Baramarta allows MMHL to conduct cross border mining. This “outside” area is partly included in the mining plans. Mining or underground development work in this area is covered by an agreement between MESD and PD Baramarta. This agreement, which is an agreement in principle, gives the MESD the opportunity to include and develop the area in its underground operation in co-ordination with PD Baramarta. According to Clause 4 of the agreement, the parties need to make separate agreements for each area of cross border mining and after open pit mining is completed. The Business Licenses for MMI (No. 356.0457.1.824.271) and MCM (No. 355.0544.1.824.271) were issued separately by the Jakarta Centre of Industry and Trade Services Group on 5 March 2009.


– 148 –

SRK was provided with a Land Use Sale Agreement between MESD and the head of Rantau Bakula Village and Sungai Pinang District (signed 25 July 2009). This agreement was notarized by Lady Rikawati, the land notary in Banjar Baru, and approved by the magistrate of Banjar Baru.

SRK sighted two Forestry Permits for the Rantau Nangka Coal Project’s exploration tenements. However both expired on 6 February 2010. MMHL stated that they had not extended the Exploration Forestry Use Permits as they are currently applying for Mining (Coal Production) Forestry Use Permits.

SRK was provided with governmental receipts of applications from MESD for Mining Forestry Use Permits for both of their tenements for review.

During the June 2015 site visit, SRK was provided with a Mining Forestry Use Permit (No. SK.651/Menhut-II/2013) issued by the Forestry Minister of Indonesia on 2 October 2013 and it is valid until 11 February 2030. The Mining Forestry Use Permit covers an area of 36.5 hectares and covers the main ground production facilities.

Based on information provided by the Company, no material change has occurred since the Effective Date to the resource and reserve statements or the values for the Project at the date of publication of this Report.

SRK has been advised by the Company, its legal advisors and MMHL that there are no legal claims or proceedings which could influence MMHL’s rights to explore and/or mine at the Project.

Geology

The Eocene coal-bearing deposits show very limited signs of igneous intrusions and only limited restricted structural deformations were observed in the highwalls of Pama coal mine. Recent exploration activity within the Project area confirms very limited structural disturbance. The coal seams have developed as result of a series of sea-level regressions considered to represent event beds, and as such the coal seams may be regionally extensive.

The Rantau Nangka underground coal mine is in an advanced stage of development. MMHL is aiming to extract three coal seams with total thickness up to 8.8 m. Based on the coal quality results made available to SRK, coal from the tenement area can be classified as high volatile bituminous coal with moderate-to-low ash, and low to high sulphur content, and high calorific value. The upper coal seam (Seam B) is characterized by relatively low-to-medium sulphur content (0.5 to 1.63%), whereas the lower seams are characterised by higher sulphur values (up to 3.96% S in Seam Dup). Methane gas levels are considered low, based on data from samples collected from seams B, C, and D in drillholes ZK-001, ZK-103, and ZK-202.


– 149 –

The following table provides a general overview of coal attributes from the main mineable coal seams in the project area.

Coal Minable CoalSeam Sulphur Calorific Bearing Formation Coal Thickness Dip Ash (adb) (adb) Value (adb) System Seams (m) (°) (%) (%) (kcal/kg) Eocene Tanjung B, C, D 0.95-6.10 5-11 3.43-16.11 0.32-3.96 5959-7282

Note: adb = air dried basis.

Coal characteristics in the above table were derived from coal sample test results of 18 bore holes for which data and reports were made available to SRK. Additional data and measurements were obtained during site inspections.

Exploration

Drilling Program 2000-2003

The original exploration drilling was conducted along the coal outcrop areas from 2000 to 2003.

PT Merge’s Development Report (PT Merge, 2008) lists the boreholes drilled in the four areas and the seams intersected in the following table.

Borehole South Pit North Pit Pinang Pit West Pit Total number 44 44 13 27 Seam A 15 16 1 Seam B 27 35 10 23 Coal Seams Seam C 44 43 13 23 Seam Dup 34 37 5 15 Seam D 44 43 13 26

SRK was provided with information about the drill rig used, geological data obtained by drilling, and the description of geophysical logging. The results of geophysical logging along with the detailed data on drilling performance (core recovery, lack of circulation) were not available to SRK.

Exploratory drilling for the South Pit was conducted in two stages. No data about the number of boreholes or total drilled metres were provided to SRK for the first stage. A report on the infill drilling indicated that 31 infill boreholes were drilled in the South Pit area. The total drilling target for the infill drilling was 2,284 m and 2,858 m were completed by Longyear LY22, Longyear LY20, and Edson DD3 drilling rigs. It is SRK’s view that all drilling equipment used was suitable for the work.


– 150 –

Exploratory drilling at the North Pit area was also conducted in two stages, and as with the South Pit no data about the number of boreholes and total drilled metres was provided to SRK for the first stage. The infill drilling reports indicates that the second stage consisted of 30 infill boreholes. The total drilling target for the second stage was 2,515 m and 2,909 m were ultimately drilled.

Geophysical logging of infill boreholes used gamma ray, log calliper, electric resistivity, and log density (gamma-gamma) methods. The gamma ray method used uranium, thorium and potassium sources.

MMHL Drilling Program 2008-2009

Results of the 2000 to 2003 drilling program indicated that coal seams continue to the centre of the basin and that coal could be recovered by underground mining. To verify the underground coal resource potential MESD has undertaken an exploration drilling program to support a robust Resource estimation. MESD commissioned TekMIRA to carry out both the drilling program and Resource estimation.

Drilling was carried out by TekMIRA using Koken EP1 and Longyear 44 drilling rigs. A total of 18 boreholes have been drilled and it was observed that drilling and core handling was conducted up to a high standard. The use of HQ double core barrels and triple tube core barrels with inner split tubes were used for coring resulted in excellent core recovery. The drill sites were well organised, tidy and efficient.

The boreholes were all drilled vertically and were surveyed to record downhole azimuths and inclination at regular intervals of 30 m. The boreholes with less than 200 m depth were not surveyed by downhole camera.

Initially, borehole sites were located by global positioning system (“GPS”). After completion all boreholes were cemented and surveyed, and fitted with PVC pipe tagged by borehole ID and date of completion.

Geological logging followed international standards under the guidance of SRK. The geological database was collected and stored in hard copy consisting of log sheets and then transferred to a WellCAD database from which borehole logs were produced.

Core photographs were taken after the geological logging. The geophysical logging consisted of calliper, electric resistance, natural gamma, and gamma-gamma methods. Both the methodology and records meet international standards.


– 151 –

Coal Resources

SRK created a stratigraphic model using Minex V6.1.3 modelling software. Validated boreholes and topography data were imported to create a database from which the coal seams were then correlated and the stratigraphical model was created. During the modelling process, the coal seam data from the borehole logging were used to build roofs, floors, partings, and seam structures using the general purpose grid method. The clean coal thickness grids used for Resource estimation were modelled arithmetically. SRK adopted a grid size of 25 m by 25 m both for stratigraphic and coal quality models.

The resources as estimated by SRK in accordance with the JORC Code are presented in the table below.

Resource

MMI MESD MCM MCM MCM

Category IUP 470 IUP 471 Block 1 Block 2 Block 3 Total

(Mt) (Mt) (Mt) (Mt) (Mt) (Mt) Measured 55.02 0.30 0.00 0.00 0.00 55.32 Indicated 33.17 50.85 4.41 0.00 0.00 88.43 Measured+Indicated 88.19 51.15 4.41 0.00 0.00 143.76 Inferred 64.15 53.33 1.29 2.01 0.00 120.78 Measured+Indicated+ Inferred 152.34 104.48 5.70 2.01 0.00 264.53

JORC Code Statement: The information in this Report which relates to the Coal Resource is based on information provided by TekMIRA and compiled by staff of SRK Consulting China under the supervision of Mr Jan Smolen, Associate Principal Geologist of SRK Consulting China and a member of AusIMM. Mr Smolen has sufficient experience relevant to the kind of project, style of mineralisation, type of deposit under consideration, and the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”, the JORC Code. Mr Smolen consents to the reporting of this information in the form and context in which it appears.

All resources are limited to the area within the mining and exploration licence boundaries held by MESD and vertically from the surface to the bottom of the relevant coal-bearing strata. The estimation does not include weathered coal within 40 m of the topographic surface. Areas within 30 m of a fault line are also excluded from the Resource estimation.

This coal resource was estimated by SRK using Minex V6.1.3 software under the supervision of a Competent Person and in accordance with the JORC Code guidelines. The review of the geology and exploration results for the license area by SRK indicates that the Coal Resource has a reasonable prospect for economic extraction.


– 152 –

Two coal seams, Seam A and Seam Dup which are present in the license area are considered by SRK to be of questionable prospect for eventual economic extraction. For that reason, SRK has classified the Coal Resource estimated for these two seams to “Inferred Coal Resource” globally.

The Coal Resource of the project is inclusive of the Coal Reserve.

Coal Reserves

The total Coal Reserves of the Project estimated by SRK in accordance with the JORC Code are 92.0 Mt. The Coal Reserves in the individual Mining Sections as per mining plan are summarized in the table below.

Coal Reserve (JORC) Reserve Mining Section IUP License Category Coal Reserve

(Mt) Proved 0.0 1st Mining Section IUP 470 Probable 43.8 Total 43.8 Proved 0.0 2nd Mining Section IUP 471 & 470 Probable 32.9 Total 32.9 Proved 0.0 3rd Mining Section IUP 471 Probable 12.4 Total 12.4 Proved 0.0 4th Mining Section IUP 469-I Probable 2.9 Total 2.9 Proved 0.0 Coal Reserve — Mine Probable 92.0 Total 92.0

Note: The Coal Reserve as estimated considers 10 cm mining loss at the seam roof and at the seam floor, and a panel revovery rate of 95%. Reference Point at which Coal Reserves are defined is ROM Coal as received at the surface


– 153 –

JORC Code Statement: The information in this Report which relates to the Coal Reserve is based on SRK’s Coal Resource estimate and information compiled by Mr Bruno Strasser, a full time employee of SRK Consulting China Ltd and a member of AusIMM. Mr Strasser has sufficient experience relevant to the kind of project, the style of mineralisation, the type of deposit under consideration, and the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”, the JORC Code. The reserve estimate is based on SRK’s Coal Resource estimate and was conducted by Ms Bonnie Zhao and Mr Roger Hou under the supervision of Mr Strasser. Ms Zhao and Mr Hou are full time employees of SRK Consulting China Ltd. and members of AusIMM. Ms Zhao and Mr Hou are specialists in computerized reserve estimation and have relevant experience in the style of mineralization and type of deposit under consideration. Mr Strasser, Ms Zhao, and Mr Hou consent to the reporting of this information in the form and context in which it appears.

Mining losses at the roof and floor of the coal seams, some dilution by dirt bands in the coal seams, a general coal recovery rate (panel recovery), mining factors such as the loss of coal for pillars for the protection of surface structures and waterbodies, coal barriers in the mine, and the general “Modifying Factors” as required by the JORC Code were considered when converting Coal Resource to Coal Reserve. The reference point for the Coal Reserve estimate is ROM coal as received at the surface before screening. ROM coal is considered to be marketable coal.

SRK has considered the “Modifying Factors” when converting Coal Resource to Coal Reserve. As some uncertainties particularly regarding the market for coal, the future development of the overall cost of coal, and some licenses and permits for later stages of the project still need to be obtained, SRK classified the Reserve which would have been classified as Proved Reserve based on the confidence of exploration data to “Probable Reserve”.

The Coal Reserves are located in Seam B, Seam C and Seam D. SRK has classified the Resource in Seam A to “Inferred Coal Resource” which precludes consideration as a Coal Reserve.

In SRK’s opinion, potential exists to increase the Coal Reserves in the 2nd and 3rd Mining Sections. Only a limited number of infill boreholes would be required to allow to consider coal there as a Coal Reserve in accordance with JORC. Additional potential may also be found in the surrounding area held by PD Baramarta, but infill drilling would also be required and cross border mining agreements would have to be substantiated to confirm possible additional Coal Reserves.

Mining

The Rantau Nangka underground coal mine project is in an advanced development stage but has not commenced coal production. First coal production is scheduled for early 2016. The mine is designed for a coal production of 6.0 million tonnes per year (“Mtpa”).

The Rantau Nangka underground coal mine is in an area surrounded by open pit operations. MMHL now intends to mine the deeper seam sections which were not mineable by open pit by underground mining.


– 154 –

Due to the relatively shallow depth of sections of the coal seams which are considered for underground mining, the mine can be accessed using inclined shafts. The use of such “inclines” presents a technical and economic advantage compared with vertical shafts since they use a simpler technology for development, have lower construction costs, and also have the possibility to use continuous belt conveyor systems to haul the coal to the surface instead of a vertical hoist with a skip.

The specific mining technology chosen for the planned underground operation is fully mechanised longwall mining, which results in the mined out area (gob) collapsing (caving) behind the mining face.

Based on the information provided to SRK, site-specific geotechnical knowledge with respect to expected mining conditions is judged to be very rudimentary. SRK has not identified any geotechnical issues that could be considered as fatal flaws to the project, and SRK notes that the geotechnical conditions observed during two underground visits were judged to be good. It is not unusual for a project of this nature at a pre-production stage to have only a rudimentary knowledge of geotechnical conditions. However, SRK is of the opinion that it is important for additional geotechnical work be carried out to more confidently understand and properly manage geotechnical conditions that may impact mining. Improved understanding of geotechnical conditions is expected to present opportunities to optimize mining operations.

Zoucheng Institute completed a study entitled “Preliminary Mine Design Report for Merge Coal Mine, Indonesia” (“PMD”) in February 2010. SRK concurs with the PMD that subsidence is an important issue which needs to be given the appropriate level of attention. SRK recommended and recognized that updated mine design considers such permanent protective mining pillars and barriers along critical sections of the river flowing through the license area and for other water bodies such as reservoirs and flooded old open pit mines in the vicinity. Such pillars under the affected objects on the surface could avoid damage, claims, and hydrological impact to the mine workings.

Other issues possibly requiring further attention include mine hydrology, coal dust, coal bed methane, and spontaneous combustion, but SRK considers these issues controllable.

The layout of the mine is determined by the boundaries of the MMHL’s mining licenses (IUPs), the Coal Resources within the license areas, and geological parameters. The geological fault line along the western boundaries and striking west-east across the central area are the most influential geological features. The mine industrial area (surface plant area) is located west of the entrances to the inclined shafts. The inclined shafts are leading down into the coal seams in generally south-western direction. The initially required main roadways underground are already developed and will first serve the 1st Mining Section. After the 1st Mining Section is mined out, the roadways will be extended to cover the panels for the 2nd and 3rd Mining Sections. A 4th Mining Section is planned northeast of the mine industrial area. This area is considered for longwall operation and could be tuned in to the mining schedule and operation as a third mining face if required to achieve the annual coal production targets, or this area is mined later after the 1st to 3rd Mining Sections are mined out and the equipment from there is available.


– 155 –

SRK considers the layout of the mine as practical and as an optimized solution with regard to layout and development of the mine.

Mine construction and underground development in Seam D is well advanced and should allow mining and coal production to commence in early 2016, although some trial operations may be possible beforehand in late 2015. The critical path for the Project and for timely start-up is the installation of the main mining equipment at the face in Panel 1 of Seam D. The main mining equipment has arrived at site in September 2015 but was not installed underground. Completion of the third inclined shaft is also pending but production from Seam D could commence without this inclined shaft which is planned for trackless material transport and waste rock haulage. According to the project and production schedules, development of the first panel in Seam B needs to be completed in 2017 and for Seam C in 2018. The main surface structures and facilities required for operation are either completed or could be expected to be operational for production from Seam D in late 2015.

Three coal seams, Seam D, Seam C, and Seam B are considered for mining. Two fully mechanized longwall faces working at different coal seams (representing different mine levels) are planned for regular coal operation.

The main mining equipment of each face consists of a double drum coal shearer, an armoured face conveyor, a stage loader with a crusher (sizer), and the belt conveyor system to the surface. An underground coal bunker is planned to provide buffer stock capacity for the underground operation. For initial operation in Seam D, no underground coal bunker has been constructed which may impact the effective operating hours achievable.

Operations in Coal Seam B will have the potential for a higher output then the other seams due to the greater thickness of Seam B but will also require larger roof support and main mining equipment of higher capacity. Seam B also contains a higher ash content as Seam C and D.

MESD has developed a detailed mining plan considering the sequence of panel extraction at each coal seam and for ascending extraction in order to reach the planned coal output and to avoid sterilization of seam sections through subsidence. SRK considers the mine design and equipment selection as adequate for the assumed conditions. The mine is comparable regarding design and equipment used with Chinese mines of similar conditions and production goals.

The ROM coal as received at the surface is considered a marketable product after screening and crushing of the oversize coal. No coal preparation process (coal washing) is considered for the project at the present stage. The PMD has made suggestions for simple sieve-jig coal preparation if required. MMHL advised they may considering a coal preparation plant (“CPP”) subject to further feasibility study.

The mine is expected to operate 330 days annually, in three shifts of 8 hours daily. Sixteen (16) effective operating hours are assumed necessary to achieve the expected coal production.


– 156 –

Coal Production and Life of Mine

The mine is in an advanced stage of development and according to the development plan, first coal production could be expected for early 2016. Some coal from trial operations in Panel 1 in Coal Seam D may already be expected towards the end of 2015.

At full production stage, coal will be extracted from two mining faces (longwalls) simultaneously. Coal production will commence in Seam D. Seam B would come on stream in 2017 after sufficient development work is completed and the longwall equipment is installed. Equipment first installed in Seam D would later be used in Seam C and changed over back to Seam D according to the panel extraction plan.

The annual ROM coal production target of the mine as per the latest revised production schedule of September 2015 is 6.0 Mt. This target should be reached after a four (4) year ramp-up period. The production forecast over the designed life-of-mine (“LOM”) is shown in the table below.

Coal Production Schedule (Forecast) 2016 2017 2018 2019 2020-2031 2032 2033 2034 (Mtpa) 1.08 2.40 4.00 5.00 6.00 4.60 2.10 0.80

About 5.7 Mtpa of coal of the full annual production target of 6.0 Mtpa is considered to be mined at the longwall faces. About 0.3 Mtpa coal is expected from development work for gateways and roadways in coal.

At the production plan shown above and considering the Coal Reserves of 92.0 Mt, the LOM could be expected to be about 18 years inclusive of the ramp-up period and some years of reduced production towards the end. The 1st Mining Section is estimated to allow for about eight (8) years of mining before coal from the 2nd Mining Section is required to up-keep the production target. The coal from the 4th Mining Section is considered to be mined last in the above schedule with equipment which will be employed before in the 3rd Mining Section.

After analysing the MESD’s latest coal production schedule (forecast) and panel extraction plans, the nominal capacity for each longwall as assumed for the forecast and supported by the PMD, and the conditions as observed during the site visit in the open longwall entry in Seam D, Panel 1D, SRK arrives at the conclusion that the production goal could be achieved. However, the output of each longwall may finally depend on the effective operating hours the equipment can reach. Performance observation (performance test) soon after start-up of the first longwall should allow confirmation if the designed capacity can be reached and if coal production targets would likely be achieved. Upgrading of equipment or a third equipped longwall (stand-by capacity) should be an option in order to achieve the full production target in case of an initial shortfall.

SRK would also assume that coal production as forecasted depends on the availability of a sufficiently experienced and trained workforce from the start of operation.


– 157 –

Capital and Operating Costs

Capital Costs

Based on the 2010 PMD, the total investment required for the development of the mine is estimated at about US Dollars (“USD”) 223.96 million (“M”) including a capital cost of USD 7.82 M for the 4th Mining Section. The capital expenditures (“CAPEX”) per tonne of coal produced amount to USD 37.33 per tonne.

MMHL provided SRK with a summary of the sunk initial investment with itemized breakdown, and the updated forecast investment for the coming years. As shown in the comparison table below, the overall investment is lower than the figures derived from the 2010 PMD which is also the result of a lower 2015 USD exchange rate against the RMB as compared to 2010.

Item Unit Amount Investment Plan in Total Investment USD Million 223.96 PMD 2010 Tonne Capacity Investment USD/t 37.33 Updated Investment Total Investment USD Million 189.69 Plan in 2015 Tonne Capacity Investment USD/t 31.62

The 2010 PMD is based on benchmark costs in China. With most mining equipment purchased from China and a high number of Chinese miners employed in the initial years of the Project, the cost assumptions of the original estimate should be applicable even if the Project is located in Indonesia. According to the latest investment information received, the sunk investment comes to about 85% of the 2010 estimated amount for the same construction stage which would indicate that the costs as estimated for the project should be generally realistic.

Operating Cost

The Rantau Nangka underground coal mine is in an advanced stage of development (pre-production stage). Operating expenses during this development period (USD 4.44 M) are included in the initial investment of USD 36.55 M in 2010. SRK has not sighted information detailing the accrued operating expenses during this period with a specific cost breakdown.


– 158 –

In the PMD of 2010, the total average coal overall cost was estimated at USD 37.50/t of coal mined. In the new cost model version of 2015 for the annual production of 6.0 Mtpa as designed, the coal overall cost will be USD 38.56/t (without depreciation).

No. Cost Items As of PMD 2015 Update

(USD/t) (USD/t) 1 Material 3.00 7.06 2 Fuel and Power 0.85 0.91 3 Labour (Wage & Welfare) 1.71 2.18 4 Major Repair 0.88 0.94 5 Safety 0.74 0.79 Subtotal — Operating Cost 7.18 11.88 6 Compensation for Surface Subsidence 1.18 1.26 7 Roadway Development Fund 1.32 8 Simple Reproduction Fee 1.18 1.26 9 Depreciation 2.47 10 Woodland Lease 0.16 0.16 11 Royalties, Local Taxes and Fees 4.85 4.59 Subtotal — Production Cost 18.34 19.14 12 Marketing and Sales 0.44 0.35 13 Administration 1.47 2.32 Subtotal — ROM All-in Cost 20.25 21.82 14 Transportation and Shipment 17.25 16.74 Total — Coal Overall Cost 37.50 38.56

According to the information available to SRK, the Company has not yet signed sales agreements for coal, but is in negotiation with potential customers. The company further has its own coal trading firm.

Financial Analysis and Valuation

SRK have calculated the Technical Value of the project using three discreet valuation techniques:

• Discounted Cashflow

• Yardstick Method

• Comparative Transactions


– 159 –

Technical Valuations Low Preferred HighDiscounted Cash Flow Method US$277.0M US$335.0M US$408.0MYardstick Method US$145.3M US$232.9M US$321.0MComparative Transaction Method US$150.8M US$208.2M US$208.2M

US$0.0M

US$50.0M

US$100.0M

US$150.0M

US$200.0M

US$250.0M

US$300.0M

US$350.0M

US$400.0M

US$450.0M

Low Preferred High

Comparison of Valuation Methods

Discounted Cashflow Method Yardstick Method Comparative Transaction Method

SRK has calculated a Technical Value which it has then converted to a Fair Market value. To convert a Technical Value to a Fair Market Value a premium or discount is applied to allow for such factors as market, strategic considerations or special circumstances. In this case SRK has applied a premium/discount of zero to convert the Technical DCF Value above to a Fair Market Value. Therefore in this case the Technical DCF Value is equivalent to the Fair Market Value. SRK’s reasoning for this is as follows. The Yardstick Method uses this month’s spot price (Nov 2015) as the basis for its valuation. The Comparative Transactions method also factors the valuation result to this month’s spot price. In SRK’s opinion current spot prices are approaching what we believe to be the lower end of possible outcomes. The DCF valuation forecasts a gradual improvement in coal prices from US$50/t in 2020 to US$60/t in 2025. This forecast improvement in coal price is the reason why the DCF Valuation exceeds the valuations obtained by the other two methods. The DCF valuation is forward looking, while the other two methods only reference current prices. The DCF valuation also takes into account the production profile, opex, capex, revenue and taxes specific to this project.

Therefore SRK’s Fair Market Value from DCF analysis for the Rantau Nangka project has a Low value of US$277M at a Discount Rate of 12.89%, and a High Value of US$408M at a Discount Rate of 8.89%. SRK’s Preferred Value for the project is US$335M at a Discount Rate of 10.89% and at a Valuation Date of 01 January 2016. SRK has calculated that the project has an Internal Rate of Return of 55.1%.


– 160 –

Infrastructure

The infrastructure in the mining area and at the mine is well developed and is considered as sufficient for large scale coal mining. Several large scale open pit mines are operating in the area. The mine is well accessible and connected to the South Kalimantan public road network. The required infrastructure including the transport routes and river terminals were constructed earlier and coal transport service is available to the coal mines in the area on contract basis. Power and water supply for the mine are provided by the mine’s own facilities.

Independent Environmental and Social Review

On request of the Company and its financial advisor, SRK has conducted an Independent Environmental and Social Review (“IESR”) and audit of conformance to the Equator Principles (“EP”) and the International Finance Corporation’s Performance Standards (“IFC’s PS”) for the Rantau Nangka Coal Project located near Banjar Baru, Kalimantan, Indonesia.

The primary aim for the financial advisor is to appraise the Project’s status under the EP/IFC requirements for financing considerations. The EP/IFC requirements to be met for the Project can be summarised as a combination of the following:

• Technical compliance with key Indonesian National environmental legislative requirements.

• Conformance with EP (Principles 1 to 10) and with the associated IFC’s Performance Standards (IFC’s PS 1 to 8) and relevant IFC Environmental, Health, and Safety Guidelines.

In addition, Agritrade and MMHL plan to commit to an Environmental and Social Action Plan (“ESAP”) and to be compliant with EP/IFC requirements to resolve any identified gaps in an agreed timeframe.

SRK found no current significant technical non-compliances with the Project approval and licence conditions according to Indonesian National environmental legislative requirements. This statement relates only to the main environmental approvals and is based only on documents reviewed and conditions observed on site.


– 161 –

Based on the review of the documentation provided by MMHL and the observations made during the site visit, it is SRK’s opinion that the current Rantau Nangka Coal Project can be classified as a Category B project under EP and there are no fatal flaw EP non-conformances. However, this IESR has determined that there are some EP non-conformances associated with environmental and social risks and/or impacts, generally site-specific, largely reversible and readily addressed through mitigation measures.

Upon completion of this IESR, SRK has found no major/fatal flaw non-conformances for the current Project with the IFC’s Performance Standards. However, the IESR identified, within specific technical management areas, some key non-conformances with IFC Performance Standards, where parts of the system have yet to be developed or where the system is designed but yet to be fully implemented. In summary, the key identified Project non-conformances with IFC Performance Standards are:

• There are gaps in aspects of the project related Environmental Impact Assessment (“EIA”) reports, Environmental Management Plans (“RKL”), and Environmental Monitoring Plans (“RPL”), and they are not fully in compliance with IFC requirements. In addition, there is currently no formal registry system in place for managing and tracking the preparation and submission of these RKL and RPL to the related government bodies every six months. A fully functioning international standard Environmental and Social Management Plan (“ESMP”) has yet to be developed. On this basis, Performance Standard 1 is partially compliant.

• Performance Standard 2 has been partially complied with. SRK noted that MMHL prepared standalone comprehensive Occupational Health and Safety (“OHS”) Plan, Emergency Response Plan (“ERP”), and OHS training program. However, MMHL will still need to contact a 3rd party to inspect all safety operation related equipment are installed in compliance with IFC’s requirements. In addition, MMHL will need to develop a labour plan to demonstrate open and equitable employment procedures, as well as the intended position regarding issues such as working conditions, worker organization, non-discrimination, etc.

• The project EIS Reports, RKL reports, and RPL reports outline measures for pollution prevention and mitigation according to the Indonesian environmental regulations, but there are gaps to fully comply with IFC requirements. MMHL will need to develop ESMP to include continuous improvement statements and the commitment that MMHL will comply with relevant regulations to ensure pollution prevention. MMHL will also need to further demonstrate their commitment by selecting state-of-the art equipment and technology to limit adverse environmental impacts on the receiving environment — especially in terms of waste management, waste water management, water conservation, emission management etc. Hazard assessment and risk analysis lacked adequate detail, and measures to prevent environmental pollution and to conserve energy were not fully implemented on-site. Thus there is only partial compliance with Performance Standard 3;


– 162 –

• Performance Standard 4 has been partially complied with since the project EIA reports assessed impacts to the affected communities’ health, safety, and security, but they are not fully complied with the IFC requirements;

• Based on findings of the review the project may potentially cause physical or economic displacement of people if MMHL determined to extract the coal seams right beneath the five villages within the project boundaries, however the land disturbance survey regarding buildings, agricultural farmlands and roadway in the affected villages is not conducted, and community engagement plans may be needed to avoid any involuntary resettlement. Therefore, Performance Standard 5 is partially complied with;

• Impacts upon the environment and biodiversity will be significant given the size of the area to be disturbed by the surface subsidence during the underground mining, including forest areas and rivers. The project EIA reports conducted a general document review on flora and fauna without site specific baseline study and measures to avoid, reduce and compensate the impacts to biodiversity and living natural resources, which is not fully compliant with Performance Standard 6;

• Performance Standard 7 is partially complied with since only generic documents review regarding local tribes and indigenous people groups in Sungai Pinang District was included in the EIA reports. MMHL will need to seek inputs from competent professionals to ascertain whether a particular group is considered as Indigenous Peoples in the affected communities within the project boundaries, avoid any adverse impacts to them, and respect and preserve the culture, knowledge, and practices of Indigenous Peoples; and

• As part of the original approval for the Project, an EIA was undertaken, which did not take into consideration of cultural heritage. MESD will need to conduct a baseline cultural heritage survey, and to consider potential project impacts to cultural heritage and protection of cultural heritage. Therefore this project is not compliance with Performance Standard 8.

Based upon the environmental and social compliance review, the key recommendations are proposed in the EPAP providing the proposed management measures and suggested timelines for resolution for the key technical EP/IFC non-conformances identified within this IESR. SRK notes that MESD will need to agree to this proposed EPAP, then adopt and finalise this ESAP as an internal action plan (i.e. allocate dedicated resources and set internal timelines).


– 163 –

The development of the Rantau Nangka Coal Project will need to address the following significant potential environmental/social management risks and liabilities that relate to the development and subsequent operation of the project:

• Wastewater discharge including ARD leaching;

• Waste rock stockpiling/waste rock dump management;

• Dust emission;

• Hazardous waste impact;

• Impact to biodiversity;

• Land disturbance;

• Mine closure plan; and

• Social aspects (i.e., stakeholder engagement, public consultation and community development).

Based on the document reviews and the site visit observations, it is SRK’s opinion that the above environmental risks can be managed if the proper environmental protection measures are implemented. However, SRK notes that to fully conform to EP/IFC guidelines and practices, the relevant designs and operational procedures/programs need to be developed and implemented, and incorporated into the overall project operations.

Risk Assessment

The overall risk associated with the Rantau Nangka mining project could be considered as “Medium”. In addition to the overall risk identified, the Project is subject to specific risks, which independently may not have material impact. Risk areas reviewed included geology, mine construction/project implementation, mining and geotechnical aspects, coal preparation, environmental and social issues, capital and operating costs, and other risks related to mining. “High” risk ratings for single specific risk items were not considered necessary, but it should be mentioned that some risks are considered as “Likely” and “Possible”, which should draw attention with regard to possible risk mitigation. The findings of the risk assessment are shown in the table below.


– 164 –

Hazard/Risk Issue Likelihood Consequence Risk RatingGeologicalSignificant Unexpected Structural Disturbances Unlikely Major MediumResource Risk (Estimation; Lack/Loss of Significant Resource) Possible Major MediumSevere Hydogeological Conditions and Unexpected Groundwater Ingress Unlikely Catastrophic MediumSeam Gas Outbursts/Coal Gas Explosion Unlikely Catastrophic MediumMine Construction and DevelopmentDelay of Construction of the Permanent Underground Workings Possible Moderate MediumDelay of Ongoing Underground Development Unlikely Moderate LowDelay of Construction of Surface Mine Facilities and Plant Unlikely Minor LowDelay of Mine Equipment and Plant (procurement and installation) Possible Moderate MediumMining & GeotechnicalLoss of Significant Reserve (reserve risk by ‘mining factors’) Possible Major MediumUnexpected Adverse Micro-Geological Conditions (faults and disturbances) Unlikely Major MediumGeotechnicial Risks (rock strength; roof; floor; structural; stability; stress) Unlikely Major MediumUnexpected High CBM Levels/Drainage Requirement Unlikely Moderate LowSevere Subsidence — Sterilizing Coal Reserve Possible Major MediumUnexpected Surface Water Ingress and Inadequacy of Dewatering System Unlikely Major MediumSpontaneous Combustion Unlikely Moderate LowAppropriateness of the Mining Method Unlikely Major MediumInadequate Mine Planning and Design Unlikely Moderate LowInadequacy of Equipment and its Capacity Possible Moderate MediumLack of Skilled Labour and Operation Management Possible Moderate MediumCoal Handling and Coal Preparation (Coal Washing)Inadequate Coal Handling System/Preparation/Silos/Stockpiles Unlikely Moderate LowLow Plant Reliability (design and engineering) Unlikely Moderate LowInterruption of Coal Transport and Barging/Logistics Unlikely Moderate LowEnvironmental and SocialWastewater Discharge including ARD Leaching Possible Moderate MediumWaste Rock Stockpile and Dumping Possible Moderate MediumDust Emission Possible Moderate MediumHazardous Waste Impact Possible Moderate MediumImpact to Biodiversity Possible Moderate MediumLand Disturbance and Mine Closure Possible Moderate MediumSocial, Stakeholder, Public, Community Engagement Possible Moderate MediumCapital and Operating Costs, Price and Market(Additional) Construction and Development Time Delay Possible Moderate MediumConstruction and Development Cost Overrun Possible Moderate MediumCapital Cost Increases Possible Moderate MediumOperating Costs Increases (Mining/Processing) Possible Moderate MediumShortage of Funds by Poor Project Financial Planning and Management Unlikely Major MediumFuture Coal Use and CO2 Restrictions Possible Minor LowMarket and Coal Price Uncertainties (Commodity Price Risk) Unlikely Moderate LowOther RisksNatural Risks in the Mining Area (Flooding, Earthquake, Storm etc.) Unlikely Major LowInterruption of Utility Supplies (power, water, fuel) Unlikely Moderate LowSignificant Land Acquisition, Compensation, and Regulatory Issues Likely Moderate MediumExploration and Production Licenses Possible Major MediumOther Licenses and Permits Possible Moderate Medium


– 165 –

TABLE OF CONTENTS

Executive Summary ..................................................................................................................... 145

Disclaimer .................................................................................................................................... 175

List of Abbreviations .................................................................................................................... 176

1 Introduction ........................................................................................................................ 178

2 Objectives, Scope of the Report, and Work Program ......................................................... 1792.1 Program Objectives ............................................................................................. 1792.2 Purpose of the Report .......................................................................................... 1792.3 Reporting Standard ............................................................................................. 1802.4 Scope of Report ................................................................................................... 1802.5 Work Program ..................................................................................................... 1802.6 Project Team ....................................................................................................... 1802.7 Competent Person’s Statement and Responsibility ............................................. 1842.8 Statement of SRK Independence ........................................................................ 1862.9 Warranties ........................................................................................................... 1862.10 Indemnities.......................................................................................................... 1862.11 Consents .............................................................................................................. 1862.12 SRK Experience .................................................................................................. 1872.13 Forward-Looking Statements.............................................................................. 187

2.13.1 Reliance ............................................................................................... 1882.13.2 Effective Date ...................................................................................... 1882.13.3 Material Change ................................................................................... 1882.13.4 Legal Claims and Proceedings ............................................................. 188

3 Location ............................................................................................................................. 1893.1 Location and Geography ..................................................................................... 1893.2 Climate and Natural Hazards in the Area ............................................................ 190

4 Site Access, Coal Transport and Infrastructure .................................................................. 1904.1 Access and Coal Transport .................................................................................. 1904.2 Electrical Power Supply ...................................................................................... 1924.3 Water Supply ....................................................................................................... 1934.4 SRK’s Opinion on Infrastructure ........................................................................ 193

5 Mining Assets, Concessions and Permits ........................................................................... 1935.1 Mining Assets and History of Mining Assets ...................................................... 1935.2 Exploration Concessions (Exploration IUP) ....................................................... 1955.3 Mining Concessions (Production IUP) ............................................................... 1965.4 Cross Border Agreements ................................................................................... 1975.5 Other Permits ...................................................................................................... 197


– 166 –

6 Geology .............................................................................................................................. 1986.1 Regional Geology ............................................................................................... 1986.2 Mine Geology ..................................................................................................... 200

6.2.1 Stratigraphy .......................................................................................... 2006.2.2 Depositional Model.............................................................................. 202

6.3 Coal Seam Characteristic .................................................................................... 2056.4 Coal Quality ........................................................................................................ 206

7 Exploration ......................................................................................................................... 2087.1 Drilling ................................................................................................................ 208

7.1.1 Exploration Drilling — Period 2000 to 2003 ....................................... 2087.1.2 MMHL Drilling Program 2008 to 2009 ............................................... 209

7.2 Sampling, Sample Preparation, and Analyses ..................................................... 2117.2.1 Exploration Drilling 2000 to 2003 ....................................................... 2117.2.2 MMHL Drilling in 2008 — 2009 ......................................................... 2127.2.3 SRK Sampling ..................................................................................... 215

8 Data Verification and Validation ........................................................................................ 2158.1 Coal Recovery, Sampling and Handling ............................................................. 2168.2 Quality Data Verification and Validation............................................................. 2188.3 Verification through Channel Sampling .............................................................. 2248.4 Coal Seams ......................................................................................................... 2258.5 Conclusion .......................................................................................................... 225

9 Coal Resource .................................................................................................................... 2269.1 Geological Modelling and Interpretation ............................................................ 2269.2 Estimation Parameters (Resource Limits) ........................................................... 2289.3 Resource Estimation ........................................................................................... 229

10 Coal Reserves ..................................................................................................................... 23310.1 Introduction ......................................................................................................... 23310.2 Reserve Estimate ................................................................................................. 23410.3 Historical Reserve Estimates .............................................................................. 23810.4 Potential for Additional Coal Reserves ............................................................... 23910.5 Discussion of Modifying Factors ........................................................................ 240

11 Mining Assessment ............................................................................................................ 24111.1 Introduction ......................................................................................................... 24111.2 Mine Technical Data and Design Parameters ...................................................... 24211.3 Mining Conditions .............................................................................................. 242

11.3.1 Mine Geological Conditions ................................................................ 24211.3.2 Interpretation of Geotechnical Conditions ........................................... 24311.3.3 Support Requirements.......................................................................... 25411.3.4 Summary Geotechnical Assessment .................................................... 25511.3.5 Load Bearing Capacity for Surface Structures ..................................... 256


– 167 –

11.3.6 Coal Gas, Coal Dust, Spontaneous Combustion .................................. 25611.3.7 Mine Hydrology and Hydrogeology .................................................... 257

11.4 Mining Method, Mine Layout and Design .......................................................... 25811.4.1 Mining Method .................................................................................... 25811.4.2 Mine Layout ......................................................................................... 25911.4.3 Design and Development of the Underground Workings .................... 260

11.5 Operation and Coal Production ........................................................................... 26211.5.1 Mining Operation ................................................................................. 26211.5.2 Coal Production and LOM ................................................................... 263

11.6 Main Mining Equipment ..................................................................................... 26611.6.1 Equipment Selection ............................................................................ 266

11.7 Mine Industrial Area and Structures (Surface Plant) ........................................... 26811.8 Mine Services and Facilities ............................................................................... 269

11.8.1 Mine Ventilation .................................................................................. 26911.8.2 Gas Drainage........................................................................................ 26911.8.3 Compressed Air.................................................................................... 26911.8.4 Water Management .............................................................................. 26911.8.5 Repair, Maintenance and Storage Facilities ......................................... 27011.8.6 Communication and Mine Control ...................................................... 27011.8.7 Coal Sampling and Lab ........................................................................ 27011.8.8 Personnel and Materials Transport at the Mine .................................... 27011.8.9 Accommodation and Site Office .......................................................... 27111.8.10 Medical Facilities ................................................................................. 27111.8.11 Subcontractor Services ........................................................................ 271

12 Coal Handling and Coal Preparation .................................................................................. 27112.1 Coal Handling and Stockpile .............................................................................. 27112.2 Coal Preparation (optional) ................................................................................. 27212.3 Coal Preparation Process .................................................................................... 273

12.3.1 Summary .............................................................................................. 27312.3.2 Coal Quality ......................................................................................... 27312.3.3 Process and Selection of Main Process Equipment ............................. 27412.3.4 Power and Water Supply ...................................................................... 27512.3.5 Product Quality Control ....................................................................... 27612.3.6 Disposal of Refuse and Slime .............................................................. 27612.3.7 Work Force........................................................................................... 27612.3.8 Cost Evaluation for Coal Preparation .................................................. 27612.3.9 Recommendations ................................................................................ 277

13 Project Schedule ................................................................................................................. 278


– 168 –

14 Capital and Operating Costs ............................................................................................... 28114.1 Introduction ......................................................................................................... 28114.2 Capital Cost ......................................................................................................... 282

14.2.1 Capital Cost as of 2010 PMD Estimate ................................................ 28214.2.2 Capital Expenditures as of May, 2015 ................................................. 28414.2.3 Investment Schedule ............................................................................ 28514.2.4 Sustaining Capital ................................................................................ 28614.2.5 Conclusions.......................................................................................... 287

14.3 Operating Cost and Production Cost ................................................................... 28714.4 Coal Overall Cost ................................................................................................ 29014.5 Coal Price and Market ......................................................................................... 291

15 Valuation Report ................................................................................................................ 29215.1 Valuation Approach ............................................................................................. 292

15.1.1 Introduction .......................................................................................... 29215.1.2 Mineral asset — development status.................................................... 29215.1.3 Exploration Project and Advanced Exploration Project ....................... 29315.1.4 Pre-Development, Development and Operating Project ...................... 29415.1.5 Summary .............................................................................................. 294

15.2 DCF Valuation Results ........................................................................................ 29515.2.1 Resources and Reserves ....................................................................... 29615.2.2 Production Schedule ............................................................................ 29615.2.3 Operating Cost Estimates ..................................................................... 30015.2.4 Capital Cost Estimates ......................................................................... 29915.2.5 Commodity Price ................................................................................. 30015.2.6 Revenue ............................................................................................... 30315.2.7 Discount Rate ....................................................................................... 30515.2.8 Cashflow .............................................................................................. 30615.2.9 DCF Valuation Result .......................................................................... 30715.2.10 Sensitivity Analysis.............................................................................. 308

15.3 Yardstick Valuation Method ................................................................................ 30915.4 Comparable Transactions Valuation Method ...................................................... 311

15.4.1 Comparative Transactions based on Early Exploration areas .............. 31115.4.2 Comparative transaction Summary ...................................................... 314

15.5 Nature of Value ................................................................................................... 315

16 Workforce and Work Schedule ........................................................................................... 32016.1 Workforce ........................................................................................................... 32016.2 Work Schedule .................................................................................................... 32116.3 Training ............................................................................................................... 321


– 169 –

17 Major Technical Service Contracts and Supplies ............................................................... 321

18 Independent Environmental and Social Review ................................................................ 32218.1 Environmental and Social Review Objective ..................................................... 32218.2 Policies, Directives, and Guidelines ................................................................... 322

18.2.1 Indonesian National Environmental Legislative Background ............. 32218.2.2 Equator Principles ................................................................................ 32318.2.3 IFC’s Performance Standards .............................................................. 32518.2.4 Reviewed Project Documents .............................................................. 325

18.3 Project Environmental and Social Compliance Review ..................................... 32718.3.1 Project Conformance with Equator Principles ..................................... 32718.3.2 Project Conformance with IFC’s Performance Standards ................... 328

18.4 Proposed Environmental and Social Action Plan ................................................ 34018.5 Evaluation of Environmental and Social Risks ................................................... 347

19 Project Risk Assessment .................................................................................................... 34719.1 Introduction ......................................................................................................... 34719.2 Qualitative Project Risk Assessment ................................................................... 35119.3 Risk Analysis Matrix ........................................................................................... 353

20 References .......................................................................................................................... 354


– 170 –

LIST OF TABLES

Table 2-1: SRK Consultants, Title and Responsibility ............................................................ 181Table 2-2: List of References — Reports by SRK Consulting China (Coal) .......................... 187Table 5-1: Exploration Concession ......................................................................................... 195Table 5-2: Mining Licence Details .......................................................................................... 196Table 7-1: Overview of Boreholes in the Four Open Pit Areas ............................................... 208Table 7-2: Survey Coordinates of Boreholes and Sampling Points at Open Pits .................... 211Table 8-1: Summary of Borehole Data .................................................................................... 217Table 8-2: Data Evaluation from 2010 Sampling .................................................................... 224Table 8-3: Data Evaluation from 2015 Underground Sampling .............................................. 225Table 9-1: Seam Statistics of Boreholes within the Mining License Areas ............................. 226Table 9-2: Estimation Parameters (Limits) ............................................................................. 228Table 9-3: Resource Category Classification .......................................................................... 229Table 9-4: Coal Resource Estimate of Rantau Nangka Coal Mine as at 30 June 2015............ 230Table 9-5: Coal Resources and Coal Quality of Rantau Nangka Coal Mine by SRK as at 30 June 2015 .............................................................................................. 231Table 10-1: Coal Reserves According to the JORC Code (Cut-off Date 30 Sep 2015) ............. 236Table 10-2: Coal Reserves According to the JORC Code by Coal Seam (Cut-off Date 30 September 2015) ..................................................................... 237Table 10-3: Chinese Standard Coal Reserve (July 2010) .......................................................... 238Table 11-1: Main Mine Technical Data ..................................................................................... 242Table 11-2: Geotechnical Properties of Rock Units .................................................................. 244Table 11-3: Geomechanical Properties ..................................................................................... 245Table 11-4: Coal Seam Characteristics ..................................................................................... 245Table 11-5: Overview of Support Used in Rantau Nangka Coal Mine ..................................... 245Table 11-6: ROM Coal Production Schedule (Forecast) ........................................................... 254Table 11-7: Proposed Main Mine Equipment for Rantau Nangka ............................................ 264Table 12-1: Main Coal Washing Equipment (Sieve-Jig Technology) ....................................... 267Table 14-1: Capital Cost as of 2010 PMD ................................................................................. 275Table 14-2: Summary of Updated Capital Investment and Status as of May 2015 ................... 283Table 14-3: Project Cash Flow Statement as of May 2015 ........................................................ 285Table 14-4: Future Investment Plan .......................................................................................... 286Table 14-5: Summary and Comparison of the Unit Operating Costs of PMD 2010 and the 2015 Updated Cost Estimate ................................................................. 289Table 15-1: Main Assumptions and Parameters ........................................................................ 296Table 15-5: Production Schedule used for DCF Model ............................................................ 297Table 15-6: Estimated Operating Cost (as of 2010 and 2015 Update) ...................................... 299Table 15-7: Updated CAPEX Estimate (till May 2015) ............................................................ 301Table 15-8: Future Capital Investment Plan .............................................................................. 302Table 15-9: Discount Rate Calculation ..................................................................................... 306Table 15-10: Results of the Valuation ......................................................................................... 307Table 15-11: Analysis coal price by Yardstick Method ............................................................... 310Table 15-12: Percentage spot pricing applied to Resources ........................................................ 310


– 171 –

Table 15-13: Comparative Coal Property Transactions in Indonesia 2010 to November 2015 ................................................................ 312Table 15-14: All Comparable transaction valuation for the Rantau Nangka Coal Project .......... 313Table 15-15: Comparable transaction valuation for the Rantau Nangka Coal Project ................ 314Table 15-16: Comparable transaction valuation for the Rantau Nangka Coal Project ................ 315Table 15-17: Technical Valuation Results ................................................................................... 316Table 16-1: Proposed Workforce ............................................................................................... 318Table 18-1: Environmental and Social Action Plan (“ESAP”) for Rantau Nangka Coal Project ........................................................................ 338Table 19-1: Project Risk Assessment ........................................................................................ 350Table 19-2: Risk Analysis Matrix .............................................................................................. 351


– 172 –

LIST OF FIGURES

Figure 1-1: Organigram of Agritrade Corporation .................................................................... 178Figure 1-2: Merge Holding Structure ....................................................................................... 179Figure 3-1: Project Location Map ............................................................................................. 189Figure 3-2: Typical Setting of the Rantau Nangka Area ........................................................... 190Figure 4-1: Transport Roads and Coal Terminal Location ........................................................ 191Figure 4-2: Barge Loading Jetty at PT Talenta Terminal .......................................................... 192Figure 5-1: Exploration License, Mining Licenses and Cross Border Agreement ................... 196Figure 6-1: Overview of Sedimentary Basins in South-East Asia ............................................ 199Figure 6-2: Geology Map of Rantau Nangka ............................................................................ 201Figure 6-3: Cross Section of Rantau Nangka ............................................................................ 202Figure 6-4: A View of South Pit Highwall ................................................................................ 204Figure 6-5: Major Fault Exposed in the Northern Highwall at PT Pama Open Pit ................... 205Figure 6-6: Schematic Litho-Stratigraphic Section .................................................................. 207Figure 7-1: Drill Site at ZK104 ................................................................................................. 209Figure 7-2: Core Photo ZK-104 (158.25 to 163.25 m) ............................................................. 210Figure 7-3: Flow Chart of Sample Preparation ......................................................................... 213Figure 7-4: LECO System in TekMIRA Coal Quality Laboratory ........................................... 214Figure 8-1: Classification of Standards ..................................................................................... 218Figure 8-2: Distribution for Ash ............................................................................................... 219Figure 8-3: Distribution for Inner Moisture .............................................................................. 220Figure 8-4: Distribution for Calorific Value .............................................................................. 221Figure 8-5: Distribution for Relative Density ........................................................................... 222Figure 8-6: Histograms of Frequency Distribution ................................................................... 223Figure 9-1: Approximate Seam Cross-Section of Section Line 2 ............................................. 226Figure 9-2: Geological Domains for Resource Estimation ....................................................... 227Figure 9-4: Resource Map of Seam B ....................................................................................... 232Figure 9-5: Resource Map of Seam C ....................................................................................... =232Figure 9-7: Resource Map of Seam D ...................................................................................... 233Figure 11-1: Public Domain Insitu Stress Measurements ........................................................... 246Figure 11-2: Example of Core Disking at MMHL Project.......................................................... 247Figure 11-3: Illustration of Typical Longwall Roof Collapse over the Mined Out Coal Seam and Subsidence ................................................ 250Figure 11-4: Schematic of Longwall Mining Method ................................................................ 259Figure 11-5: Schematic Mine Layout, License Blocks, and Mining Plan .................................. 260Figure 11-6: Schematic Cross Section showing Inclined Shafts and Coal Seams ...................... 261Figure 12-1: Proposed Coal Preparation Process Flow Chart ..................................................... 274Figure 13-1: Project Schedule of Rantau Nangka Coal Mine ..................................................... 280Figure 14-1: Typical Coal Cost Breakdown for Thermal Coal ................................................... 281Figure 15-1: Total Material (Coal) Movement ........................................................................... 298Figure 15-2: Operating Costs ...................................................................................................... 300Figure 15-3: Capital Costs .......................................................................................................... 303Figure 15-4: Historical Thermal Coal Prices .............................................................................. =303


– 173 –

Figure 15-6: Coal Price Forecast ................................................................................................ 304Figure 15-7: Forecast Revenue ................................................................................................... 305Figure 15-8: Forecast Net Profit after Tax .................................................................................. 306Figure 15-9: Forecast after Tax Cash Flow ................................................................................. 307Figure 15-10: Sensitivity Analysis ................................................................................................ 308Figure 15-11: Discount Rate Sensitivity ....................................................................................... 309Figure 15-12: Comparison of Technical Valuation Methods ........................................................ 316


– 174 –

LIST OF APPENDICES

Appendix 1: Mining Licences/IUPs ........................................................................................... 356Appendix 2: Indonesian Environmental Legislative Background .............................................. 376Appendix 3: Equator Principles and Internationally Recognised Environmental Management Practices ....................................................................................... 383Appendix 4: Lab Certificates and Graphs ................................................................................... 390Appendix 5: CVs of Competent Person and Evaluator ............................................................... 404Appendix 6: JORC Code 2012 — Checklist of Assessment and Reporting Criteria .................. 416Appendix 7: Cover page and TOC of the PMD .......................................................................... 448


– 175 –

DISCLAIMER

The opinions expressed in this Report have been based on the information supplied to SRK Consulting China Limited (“SRK”) by Agritrade Resources Limited (“Agritrade”) and Merge Mining Holding Limited (“MMHL”). The opinions in this Report are provided in response to a specific request from Agritrade to do so. SRK has exercised all due care in reviewing the supplied information. Whilst SRK has compared key supplied data with expected values, the accuracy of the results and conclusions from the review are entirely reliant on the accuracy and completeness of the supplied data. SRK does not accept responsibility for any errors or omissions in the supplied information and does not accept any consequential liability arising from commercial decisions or actions resulting from them.


– 176 –

LIST OF ABBREVIATIONS

Abbreviation Meaningadb Air Dried BasisAadb Ash (air dried basis)ARD Acid Rock DrainageASL above sea levelAusIMM Australasian Institute of Mining and Metallurgybcm bank cubic metreBD bulk densityoC degrees CelsiusCAPEX capital expenditureCPR Competent Person’s Reportdaf Dry Ash FreedB decibeldeposit Earth material of any type, either consolidated or unconsolidated, that has

accumulated by some natural process or agentE eastEIA Environmental Impact AssessmentEPMP Environmental Protection and Management PlanERP Emergency Response PlanFCadb Fixed Carbon (air dried basis)g gramGCVadb Gross Calorific Value (air dried basis)GCVdaf Gross Calorific Value (dry ash free)ha hectareHKEx Stock Exchange of Hong Kong LimitedIFC International Finance CorporationIM Inherent MoistureIPO Initial Public OfferingITR Independent Technical ReviewJORC Code Australasian Code for Reporting of Exploration Results, Mineral

Resources and Ore Reserves prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (JORC), 2012 Edition.

kg kilogramkm kilometrekm2 square kilometre


– 177 –

Abbreviation MeaningkV kilovoltkW kilowattL litrem metreM millionm RL metres reduced levelm3 cubic metreMt million tonnesMadb Moisture (air dried basis)Mtpa million tonnes per annumMW megawattN northNPV net present valueOHS occupational health and safetyOPEX operating expenditurePPE personal protective equipmentPRC People’s Republic of ChinaQA/QC quality assurance/quality controlRMB RenminbiROM run of mineS southStadb Total Sulphur (air dried basis)SRK SRK Consulting (China) Limitedt tonnetpa tonnes per annumTSF tailings storage facilityUSD United States dollarsVadb Volatile (air dried basis)Valmin Code Code for the Technical Assessment and Valuation of Mineral and

Petroleum Assets and Securities for Competent Person’s ReportsW westWRD waste rock dumpWSCP Water and Soil Conservation Plan> greater than< less than% percent


– 178 –

1 INTRODUCTION

Agritrade Resources Limited (“Agritrade” or “the Company”) has commissioned SRK Consulting China Limited (“SRK”) to review the Rantau Nangka Coal Project (“Rantau Nangka” or “the Project”) of Merge Mining Holding Ltd. (“MMHL”) near the city of Banjar Baru, in South Kalimantan, Indonesia. The review is based on the project studies and project plans provided, and the development as observed by SRK at site. SRK has been commissioned by the Company to prepare a Competent Person’s Report (“CPR”) and Competent Valuation Report (“CVR”) according to the requirements of Chapter 18 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”). Both the CPR and CVR have been consolidated into this single report (the “Report”).

Agritrade Resources Limited is incorporated in Hong Kong. It holds Agritrade Resources Asia Pte Ltd which is incorporated in Singapore as a sales and marketing arm of Agritrade Resources Ltd. Through PT. Rimau Indonesia which was established in Indonesia as a foreign investment company Agritrade owns PT Senamas Energindo Mineral (SEM) which operates a coal mine in Tamiang Layang, Central Kalimantan, Indonesia. Agritrade Resources Asia Pte Ltd and PT Rimau are primarily engaged in coal trading. Agritrade has other subsidiaries that are not related directly to mining business.

Figure 1-1: Organigram of Agritrade Corporation


– 179 –

The Project is effectively 100% owned by Merge Mining Holding Ltd. (“MMHL”) incorporated under the laws of Cayman Islands. The Project is being developed and the mining and exploration licenses are held through its Indonesian subsidiary companies PT Merge Energy Sources Development (“MESD”), PT Merge Mining Industry (“MMI”) and PT Merge Continental Mining (“MCM”). The holding structure of Merge Mining Holding Ltd. (“MMHL”) companies is shown in Figure 1-2 below.

Figure 1-2: Merge Holding Structure

2 OBJECTIVES, SCOPE OF THE REPORT, AND WORK PROGRAM

2.1 Program Objectives

Objectives of the program were to review available data, participate in a site visit and provide Agritrade with a CPR and a CVR on the Coal Resources and Coal Reserves of the Project and mining assessment, including a valuation of the mining assets.

2.2 Purpose of the Report

The purpose of the Report was to provide Agritrade and potential investors and their advisors with adequate information on exploration results, Coal Resources, Coal Reserves, and with an assessment of the mining project including an economic analysis with valuation of the assets. The information is presented as CPR which should be suitable for the information of possible investors and their advisors and for inclusion into documents for submission to the Hong Kong Exchange and Clearing Limited (“HKEx”).


– 180 –

The Company requires a CPR and a CVR to be compiled on the Project as prerequisite documents for a proposed transaction as required by the Listing Rules (the “Proposed Transaction”). The Report for inclusion in the Circular and related document (the “Circular”) in support of the Company’s Proposed Transaction to the HKEx must satisfy the reporting requirements of the Listing Rules, in particular Chapter 18 — Mineral Companies.

2.3 Reporting Standard

This Report has been prepared to the standard of and is considered by SRK to be a CPR under the guidelines of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, JORC Joint Ore Reserve Committee, The JORC Code 2012 Edition (“JORC Code”), and the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets for Independent Expert Reports, The VALMIN Code, 2005 Edition (“VALMIN Code”) for the CVR. The JORC Code and the VALMIN Code are adopted by the Australasian Institute of Mining and Metallurgy (“AusIMM”) and the standard is binding upon all AusIMM members.

SRK understands the requirements set out in the Listing Rules with regards to the qualifications and experience of the Independent Competent Person and Competent Evaluator. SRK confirms that the staff employed on the project satisfies these requirements of the Listing Rules.

2.4 Scope of Report

The Report includes geological and exploration data review and coal resource estimate; mining assessment and coal reserve estimate; review of the project capital and operating costs; review of the general infrastructure, environmental and social assessment; a risk analysis, and a valuation of the coal assets.

2.5 Work Program

The work program involved the following steps:

• Review of available project information, documents, studies and reports;

• Site visit to Rantau Nangka in Banjar Baru, Kalimantan, Indonesia; discussions with management and staff of MESD and its subsidiaries; collection and review of updated and new project information and data up to September 2015;

• Analysis of the historical, new and updated Project data;

• Review of the Coal Resource estimate;

• Assessment of the mining project and Coal Reserve estimate;


– 181 –

• Economic analysis and valuation of the Coal Assets; and

• Completion of the Report in accordance with the requirements.

2.6 Project Team

The SRK team and areas of responsibility are as shown in Table 2-1.

Table 2-1: SRK Consultants, Title and Responsibility

Name of Consultant Title and ResponsibilitiesBruno Strasser Principal Consultant; Mining; Team Leader, Mining

Assessment and Coal ReservesJan Smolen Associate Consultant; Geology; Geological Review and

Coal ResourcesRoger Hou Coal Geologist; Geology and Exploration Data, Coal QualityBonnie Zhao Coal Geologist; Data Validation and ModellingSimon Wu Mining Engineer; Mining Assessment and Project CostsDr. Andy Li Principal Consultant; Environmental; Social, PermitsKevin Holley Principal Consultant; GeotechnicalAnthony Stepcich Principal Consultant; Valuation, The Expert as prescribed

under the VALMIN CodePeter Fairfield Principal Consultant; ValuationDr. Yonglian Sun Corporate Consultant, Mining and Geotechnical; Internal

Peer ReviewDavid Lawrence Principal Consultant, Geology; External Peer Review

Bruno Strasser, Dipl.-Ing. (M.Sc), MAusIMM, is a Principal Consultant (Mining) and a Project Manager of SRK China. He has more than 30 years of professional experience in mining, project management, plant construction, and consulting. He has working experience in several countries in Europe and Asia. He started as a mining engineer with RWE Rheinbraun in Germany in the world’s largest lignite mine before he was assigned to the Bukit Asam coal mine project in Indonesia for RWE’s own consulting firm. Later he joined Austria’s biggest engineering group, VOEST Alpine AG, where he set up the company’s mining systems engineering department. He was responsible for mining engineering studies for projects in India and China and the turn-key development of the Semirara coal mine project in the Philippines. In the 1990’s he joined Metso (Nordberg) Corp. in Hong Kong and was responsible for sales, construction and commissioning of several large scale turn-key plants for the aggregates and minerals industry in Hong Kong and China. He also worked for many years as a self-employed consultant in Hong Kong and Austria where he gained experience in a wider field of industries and also as a business and management consultant. In 2011 he joined SRK Consulting China Ltd in Beijing as Principal Consultant for coal mining and has


– 182 –

carried out a number of independent technical reviews and mining studies for projects in China and Indonesia. Mr Strasser is responsible for the mining review and coal reserve estimate. He is qualified as a Competent Person with regard to the type of deposit and the activity undertaken.

Jan Smolen, MSc, P. Geo, MAusIMM, is an Associate Consultant (Geology) with SRK China. He is an experienced mine and exploration geologist with over 30 years’ experience in mine geology and exploration planning and management. He has worked on a wide range of commodities including coal, Au, Ni, PGM, Cu, base metals, and industrial minerals. He specializes in exploration project management, from grass roots exploration to banking feasibility studies. Jan was the Senior Mine Geologist for the Murcki Coal Mine in Poland for over eight years. From 2002 to 2008, he was a Senior Geologist responsible for exploration, data collection, data interpretation, and peer review and as a QP for NI43-101 with Watts, Griffis and McOuat Limited. His areas of expertise include coal projects in North America, Europe, China, and Mongolia. For SRK China he manages exploration programs and IPO projects in China and Mongolia. He is a QP for NI43-101 and CP for JORC Code standards. Mr Smolen is responsible for review of the geology and for the coal resource estimate. He is a Competent Person as specified in the JORC Code and was responsibility for the coal resource estimate.

Kevin Holley, FAusIMM, MIEAust, CPEng is a Principal Geotechnical Engineer with more than 26 years of international multidisciplinary experience in geotechnical and geological engineering. Kevin has previously been based in Hong Kong, and has been working in China since 1990. Specific recent project geotechnical experience that is relevant to this assignment includes Fuwan Silver Project PEA, Olon Ovoot Mine in Mongolia, Tanjianshan Gold Mine in northwest China, Liba/Jinshan Gold Deposit in Gansu Province, and Boka Gold Mine in Yunnan Province. His technical experience includes site investigations and geotechnical designs for open pit mines, tailings facilities, high and low rise structures, artificial islands and seawalls, fill embankment and embankment dams, landfills, industrial complexes, tunnels, railways, pipeline and road route alignments, and slope and bridge abutments. He is an experienced project manager and has been responsible for delivering multi-million dollar consulting projects in the civil and mining sectors. Kevin is based in Jakarta, Indonesia. Mr Holley is responsible for geotechnical review.

Anthony Stepcich, BEng (Mining), MSc (Mineral Economics), MAusIMM, Anthony is a Mining Engineer with 19 years’ experience in the mining industry, having gained both underground and open-pit metalliferous experience, and open-pit coal experience. Anthony has postgraduate qualifications in finance and economics. He specialises in open-pit design and scheduling and project evaluations. He is a Competent Expert as specified in the VALMIN Code and Competent Evaluator as specified by the Main Board Listing Rules of the HKEx with the relevant experience. MrStepcichisresponsiblefortechnical-financialanalysisandproject valuation.


– 183 –

Peter Fairfield, BEng (Mining), FAusIMM, Peter is a mining engineer with over 27 years’ experience. He has strong technical and operational background, having held on-site roles and head office roles for 19 years in underground metal mines throughout Australia and the United States, General Manager Technical Services, Manager Mining and Senior Mining Engineer. Peter’s experience includes providing technical and operational service and support, operations management, study management and preparing independent technical reports. Peter has added evaluation and valuation skills during has eight years in consulting and has been a member of and led SRK multi-disciplinary review teams on a number of Australian and international mining projects across the base and precious metals commodities. MrFairfieldisresponsible for project valuation.

Andy Li, PhD, MAusIMM is a Principal Environmental Consultant with SRK Consulting China Limited, graduated with a doctoral degree in Environmental Engineering from the Florida State University. He has over 12 years’ experience in the environmental engineering field, and has worked in various environmental projects in USA, China, Mongolia, as well as South Asian Countries. He has particular expertise in environmental due diligence reviews, environmental compliance and impact assessments for mining, mineral processing, refining, and smelting; contaminated site assessments and remedial design; wetland and landfill rehabilitation; and environmental risk assessment. He also has extensive experience in water/wastewater treatment design, water distribution systems, and storm water management system design. Dr. Li reviewed the license/permits, environmental, and social aspects.

Yongchun Hou (Roger), MSc, is a Consultant (Coal Geology). He graduated from the China University of Mining and Technology in 2008, and has 6 years’ experience in coal exploration planning, resource estimation, data validation, drilling supervision, sampling, and coal washing. He worked as a coal geologist in Kalimantan Indonesia and Mozambique under JORC Code practice and is proficient with Minex and Vulcan modelling software. With SRK China, he is involved in coal exploration supervision, coal geology, resource and reserve estimation, and with coal washing projects. Mr Hou is responsible for Geology review and resource modelling review.

Yanfang Zhao (Bonnie), MEng, MAusIMM, is a Consultant (Geological Engineering) in SRK China. She graduated from China University of Geosciences (Beijing) in 2009. Before joining SRK, she worked for Silvercorp Metals Inc. as a geologist where she accumulated valuable experience in resource estimation, geological mapping, and database management. She is proficient with industry standard software packages such as Minex, Arcgis, Surpac, Mapgis, AutoCAD, and Access. At SRK, Yanfang is involved in projects in China and Indonesia. Ms Zhao is responsible for resource/reserve modelling.


– 184 –

Zhiping Wu (Simon), MEng, MAusIMM, is a Consultant (Mining) and mining engineer. With a Master’s degree in mining engineering, he has 5 years’ experience in the coal industry, and is proficient in coal mine development, production systems, equipment selection, and underground pressure measurement and monitoring. Since joining SRK, he has been involved in mining studies/design, mining reviews, financial analysis, as well as technical reports compilation for several IPO projects in China, Mongolia, and Indonesia. He has also carried out coal geology-related exploration field work for SRK. Mr. Wu assisted Mr. Strasser forMiningreviewandisresponsibleforfinancialanalysissection.

Dr. Yonglian Sun, BEng, PhD, FAusIMM, FIEAust, CPEng, is a Corporate Consultant and the Managing Director of SRK China with over 25 years’ experience in geotechnical engineering, rock mechanics and mining engineering in five countries across four continents. He has extensive international mining experience with an emphasis in site investigation, analysis and modelling of geotechnical issues in open pits, underground mines, tunnels. He also has considerable experience in project management and project evaluation in assisting mines with the fund-raising and overseas stock listing. Recently, Yonglian has coordinated and led a number of due diligence projects. Most of these projects have been successfully listed on the Stock Exchange of Hong Kong Ltd. Dr. Sun provides internal peer review to ensure the quality of the report meets the required standard.

David Lawrence, B.Sc., MAusIMM, is a Principal Consultant and Coal Geologist with over 30 years’ experience in the industry and is a Competent Person (CP) according to the guidelines of the JORC, IoM3 and CIM (43-101) Mineral Resource classification schemes. His experience includes extensive operational involvement in some of the largest Underground and Opencast Coal mines and includes the planning and execution of exploration projects, geological modelling and resource estimation associated with mining studies from identification level through to feasibility. David has been responsible for the corporate mentoring, reviewing and collating of Resource and Reserve Statements and Competent Person Reports for inclusion within the annual report within BHP Billiton. He has worldwide experience of various deposit types and styles across South Africa, Alaska, Colombia and Australia. Mr. Lawrence provides external peer review to ensure the quality of the report.

For full CVs of Mr. Strasser and Mr. Stepcich showing details of their professional experience, please refer to Appendix 5.

2.7 Competent Person’s Statement and Responsibility

I, Bruno Strasser, confirm that I am the primary author responsible for the whole Report and a Competent Person for information that relates to Coal Reserve and Mining Assessment.

• I am a full time employee of SRK Consulting China Limited, B1205 COFCO Plaza, 8 Jianguomen Nei Dajie, Beijing, China 100005; Phone: 86-10-6511 1000; Fax: 86-10-8512 0385; Email: [email protected]


– 185 –

• I graduated with a Master ’s Degree (Diplom Ingenieur) in Mining and Geosciences from the Technical University Berlin, Berlin, Germany.

• I am a member of the Australasian Institute of Mining and Metallurgy (AusIMM No. 308480) in good standing.

• I have over ten years relevant experience in the general coal mining Industry and with coal deposits of the type and style of mineralization as present at MMHL’s mine.

• I have read the definition of “Competent Person” set out by the JORC Code 2012 Edition and in the HKEx Listing Rules and declare that by reason of my education, affiliation with professional associations (as defined in the listing rules) and past relevant work experience, I fulfil the requirements to be a Competent Person for the purposes of this Report.

• I visited MMHL’s coal mine in June and September 2015.

• I have had no previous involvement with MMHL’s mines and business. I have no interest, nor do I expect to receive any interest, either directly or indirectly, in MMHL’s mines and business, nor in the securities of the Company.

• I am not aware of any material fact or material change with respect to the subject matter of this technical report that is not reflected in this technical report, the omission to disclose which makes the Technical Report misleading.

• I am independent of the Company, its directors, senior management, and advisers, applying all of the tests in Rules 18.21 and 18.22 of the Listing Rules of the HKEx.

• I consent to the filing of the technical report with HKEx and other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of this technical report.

Information and Report Sections about Geology, Exploration Data, and Coal Resource were compiled and contributed by Jan Smolen, an Associate of SRK Consulting China Limited, who earned a Master’s Degree in Exploration and Mining Geology from the AGH University of Science and Technology in Krakow, Poland. He is a member of the Australasian Institute of Mining and Metallurgy (AusIMM No. 307703) in good standing and qualifies as Competent Person in his field. Valuation of the mineral assets has been provided by Anthony Stepcich, a full time employee of SRK Australia, who earned a Master’s Degree in Mineral Economics in Curtin University after a Bachelor’s Degree in Mining in Ballarat University, and he qualifies as Competent Evaluator, and Competent Expert as prescribed by the VALMIN Code. I am satisfied that the work of the other contributors is acceptable.


– 186 –

2.8 Statement of SRK Independence

Neither SRK nor any of the authors of this Report have any present or contingent material interest in the outcome of this Report, nor do they have any pecuniary or other interest that could be reasonably regarded as being capable of affecting their independence or that of SRK.

SRK has no prior association with Agritrade in regard to the mineral assets that are the subject of this Report. SRK has no beneficial interest in the outcome of the technical assessment being capable of affecting its independence.

SRK’s fee for completing this Report is based on its normal professional daily rates plus reimbursement of incidental expenses. The payment of that professional fee is not contingent upon the outcome of the Report.

2.9 Warranties

Agritrade has, to the best knowledge of SRK, made full disclosure of all material information and that, to the best of its knowledge and understanding, such information is complete, accurate and true.

2.10 Indemnities

As recommended by the VALMIN Code, and by accepting this Report, Agritrade agrees to provide SRK with an indemnity under which SRK is to be compensated for any liability and/or any additional work or expenditure resulting from any additional work required:

• which results from SRK’s reliance on information provided by Agritrade or to Agritrade not providing material information; or

• which relates to any consequential extension of workload through queries, questions or public hearings arising from this Report not covered in the consultancy agreement between PT Merge Energy Sources Development and SRK.

2.11 Consents

SRK consents to this Report being used for informing investors or potential investors and their advisors, or included, in full, in a circular, in the form and context in which the technical assessment is provided, and not for any other purpose.

SRK provides this consent on the basis that the technical assessments expressed in the Summary and in the individual Sections of this Report are considered with, and not independently of, the information set out in the complete Report and the Cover Letter.


– 187 –

2.12 SRK Experience

The SRK group employs over 1500 professionals internationally and has 50 permanently staffed offices in 20 countries on six continents. SRK China has an office in Beijing with over 40 staff. SRK has considerable experience in providing CPRs for companies listed on stock exchanges in Australia, Britain, Canada, Hong Kong, South Africa and the US. In China, SRK has provided CPRs and studies for the coal industry as shown in Table 2-2.

Table 2-2: List of References — Reports by SRK Consulting China (Coal)

Company Year Study/Report/ProjectSASOL, South Africa 2010 Coal Mine Data Analysis, SASOL-Shenhua Coal-to-

Liquid (CTL) Project, ChinaTotal Petrochemical 2011 Conceptual Study for an Underground Coal Mine for Company, France Coal-to-Chemical (CTC) Project, ChinaXinjiang Huahong Ltd., 2012 Tech. Review of 4 Open Pit Coal Mines, Xinjiang, China China; Thermal Coal and Carbon ProductionPeabody Energy, USA 2012 Geological Exploration Consulting Services, Xinjiang,

China; Thermal CoalECO Towngas, 2012 Technical Review of Coal Mines for Coal-to-Gas (CTG) Hong Kong Projects, Inner Mongolia, ChinaYingkou Astron Mineral 2012 Project Review and Gap Analysis of Definitive FS, Resources, China/Aus Mineral Sands Project, AustraliaChonghou Energy, China 2013 Tech. Review of 4 Coking Coal Coal Mines, Inner

Mongolia, China; Coking CoalYidong Coal, China 2013 Tech. Review of 12 Coal Mines, Inner Mongolia, China;

Thermal CoalFu Woo Group, 2013/14 Tech. Review and Mine Design for Ketahun Open Pit Hong Kong Coal Mine, Indonesia; Thermal CoalSABIC, Saudi Arabia 2014 Coal Supply Study for Coal-to-Chemical Plant in ChinaPanjiang Coal, China 2014 Technical Review of 3 Coking Coal Mines in Guizhou,

China

2.13 Forward-Looking Statements

Estimates of mineral resources, coal reserves and mine production are inherently forward-looking statements, which being projections of future performance will necessarily differ from the actual performance. The errors in such projections result from the inherent uncertainties in the interpretation of geologic data, in variations in the execution of mining and processing plans, in the ability to meet construction and production schedules due to many factors including weather, availability of necessary equipment and supplies, fluctuating prices and changes in regulations.


– 188 –

The possible sources of error in the forward-looking statements are addressed in more detail in the appropriate sections of this report. Also provided in the report are comments on the areas of concern inherent in the different areas of the mining and processing operations.

2.13.1 Reliance

The Report is addressed to and may be relied upon by the Company, the Directors of the Company and the Company’s various financial, legal and accounting advisors (the “Advisors”) in support of the Proposed Transaction, specifically in respect of compliance with the requirements of the Listing Rules. SRK agrees that the Report may be made available to and relied upon by the Advisors. SRK is responsible for the Report and for all the technical information in the circular released by the Company in connection with the Proposed Transaction and dated the same date as the Report that has been extracted from this Report. SRK believes that its opinion must be considered as a whole and select portion of the analysis or factors considered by it, without considering all factors and analyses together, could create a misleading view of the process underlying the opinions presented in this Report. The preparation of a Report is a complex process and does not lend itself to partial analysis or summary. SRK has no obligation or undertaking to advise any person of any development in relation to the Project which comes to its attention after the date of the Report or to review, revise or update the Report or opinion in respect of any such development occurring after the date of the Report.

2.13.2 Effective Date

The effective date of the CPR is 30 September 2015 (the “Effective Date”). The Mineral Resource and Mineral Reserve statements set out in this CPR are reported as at 30 September 2015 and represent the resources and reserves at 30 September 2015 as audited by SRK. The Valuation Date of CVR is January 1, 2016.

According to VALMIN Code, Valuation Date means the reference date on which the monetary amount of a valuation in “dollar of that day” terms is current. This date could be different from the dates of completion or signing of the Report or cut-off date of available data.

2.13.3 Material Change

Based on information provided by the Company and MMHL, the events that have occurred since the Effective Date are unlikely to have a material impact on the resource and reserve statements or the values for the Project at the date of publication of this Report.

2.13.4 Legal Claims and Proceedings

SRK has been advised by the Company and its legal advisors that there are no legal claims or proceedings which could influence MMHL’s rights to explore and/or mine Project.


– 189 –

3 LOCATION

3.1 Location and Geography

The Rantau Nangka Coal Project is located in Banjar Baru, South Kalimantan Province, Indonesia, near the town of Rantau. Kalimantan is the Indonesian part of the island of Borneo. The Project area is situated approximately 100 km northeast (“NE”) of Banjarmasin, the capital city of South Kalimantan Province. The mining area (concession area) is determined by the geographic coordinates of 115°11’46” to 115°17’22.5”E and 03°08’22.7” to 03°13’08”S. A map showing the Rantau Nangka Project location in Indonesia is shown in Figure 3-1 below.

Figure 3-1: Project Location Map

The physiography of the mining concession area is undulating, with elevations ranging from 56 m to 337 m above sea level (“ASL”). Topography and landform in the Rantau Nangka Project area are shaped by geologically rapid uplift coupled with erosional processes in a tropical humid environment.

Most residents in the mining area are Banjarese (80%), with some Dayak communities in the mountains. Most residents work in agriculture and farming. Livestock and small-scale rubber plantations are also common. The main food crop in the area is rice.


– 190 –

3.2 Climate and Natural Hazards in the Area

The climate of the Project area is tropical, characterised by substantial rainfall throughout the year. The mean annual temperature is about 25°C with a minimum of 19.3°C and a maximum of 36.3°C on record in 2007. The mean annual rainfall in the area is about 2,600 mm. Data is from records by Banjar Baru Climatology Station.

Figure 3-2: Typical Setting of the Rantau Nangka Area

Borneo in recent times has been a tectonically stable area not affected by earthquakes of large magnitude. Indonesian earthquake records of South Kalimantan Province shows low earthquake intensity in the Project area compared with the other parts of Indonesia. As such, underground mining conditions may be more suitable than in the tectonically more active areas as in Java, Sumatra, and other islands of Indonesia.

4 SITE ACCESS, COAL TRANSPORT AND INFRASTRUCTURE

4.1 Access and Coal Transport

The nearest public highway connecting to Banjarmasin passes about 30 km west of the Project area. From there the mine can be reached over the main coal transport roads through rolling hills. The gravel roads are suitable for heavy equipment transport to the mine from the ship/barge unloading at the Barito River and tributaries. The nearest airport in the area is Banjarmasin. A helicopter landing pad is located about 10 km from the mine but is not used by the mine.


– 191 –

The coal transport roads are gravel roads leading to the river terminals (river ports) of PT Talenta and PT Tapin Coal Terminal (“TCT”) and lead through a flat, swampy area. During the site visit the roads were in good condition and were maintained by graders.

For coal transport the mine will use 40 to 70 tonne (“t”) capacity trucks from the mine to the river port operated by PT Talenta about 90 km from the mine and/or the TCT terminal about 70 km from the mine. Both terminals have truck unloading and stockpile facilities, and barge loading by belt conveyor. From the terminals the coal will be barged to anchorage grounds near Banjarmasin and then transferred to ocean bound vessels for export to Asia markets. The TCT terminal is 68 nautical miles (“NM”; 1 NM = 1.852 km) and 55 NM from the PT Talenta terminal. The rivers used for coal transportation are Barito River and its tributaries, which can support barges in both rainy and dry seasons. The standard barge size used is 10,000 t (330 ft or 100.6 m barges).

Figure 4-1: Transport Roads and Coal Terminal Location

The terminals are equipped with belt conveyor loaders for loading barges at the jetty. Due to expansive construction in recent years, the loading and shipping capacity in the area seems to be sufficient.


– 192 –

Figure 4-2: Barge Loading Jetty at PT Talenta Terminal

MMHL is in discussions with the relevant parties to sign road and port use agreements. Based on the forecast production rate and the available road and port capacities, MMHL does not expect to suffer from any transportation bottleneck.

SRK is of the opinion that the existing access to the site and regional infrastructure is well developed and sufficient to support the requirements of the Rantau Nangka Project.

4.2 Electrical Power Supply

Power supply from the national grid (“PLN”) is not available at site. The surrounding mines and villages are powered by generators. The nearest PLN substation is about 15 km away from the mine. Presently, the Project runs its own mine power station with three generating sets each powered by 1,000 kilowatt (“kW”) diesel engines. The power station will be extended by addition of three (3) more generating sets with 1,000 kW diesel engines for the production phase of the mine. These additional units have been delivered to the site in September 2015. The option to add 3 more units by extending the building is possible.


– 193 –

SRK concludes that the total installed power generating capacity of six diesel generating sets of 6,000 kVA should be sufficient to operate the mine at the scheduled output. Only with increased power requirement for belt conveyors from the deep of the mine the need for additional units may arise. With the relatively small 1,000 kVA units the power station can provide flexible power supply during the ramp-up period when not all equipment in the mine is installed or when less than the maximum demand is required. This should allow for optimized energy costs and diesel consumption throughout the stages of the project.

MMHL also stated that it has plans to build a coal fired power plant of 2 × 35 megawatts (“MW”) at the mine site which could supply electricity to PLN. MMHL indicated that the capital expenditure required for the power plant would be about US Dollars (“USD”) 30 million (“M”). A study on this project and a time schedule for construction has not been sighted by SRK.

4.3 Water Supply

Water for the mine and the mine facilities is sourced from a reservoir in the mine surface plant area fed by small local streams leading to the. Groundwater below a depth of 100 m is difficult to source according to the hydrogeological assumption. An option and/or permissions for using water from the Sungai Riam Kiwa River is not known to SRK

4.4 SRK’s Opinion on Infrastructure

SRK is of the opinion that the infrastructure available in the mining area is sufficient and is to the standard to support the operation of large scale coal mine. At the mine site, the company has provided the basic facilities during the mine development period. It should be possible to improve and upgrade these facilities if required during future operation.

5 MINING ASSETS, CONCESSIONS AND PERMITS

5.1 Mining Assets and History of Mining Assets

The Rantau Nangka coal mine is within an area previously known as Baramarta Coal Field which was owned and managed by PD Baramarta. PD Baramarta held exploration and mining concessions. Four open pit mines were developed in the area: Pinang Pit, West Pit, South Pit, and North Pit. Operation was contracted to two companies, namely PT Madhani Company for Pinang Pit and PT Pama Persada Nusantara for West, South, and North Pits. Of the four open pits two are mined out. Two pits are near the end of its LOM.

The original Baramarta Coal Field (concession area) occupied an area of approximately 74.2 square kilometres (“km2”) of which 23.9 km2 were considered as suitable for open-pit mining while 44.8 km2 are considered suitable for underground mining.


– 194 –

The open pit operations are surrounding the remaining unmined area which is now designated for underground mining by MMHL. The mining plan considers mining the area in sections, commencing in an area described as “1st Mining Section”, followed by the 2nd, 3rd, and 4th Mining Sections.

According to the information sighted the 1st Mining Section is covered by Production IUP 470. One part of the 2nd Mining Section is covered by Production IUP 470, the other part by Exploration IUP 471; the 3rd Mining Section is covered by Exploration IUP 471; and the 4th Mining Section, which should be considered as optional for operation only, is partly covered by Production IUP 469-Block I and partly in an area still held by PD Baramarta.

All area was previously granted to PD Baramarta and then partly to MMHL companies under IUPs 147 and 148.

Clause 67 of the VALMIN Code States: “....Determination of the status of Tenements is necessary and must be based on a recent independent inquiry, either by the Expert or a Specialist or on a recent report by either a solicitor or a tenement specialist who would qualify as being a “Specialist” as described in Definition D10. Therefore SRK does not believe a Lawyers opinion is required by the VALMIN Code. SRK believes Mr Yuanhai Li is a qualified specialist to opine on this matter.

CPR Appendix 1 contains a copy of the IUP Licenses. It has been reviewed by Yuanhai Li, a Principal Consultant (Environmental & Permitting) of SRK China. Yuanhai Li confirms that these IUP’s are currently valid and in good standing. Yuanhai Li also notes that in order to commence work within the licensed area, an approved work plan and a registered work authority associated with the IUP’s are required; however these two documents are not sighted by Yuanhai Li.

Agritrade Resources Limited has been provided with a legal opinion issued on 30 November 2015 by Mochtar Karuwin Komar (“MKK”), an Indonesian law firm, which acted as Indonesian counsel to:

a) PT Merge Energy Sources Development (“MESD”);

b) PT Merge Continental Mining (“MCM”); and

c) PT Merge Mining Industri (“MMI”) (together the “Companies”)

in relation to the issues of Rantau Nangka. MKK has confirmed inter-alia the following information:

d) Each of the Companies holds an IUP license (either for exploration or production operation).

e) Each of these IUP Licenses is the correct kind of license for conducting coal exploration / production activities in the Republic of Indonesia.


– 195 –

f) The periods and other features of these licences are as mentioned in the Circular pages 36 - 56.

g) The Companies have complied with the obligation under Government Regulation No. 77 of 2014 to hand back their IUPs to the Ministry of Energy and Minerals and Energy Resources (“MEMR”) and now await the hand back of these IUPs from MEMR.

h) MKK is not aware of any reason that would impede MEMR from handing back the IUPs to the Companies.

i) MKK is not aware of any reason that would impede the Companies abilities to obtain or renew any relevant licenses, permits and approvals in order to explore and mine in the IUP areas.

j) MMI holds a land use permit for forestry areas.

k) Should MESD upgrade its exploration IUP to a Production Operation IUP, it will need to obtain certain new licenses and permits, make certain amendments to its corporate documents and obtain certain governmental approvals from the BKPM, MEMR and Ministry of Law and Human Rights.

l) The Companies comply with Rule 18.03(1)(a) of the Hong Kong Stock Exchange listing rules.

m) MKK is not aware of any legal claims or proceedings that may have an influence on the Companies rights to explore or mine coal within the IUP areas.

The opinion is subject to a number of assumptions and limitations.

5.2 Exploration Concessions (Exploration IUP)

Table 5-1 summarizes key data for the exploration concession of the MESD. Details of the Exploration IUP are provided in Appendix 1 to this Report.

Table 5-1: Exploration Concession

License Holder Exploration Exploration Area

Period of Validity IUP No. (km2)PT Merge Energy Sources Development (MESD) 471/2013 13.03 9-Oct-12 to 8-Oct-19

Exploration License 471/2013 consists of one exploration block (see Figure 5-1) delineated by the coordinates shown in Appendix 1.


– 196 –

Figure 5-1: Exploration License, Mining Licenses and Cross Border Agreement

This Exploration IUP 471 would have to be converted to a Production IUP prior to mining the related Mining Sections as per mine planning.

5.3 Mining Concessions (Production IUP)

On 19 June 2013, Banjar Baru issued two approvals (“Approval of Updating Production IUP Area”) for updated Production IUP areas to MMI and MCM. Copies of these two approvals are attached in Appendix 1 and a summary of the mining licenses are shown in Table 5-2 below.

Table 5-2: Mining Licence Details

License Holder

Mining Mining Period of Validity License No. Area (km2)

PT Merge Mining Industri (MMI) 470/2013 11.707 12-Feb-10 to 11-Feb-30PT Merge Continental Mining (MCM) 469/2013 11.896 12-Feb-10 to 11-Feb-30

Mining Concession 470/2013 consists of one block and Mining concession 469/2013 consists of three blocks (see Figure 5-1). All blocks together cover a total area of 23.603 km2. All mining blocks are delineated by the coordinates shown in Appendix 1.


– 197 –

5.4 Cross Border Agreements

In addition to the MMHL’s mining concessions there is an additional area between the boundaries of the company’s concessions and the limits of PD Baramarta’s open pit operations where PD Baramarta allows MMHL cross border mining. This “outside” area is partly included in the mining plans. Mining this area is covered by an agreement between the MMHL and PD Baramarta (Nota Kesepahaman Antara Perusahaan Daerah Baramarta Dengan PT. Merge Energy Source Development, 2009, or the “Agreement”). This Agreement, which is an agreement in principle, gives the MMHL the opportunity to include and develop the area into its underground operation in co-ordination with PD Baramarta. According to Clause 4 of the Agreement, the parties need to make separate agreements for each area of cross border mining and after open pit mining is completed. The Baramarta concession area is presented in Figure 5-1. However, SRK cannot confirm the legitimacy and effectiveness of the Agreement based on the provided information.

5.5 Other Permits

Jakarta Centre of Industry and Trade Services Group issued Business License No. 356.0457.1.824.271 to MMI and Business License No. 355.0544.1.824.271 to MCM on 5 March 2009.

SRK was provided with a Land Use Sale Agreement between MMHL and the head of Rantau Bakula Village and Sungai Pinang District (signed 25 July 2009), notarized by Lady Rikawati, the land notary in Banjar Baru, and approved by the magistrate of Banjar Baru.

SRK was provided with two Forestry permits for the Rantau Nangka Coal Project’s exploration tenements. Permit No. S.589/Manhut-VII/PKH/2009 was issued to MCM (tenement No. 148/2010-KW.01.075 P.BJR 2008) and permit No. S.590/Menhut-VII/PKH/2009 was issued to MMI (tenement No. 147/2010-KW.01.071 P.BJR 2008) on 26 August 2009 by the Forestry Department of Indonesia. These permits expired 6 February 2010. MMHL stated that they had not extended the Exploration Forestry Use Permits as they are currently applying for Mining (Coal Production) Forestry Use Permits.

SRK was provided with governmental receipts of applications from MMHL for Mining Forestry Use Permits for both of their tenements for review. Submission receipt No. 540/0000081/Distam for the tenement No. 147/2010-KW.01.071 P.BJR 2008 was given to MMI and submission receipt No. 540/0000082/Distam was given to MCM for tenement No. 148/2010-KW.01.075 P.BJR 2008, separately, on 10 February 2010 by the Banjar Regent, Martapura Kalimantan.

During the June 2015 site visit, SRK was provided with a Mining Forestry Use Permit (No. SK.651/Menhut-II/2013),which was issued by the Forestry Minister of Indonesia on 2 October 2013, valid till 11 February 2030. The Mining Forestry Use Permit covers an area of 36.5 hectares and consists of the main ground production facilities.


– 198 –

6 GEOLOGY

6.1 Regional Geology

The Rantau Nangka Coal Project is located along the eastern flank of the extensive Barito basin in South Kalimantan, Indonesia. The island of Borneo was formed by Mesozoic accretion of the South China/Indochina and Gondwana Terranes. These fragments were amalgamated on to the Palaeozoic continental core represented by the Schwaner Mountains on the southwestern (“SW”) side of the island (Williams et al, 1988; Hamilton 1979; Hutchinson 1989, 1998). The promontory referred to as Sundaland was formed in the Cenozoic at the eastern margin of Eurasia, which was partly separated from Asia at that time by the proto-South China Sea.

The continental core of the Schwaner Mountains (or West Borneo basement) subsided to the east and is overlain by unfolded Tertiary deposits, referred to as the Barito platform. It is separated from the Kutai basin in the north by the Paternoster platform and from the Asem-Asem basin in the east by the Meratus Mountains.

The Meratus Mountains are an imbricated ophiolite complex presumed to have been emplaced along the southeast (“SE”) margin of Sundaland in Late Jurassic to Early Cretaceous times. Various authors interpreted the ophiolite rocks as subduction melange (for example, Hamilton 1979), and other as an extension zone from the opening of the Makassar straits (Audley-Charles, 1978). The central part of the Meratus Mountains is built of peridotite, overlain on the flanks by shallow water Cretaceous deposits. Early Tertiary Barito basin sediments were thrust east-southeast (“ESE”) over the ophiolite basement. Hall (2002) assumes that uplift of the Meratus Mountains took place during the Neogene, although the age of uplift is uncertain.

The Paternoster platform separates the Kutai basin to the north and the Meratus graben to the south. It makes a tectonically stable block SW of Balikpapan, which protrudes offshore as a platform. The block forms a basement to the South Pasir basin and the Pasir sub-basin. Little is known about the Paternoster platform. The basal conglomerate derived from pre-Tertiary igneous and metasedimentary basement is deposited only in the west and northwest (“NW”). Towards the east conglomerate is replaced by sandstone. Basal clastics are overlain by a paralic sequence of sandstone, claystone, and coal with thin limestone beds occurring in the southern sector. They thin out and transit to shelf facies of marine sandstone and marl in the NW of the platform. Limestone has been established to be a Late Eocene — Oligocene equivalent of the Berai limestone of the Barito and Kutai basins (Figure 6-1).


– 199 –

The pre-Tertiary basement of igneous or metamorphic rocks in the Barito platform is unconformable overlain by the Eocene Tanjung formation, which represents the beginning of basal transgression. The conglomerate at the base of the formation is overlain by quartzose sandstone, claystone, and coal with thin limestone beds of paralic setting. The oldest rocks of the Barito basin are preserved in the Meratus graben. The Tanjung Formation is intruded by andesites in places, and in the upper Barito River pyroclastics are present in Eocene sandstone. The younger units lap towards the west on the Barito platform. The Tanjung formation is overlain by Late Eocene — Early Miocene Berai limestone which is more than 1 km thick along the northeastern boundary of the Barito platform. In the Middle Miocene the Barito platform was regressed by deltaic and continental deposition of the Upper Miocene Warukin formation and Early Pliocene Daher formation.

The dominant tectonic feature in the northern part of the basin is the NW-SE trending Paternoster fault. In the northern Barito basin, a number of shear faults parallel to the Paternoster fault offset the Meratus Mountains. The Barito basin sediments were thrust over the Meratus basement to the east in the Late Miocene. Hutchinson (1998) interprets the Barito basin as a back arc basin and the Meratus Mountains as an arc trench area.

Figure 6-1: Overview of Sedimentary Basins in South-East Asia


– 200 –

6.2 Mine Geology

6.2.1 Stratigraphy

The Rantau Nangka Coal Project area is covered by dense vegetation which is a result of a combination of high rainfall and a rich soil. As a result of this only very limited natural outcrops of coal-bearing strata is visible in the exploration area.

Based on the geological map of Rantau Nangka, the coal project area comprises three sedimentary formations which from top to base are: Berai Formation, Tanjung, Formation and Manunggul Formation from top to bottom (see Figure 6-2and Figure 6-3).

Quaternary cover is developed throughout the Project area and varies in thickness varies from 2.30-8.00 m, with an average of 4.49 m. These deposits, as shown in three boreholes, are dominated by soil, with boulder-size conglomerates up to 4.15 m thick.

The Eocene Berai Formation conformably overlies the coal-bearing Tanjung Formation and is primarily comprised of limestone, interbedded with claystone, and marl; it is partly silicified and contains limonite. This formation was deposited in the neritic depositional environment and has an average thickness of approximately 1,000 m.

The Tanjung Formation is located near Tanjung in the southern part of Kalimantan with the lower part of this formation containing the coal-bearing measures. Coal measures were developed on a vast peneplanised platform, with accommodation space provided by half-graben extension tectonics. The basal part of Tanjung Formation consists of conglomerate, which is common in faults controlled by Tertiary rift basins in SE Asia. The high energy conglomerate deposition was followed by sandstones, coals, shales, and local basalts (Hutchison, 1998). The rift phase of Barito basin was followed by a period of thermal sag during which marine sandstones and shales were deposited.

The lower part of Tanjung Formation in the Rantau Nangka area is a fine-grained unit dominated by mudstone, siltstone, and carbonaceous mudstone, with subordinate coal and sandstone. The sandstone deposits are typically less than 12 m thick.

Exploration work combined with recent coal mining shows the lower part of Tanjung Formation in the Rantau Nangka area consists of four master coal seams from top to bottom — A, B, C, and D. The master seams may consist of a single seam or a number of seams which are within vertical succession and laterally interconnected.


– 201 –

The coarse-grained conglomerate and clastic sedimentary rock of Manunggul Formation, which formed in the Late Cretaceous, underlies the Tanjung Formation and is considered the partially basement of the Baramarta coal field.

Figure 6-2: Geology Map of Rantau Nangka


– 202 –

Figure 6-3: Cross Section of Rantau Nangka

6.2.2 Depositional Model

The Eocene coal measures within the lower part of Tanjung Formation accumulated during a time of major structural upheaval in SE Asia. The Barito basin is one of numerous rift basins which developed throughout SE Asia during the Eocene — Miocene period (Figure 6-1).


– 203 –

The coal-bearing lower part of Tanjung Formation developed on a vast peneplanised platform (Hutchison, 1998). Accommodation space was provided by a series of half-graben during an extensional phase of basinal development. Like numerous other Tertiary rift basins in SE Asia, the basal part of Tanjung Formation is characterised by conglomerate units. These deposits were most likely developed by high energy alluvial fans with more distal braid plain systems. The high energy depositional phase was succeeded by a peatland environment which might have persisted for up to four million years. The facies mosaic consisted of fluvio-lacustrine systems where sandstone, siltstone, coals, shales, and local basalts developed (Hutchison, 1998). SRK found no evidence of basalts in the extensive Pama highwalls, and the extrusives might be restricted to the western flanks of the Barito basin. SRK found fragments of resin within Seam A, which suggests the coal deposits could represent, in part, forested deposits.

Sedimentary structures such as lenticular and wavy bedding (as shown in Figure 6-4) as well as east-west oriented ripple marks strongly suggest a paralic depositional setting resulting in inter-digitation of paralic and coal-bearing coastal plain deposits. The preservation potential for coals in such a depositional setting is high; however coastal plain coals are often associated with high sulphur levels. In this context, the Total Sulphur values on an air dried basis (“adb”) are significantly higher in the lower seams (Seams C, Dup, and D). In Seam C, the Total Sulphur values reach up to 2.78% in borehole ZK-104. Seam Dup is characterized by the highest Total Sulphur values, up to 3.96% in borehole ZK-103. Seam D has values of up to 3% in borehole JC-01. During deposition of the lower coal seams, the palaeocoastline was probably never far away, possibly within 5-10 km, and probably somewhat more distal during deposition of the upper seams (maybe 10-20 km).

Common thin tuff laminae and beds up to 3.1 cm thick, documented in Seam B, show some volcanic activity during deposition of the coal measures. However, no tuffs were observed in the other seams. In general, there is very little evidence of volcanic activity within the coal measures during this time. The data are thus in contrast with the active margin setting proposed for Kalimantan by Christopher Scotese.

The coal measures appear to be cyclic in nature and can be divided into four cyclothems: A, B, C, and D. Seams B, C, and D are separated by 16.0 to 17.5 m of interburden in borehole NK07. No chronostratigraphic data is available for Tanjung Formation and the duration of the cyclothems is thus uncertain. The driving force behind the base level fluctuations is considered to be tectonic as there is no global evidence of glaciation during this period.

Hutchison noted in 1996 that the rift phase of the Barito basin was followed by a period of thermal sag during which marine sandstones and shales were deposited. However, results from this study suggest that coal deposition was terminated as a result of renewed rifting, which dramatically changed the depositional parameters required for peat accumulation and preservation.


– 204 –

The lower part of Tanjung Formation in the Pama highwalls is a predominantly fine-grained unit, dominated by mudstone, siltstone, and carbonaceous mudstone, with subordinate coal and sandstone. A radical change in the sandstone/siltstone ratio above Seam A is evident in borehole NK07, which suggests a dramatic tectonic induced environmental upheaval.

The current understanding of the structural framework in the Rantau Nangka exploration area is based on recent borehole data as well as observations by SRK in highwalls to the west of the tenement area. The Rantau Nangka exploration area is characterised by a series of open synclines and anticlines. A large-scale NE-SW trending thrust fault is apparently developed along the western tenement boundary. Vertical displacement along this fault is estimated to be over 300 m. The NE-SW trend of the fault is consistent with the orientation of the main structural features in the Barito and Kutai basins (Satyana et al., 1999). A second large-scale thrust fault is developed in the NE sector of the exploration area. This fault can be traced on the geology map for more than 4 km. Vertical displacement appears to be less dramatic. However, no exploration data from these fault areas have been made available to SRK.

SRK conducted a brief structural assessment of the Pama open cut coal mine, concluding that the structure is comparatively simple. The Eocene coal-bearing deposits strike approximately north-south, and dip towards the west. SRK measured dips of around 5° at the highwalls (Figure 6-4) and these dips are consistent with measurements from recent boreholes within the tenement area.

Figure 6-4: A View of South Pit Highwall


– 205 –

A major normal fault is exposed in Pama North Pit (Figure 6-5). Seam C splits into four minor seams, which have been dragged along the fault in a sub-vertical position. Similar dips might be developed along the thrust fault in the western part of Rantau Nangka exploration area.

A series of very minor thrust faults were observed in Seam B in Pama West Pit (Figure 6-5). Vertical displacement was measured at 5 to 20 cm. Orientation of the thrust faults was measured at 140° with dips of approximately 20°.

Figure 6-5: Major Fault Exposed in the Northern Highwall at PT Pama Open Pit

6.3 Coal Seam Characteristic

Coal seam characteristics are delineated as follows:

• Seams A varies from 0.15 to 2.40 m in thickness, with an average of 1.29 m. It was encountered in 14 of the 18 boreholes, and is >0.7 m thick in 12 of the holes. A parting of between 0.15 to 0.20 m thick was encountered in five (5) boreholes.

• Seam B ranges from 0.95 to 6.10 m in thickness, with an average of 3.77 m; its thickness exceeds 0.7 m in all 18 boreholes which qualify for resource estimate. One or two partings of between 0.15 to 0.55 m thick were encountered.

• Seam C varies from 1.09 to 2.90 m thick with an average of 2.22 m. One parting of between 0.15 to 0.25 m thick was encountered in six (6) boreholes.


– 206 –

• Seam Dup ranges from 0.34 to 1.71 m thick (average of 0.98 m) with no partings encountered. Seam Dup was not found in three (3) of 18 holes, and is >0.7 m thick in 12 holes.

• Seam D varies from 2.38 to 3.36 m thick (average of 2.82 m). A 0.2 to 0.4 m thick parting of carbonaceous shale is consistently present in Seam D.

The roof and floor strata of all seams consist of mudstone.

Figure 6-6 shows a typical stratigraphic column of the Rantau Nangka mine.

6.4 Coal Quality

Based on data of 91 coal samples from 18 boreholes (ZK-104, ZK-101, ZK-003, ZK-302, ZK-200, ZK-201, ZK-901, ZK-102, ZK-203, ZK-001, ZK-103, ZK-202, JC-01, ZK-501, ZK-1001, ZK-1002, ZK-002 and Zb-01), the Eocene coal seam from the lower part of Tanjung Formation in the Rantau Nangka Mine has the following characteristics:

• Fixed Carbon (adb) content varies from 30.89 to 46.55%, averaging 40.40%;

• Total Moisture (“Mar”) content apparently varies from 0.67 to 8.27%, averaging 4.49%;

• Raw Ash content (adb) varies from 3.43 to 23.23%, averaging at 12.74%;

• Total Sulphur content (adb) varies from 0.22 to 3.96%, averaging 1.10%;

• Volatile matter content (adb) varies from 35.27 to 46.84%, averaging 42.71%; and

• Calorific Value (adb) ranges from 5,812 to 7,592 kilocalories per kilogram (“kcal/kg”), averaging 6,601 kcal/kg.

The Total Sulphur values (adb) are significantly higher in the lower seams. In Seam C Total Sulphur reaches up to 2.78% in borehole ZK-104. Seam Dup is characterized by the highest Total Sulphur values, up to 3.96% in borehole ZK-103. Seam D has values of up to 3% in borehole JC-01. These three boreholes are all located in the ESE part of the Project area. However, it is worthy of noting that the Total Sulphur values are significantly less in adjacent boreholes ZK-002 and ZK203. SRK suggests that duplicate samples could be tested to confirm such high results.

SRK highlights that the total moisture content for this type of coal is very low (0.67-8.27%, averaging 4.49%). Results from the surrounding open pits and the Rantau Nangka exploration area are very similar. However, total moisture values and moisture in air dried samples are nearly identical.


– 207 –

The raw ash content is very low in some samples (down to 3.43%), and in general is low to medium compared to similar coal. No high ash values are present in the data set. This is a consequence of the depositional setting (no major fluvial channels have been identified).

The Eocene Tanjung Formation coals are characterized by high values of volatile matter (up to 46.84% in Seam C).

Figure 6-6: Schematic Litho-Stratigraphic Section


– 208 –

7 EXPLORATION

7.1 Drilling

The earliest drilling was conducted along the coal outcrop areas between 2000 and 2003. Drilling results indicated that coal seams continue to the basin centre and that coal could be recovered by underground mining. To verify the underground coal resource potential, MMHL committed to a drilling program and commissioned a resource estimate which was completed by R & D Centre for Mineral and Coal Technology (“TekMIRA”), an independent consultant.

7.1.1 Exploration Drilling — Period 2000 to 2003

MMHL’s development report lists boreholes in the four areas as detailed in Table 7-1.

Table 7-1: Overview of Boreholes in the Four Open Pit Areas

Borehole South Pit North Pit Pinang Pit West Pit Total number 44 44 13 27 Seam A 15 16 1 Seam B 27 35 10 23 Coal Seams Seam C 44 43 13 23 Seam Dup 34 37 5 15 Seam D 44 43 13 26

SRK was provided with specs for the drill rig used, geological data obtained by drilling, and descriptions of geophysical logging although the results of geophysical logging were not available. Detailed data on the drilling performance (core recovery, lack of circulation) were not made available to SRK.

Exploratory drilling at the Pama South Pit was conducted in two stages. No data about the number of boreholes and total drilled metres is available for the first stage. A report on infill drilling indicated that 31 infill boreholes were drilled in the southern pit. The total drilling target, of 2,284 m, was exceeded with a total of 2,857.95 m drilled.

Exploratory drilling at the North Pit was also conducted in two stages, and similarly no data about the number of boreholes and total drilled metres were available for the first stage. A report on infill drilling indicates that the second stage consisted of 30 infill boreholes. The total drilling target was 2,515 m with a total of 2,908.60 m being ultimately drilled.


– 209 –

7.1.2 MMHL Drilling Program 2008 to 2009

SRK inspected the site in December 2008 focussed on discussion and revision of drilling, logging procedures, and sampling.

Drilling was undertaken by TekMIRA using Koken EP1 and Longyear 44 drilling rigs for vertical drilling. SRK observed that drilling and core handling were conducted to a high standard. HQ-size double core barrels and triple tube core barrels with inner split tubes were used for coring with excellent core recovery rates. The drill sites were well organised, tidy, and efficient (see Figure 7-11). Boreholes less than 200 m deep were not surveyed by downhole cameras.

Initially borehole sites were located by global positioning system (“GPS”) receivers based on exploration design coordinates. All boreholes were cemented after completion and fitted with PVC pipe, tagged with borehole IDs and date of completion.

Figure 7-1: Drill Site at ZK104


– 210 –

Given the remote site conditions and experience of the site personnel, wherever possible geological logging was done following the guidance provided by SRK in accordance with international standards. Geological data was collected and stored in hardcopy log sheets and then transferred to a WellCAD database and borehole logs were produced. However, SRK noticed that sedimentary structures, tectonic structures, and fossils were not recorded in the course of logging, although SRK observed such features in abundance at ZK-104. It is notable that no record of such features was logged into the database subsequently made available for SRK’s review. These data would have provided good support for coal seam correlation, even though the lack of sedimentary details has no impact on the resource estimate with regard to geological structure and seam stability. The seams were easy to correlate.

Core photographs were taken after geological logging (Figure 7-2). Geophysical logging consisted of calliper, electric resistance, and natural gamma and gamma-gamma methods. Both the methodology and records are up to international standard.

Figure 7-2: Core Photo ZK-104 (158.25 to 163.25 m)

The boreholes were located by a CX 70 GPS receiver. After drilling was completed the RTK survey was conducted.

All borehole collar coordinates were surveyed. Table 7-2 below lists coordinates of 18 boreholes and three sampling points along the highwall at three open pits.


– 211 –

Table 7-2: Survey Coordinates of Boreholes and Sampling Points at Open Pits

Borehole ID

Easting Southing Height (m) (m) (m)JC-01 308,747.72 9,648,185.26 84.44Zb-01 307,082.30 9,647,391.35 67.20ZK-001 306,619.26 9,647,243.91 83.29ZK-002 307,257.02 9,646,879.83 64.89ZK-003 305,824.07 9,647,697.21 85.72ZK-1001 305,417.72 9,651,290.82 156.57ZK-1002 308,701.27 9,649,408.84 91.26ZK-101 304,314.74 9,647,751.14 81.33ZK-102 305,552.30 9,647,026.33 86.23ZK-103 306,298.37 9,646,556.06 77.10ZK-104 307,124.13 9,646,080.00 66.61ZK-200 304,979.44 9,649,060.42 80.30ZK-201 306,212.19 9,648,366.77 71.47ZK-202 306,722.35 9,648,045.21 69.52ZK-203 307,657.61 9,647,517.75 70.24ZK-302 305,405.62 9,646,356.41 82.15ZK-501 303,654.92 9,646,345.17 68.61ZK-901 302,813.88 9,645,007.86 58.56North Pit sampling point 309,287.22 9,649,267.99 -16.38Pinang Pit sampling point 306,825.23 9,645,001.77 8.23West Pit sampling point 305,760.03 9,648,794.98 77.91

SRK checked the borehole collar against topography using Minex V6.1.3 software and found that some of the collars are not level with the modelled surface. SRK concluded that by digitizing the topography from regional topography maps by the Yankuang Coal Group Zoucheng Huajian Design Institute (“Zoucheng Institute”) some inaccuracy may have been introduced.

7.2 Sampling, Sample Preparation, and Analyses

7.2.1 Exploration Drilling 2000 to 2003

No information about the total number of samples taken was made available to SRK. The report on infill drilling in the north and south pits states that 580 samples were collected during the infill drilling campaign.


– 212 –

Samples were collected from all intercepted coal above 0.30 m, selected based on coal seam lithology. The minimum length of a coal sample was 0.25 m and the minimum length of a parting sample was 0.20 m. Coal with a parting less than 0.20 m thick was treated as one sample.

Samples were packed into plastic bags, tagged, and sent to the laboratory. The sample description on each tag contained the sample ID, borehole ID, drilling interval, and coal seam ID.

Total moisture content from analytical work suggests that either samples were not wrapped and sealed immediately or moisture escaped on the way to the laboratory due to exposure of samples to the hot climate.

The samples provided valuable information about coal quality and rock mechanics, but due to uncertainties regarding sample collection, core recovery, sample custody, and borehole collar coordinates, SRK does not consider the sample results acceptable for use in coal quality modelling for the JORC Code resource estimate.

7.2.2 MMHL Drilling in 2008-2009

TekMIRA collected 79 coal samples and 18 geotechnical samples. SRK noted that ply-by-ply sampling was not adopted consistently for all the coal interceptions. In some cases, partings more than 10 cm thick were not sampled or were included in the coal sample. During the reserve estimation SRK used the average quality of the partings to model the impact of parting dilution.

SRK noted that a chain of custody record was not maintained to the required standard by site personnel as the date of sample dispatch had not been included in the record. TekMIRA stated that after cores were photographed, samples were wrapped in plastic bags, sealed in steel tubes, and stored at the site until a batch of samples was dispatched to the laboratory. Sample dispatch records were not available in the prescribed chain of custody. SRK compared the dates of drilling on borehole logs with several analysis reports provided for the review and noted that Proximate Analysis was performed within 30 to 45 days after drilling was finished (for example, for ZK-203, drilling finished on 17 March 2009 and samples were delivered to the laboratory on 21 April 2009). SRK opines that such practices had an influence on Total Moisture analysis results. For comparison and confirmation, MMHL collected several channel samples from a fresh coal face in the operating open pits and immediately packed them and delivered them to laboratory. The results of Total Moisture tests on these channel samples showed only negligible difference from the borehole samples.

All samples were tagged by borehole number, coded for roof, floor, or parting, seam ID, and lithology code.


– 213 –

TekMIRA laboratory prepared samples in accordance with ASTM D2013-04 standard.

Acquire UncrushedGross or Divided

Sample

Is Sample too Wet to Reduce?

Is Sample to beReduced to Topsize of 4.75-mm

(No.4) Sieve?

Reduce to Topsize 2.36mm (No.8) Sieve

Divide to Minimum WeightSpecified in Table 1

Air-dry

Is Sample to be Reduced toTopsize of 850-μm

(No.20) Sieve?

Reduce to 250-μm (No.60)Sieve

Divide to Minimum50 Gram Sample(s)

Air-drySample

Reduce to Topsize of 4.75mm (No.4) Sieve


Air-dry

Reduce to Topsize 2.36-mm (No.8) Sieve

Reduce to Topsize 850-μm (No.20) Sieve


No

Yes

Yes

Yes

Figure 7-3: Flow Chart of Sample Preparation


– 214 –

SRK conducted an inspection of the laboratory, and inquired about methods, standards, and QA/QC procedures used by the TekMIRA laboratory.

TekMIRA provided detailed information on procedures, laboratory equipment and instruments, and accreditation. The laboratory is accredited to international as well as Indonesian standards. The laboratory is well managed and maintained and work is carried out to a high standard (Figure 7-4). Laboratory personnel demonstrated good knowledge of procedures, techniques, and skills.

Figure 7-4: LECO System in TekMIRA Coal Quality Laboratory

Laboratory maintenance records are well kept and the equipment and instruments are maintained, calibrated, and checked regularly by independent accredited professionals.

SRK suggested tailoring a sample handling flow sheet for coal quality analysis for the Rantau Nangka project. Specifically, SRK recommended inserting Certified Reference Materials (“CRM”), keeping duplicate samples, and indicating where and when umpire samples are collected and dispatched to the umpire laboratory.

Shandong Taishan Mineral Resources Test Institute of Shandong Province, China, carried out spontaneous combustion propensity and coal dust blast tests on Project coal. This laboratory holds the following accreditations:


– 215 –

• China Meteorology accreditation (“CMA”), shown in Appendix 4); and

• Chinese National Accreditation Service for Conformity Assessment (Appendix 4)

7.2.3 SRK Sampling

In March 2010, a total of 11 coal samples taken from the highwall from the surrounding operating open pits were submitted to the PT Geoservices laboratory at Banjar Baru.

In June 2015, to update the CPR, SRK visited the mine site and took five (5) underground coal channel samples from seam D, to verify the coal seam which was interpreted by historical drilling and modelling. The samples were sent to the laboratory of PT Geoservices in Banjar Baru and analysed for seven (7) items including proximate analysis, total moisture, calorific value, and total sulphur.

8 DATA VERIFICATION AND VALIDATION

Data used in this report was obtained through meetings and communications with TekMIRA. Discussions between TekMIRA and SRK were held to confirm the information about drilling data. Data collected is considered to be close to current international standards. However, the integrity of all data, especially the borehole collar survey of drilling conducted from 2000 to 2003, could not be verified.

To allow for verification, SRK made a site visit to Rantau Nangka including an inspection of adjacent open pits in August 2008. During a second site visit in December 2008 SRK team introduced procedures and guidelines for complementary drilling, data collection, and training of site personnel. A third site visit in February 2010 was aimed at overseeing channel sample collection in open pits by a SRK geologist. Data was not verified by direct twin drilling.

On 23 July 2015, SRK received the following data:

• Integrated geological logs of borehole, both hard and electronic copies;

• Daily reports of borehole drilling;

• Photos and photo logs of core;

• Coal sampling logs;

• Downhole geophysical logging;

• Downhole survey;


– 216 –

• The core sampling log;

• Open pit channel samples; and

• Underground channel samples

A SRK Senior Geologist conducted a site visit and collected channel samples in 2015. Mr. Jan Smolen as CP for the reporting of the exploration results has not visited the site.

8.1 Coal Recovery, Sampling and Handling

Generally, most of the coal cores retrieved from the 2008-2009 drilling program had recovery rates greater than 95%, according to the core logs, except for boreholes ZK202 and ZK1002 in seam D and ZK202 in seam C. SRK corrected those low recovery boreholes with the seam data interpreted through down-hole geophysical logging. Table 8-1 shows a summary of the borehole data.

After checking the database, SRK noted that only a few rock samples associated with partings, roofs, and floors were taken during the 2008 to 2009 drilling program.


– 217 –

Table 8-1: Summary of Borehole Data

Downhole Borehole Core Geophysical Samplin Analysisg Coal Core ID Logging Logging Log Result Recovery ZK901 3 3 3 3 >95% ZK501 3 3 3 3 >95% ZK101 3 3 3 3 >95% ZK200 3 3 3 3 >95% ZK1001 3 3 3 3 >95% ZK104 3 3 3 3 >95% ZK1002 3 3 3 3 Seam D, 60% ZK302 3 3 3 3 >95% ZK102 3 3 3 3 >95% ZK003 3 3 3 3 >95% ZK201 3 3 3 3 >95%

ZK202 3 3 3 3 Seam D, 75%;

Seam C, 51% ZK001 3 3 3 3 >95% ZK103 3 3 3 3 >95% ZK002 3 3 3 3 >95% ZK203 3 3 3 3 >95% JC01 3 3 3 3 >95% ZB01 3 3 3 3 >95%

In preparation for the underground mining, TekMIRA conducted downhole geophysical surveys for all 18 boreholes. The coal seam depths and thicknesses interpreted from the downhole geophysical logging matched the core logging well, which means the data is qualified for use as observation points of volume estimation. In conjunction with the reliable relative density test results, SRK considers that all of these boreholes can be used in tonnage estimation in conformity with the JORC Code.


– 218 –

8.2 QualityDataVerificationandValidation

Quality Control and Quality Assurance (“QA/QC”) is a set of regular activities and techniques to ensure that all quality requirements are being met. It also serves to identify and correct problems after the samples have been assayed.

An analysis of the standard is classified as follows, as illustrated in Figure 8-1:

• “Passed” if it is between +2 standard deviations (“SD”) and -2 SD of the certified mean;

• “Warning” if it is between +2SD and +3SD or between -2SD and -3SD; and

• “Failure” if it is above +3SD or below -3SD.

Standards may fail due to sample number mix-ups or analytical error as a result of poor equipment calibration (analytical equipment or weighing balance), incorrect dilution factors, or instrumental drift.

Figure8-1:ClassificationofStandards

Samples that exceed the mean value by more than three (3) SD are considered faulty samples. The laboratory analysis for such samples should be repeated. If two or more samples from the same batch are classified as “Failures”, all samples from this batch should be redone.


– 219 –

Figure 8-2 through Figure 8-5 below show the distribution of the TekMIRA assays data for ash, inner moisture, calorific value and relative density as presented to SRK by MMHL. The graphs show the distribution of data between ±2 standard deviations and the calculations below each graph presents the cumulative probability for samples to fall within ±2 and ±3 standard deviations.

Cumulative ProbabilityMean, m 12.6551 xmin 5.38

Standard Deviation, 3.6387 xmax 19.93

Pr(x<xmin) -2.67%Pr(x>xmax) 2.67%

2 Standard Deviation, Pr(xmin<x<xmax) 94.67%



Pr(x<xmin) -100.00%Pr(x>xmax) 100.00%

3 Standard Deviation, Pr(xmin<x<xmax) -100.00%

Figure 8-2: Distribution for Ash


– 220 –







Pr(x<xmin) -100.00%Pr(x>xmax) 100.00%


Figure 8-3: Distribution for Inner Moisture


– 221 –



Pr(x<xmin) 0.00%Pr(x>xmax) 1.33%




Pr(x<xmin) -100.00%Pr(x>xmax) 100.00%


Figure8-4:DistributionforCalorificValue


– 222 –







Pr(x<xmin) -100.00%Pr(x>xmax) 100.00%


Figure 8-5: Distribution for Relative Density

The frequency distributions of ash content, calorific value, relative density, and inner moisture for coal samples are presented in Figure 8-6. The figures show that results returned positive distributions with skewed less than 0.5 each, and the coefficients of variance were all positive as well.


– 223 –

Figure 8-6: Histograms of Frequency Distribution

Validation of the data and frequency distributions clearly shows that the data delivered by TekMIRA is consistent.

Only a few samples which are outside ±2 SD (all have >93% cumulative probability of falling within ±2 SD) and none exceed the ±3 standard deviations failure limit. The frequency distribution graphs show all positive distributions. Therefore, in SRK’s opinion, the data delivered by TekMIRA can be used for resource estimation in compliance with the JORC Code.


– 224 –

8.3 VerificationthroughChannelSampling

In February 2010, in order to verify the impact of delayed delivery on laboratory testing, the Company collected channel samples from seams B, C, and D in North Pit, South Pit, and one sample from seam B in West Pit. SRK supervised sample collection and was satisfied that samples were collected from fresh faces, immediately wrapped and tagged, and delivered to PT Geoservices laboratory within 24 hours. The test results of these samples matched those of the samples tested by TekMIRA, although the moisture content of the channel samples is higher than that of the TekMIRA samples by 1 to 2%, which has only a minor impact on the analysis of coal quality.

Table 8-2 shows the correlations between TekMIRA’s average data and SRK’s sampling data from 2010.

Table 8-2: Data Evaluation from 2010 Sampling

Pit Sample ID

TM IM Ashadb VMadb FCadb TSadb CVadb RD (%) (%) (%) (%) (%) (%) (kcal/kg) (g/cm3) P_B1_1 6.25 4.75 13.69 40.49 41.07 0.28 6443 1.36 P_B2_1 5.17 4.08 8.53 44.55 42.84 0.29 7071 1.31 P_B3_1 5.98 4.59 12.21 41.39 41.81 0.42 6622 1.35 P_D1_1 5.43 3.89 9.06 43.53 43.52 0.35 7025 1.27 P_D2_1 5.45 3.86 14.14 41.33 40.67 0.33 6513 1.37 P_C1_1 5.75 4.6 4.22 45.11 46.07 1.39 7353 1.29 W_B1_1 7.25 5.91 11.73 41.53 40.83 0.32 6436 1.37 N_D1_1 6.19 4.78 12.75 42.26 40.21 0.22 6564 1.39 N_C1_1 5.68 4.79 7.01 44.55 43.65 1.99 7057 1.3 N_B1_1 5.53 4.45 11.01 44.74 39.8 0.3 6846 1.32 N_B2_1 Sample was excluded, because Ash value is over 61%, therefore is not a coal sample. N_B3_1 8.27 6.03 9.77 41.79 42.41 0.38 6747 1.33 Average SRK 6.09 4.70 10.37 42.84 42.08 0.57 6789 1.33 Average TekMIRA 4.32 3.55 12.66 43.01 40.38 1.17 6592 1.33

In June 2015, in order to update the CPR, SRK visited the mine site and took five (5) underground coal channel samples from seam D to verify the coal seam, which was interpreted by historical drilling and modelling. The samples were sent to the laboratory of PT Geoservices in Banjar Baru, where they were analysed for seven (7) items including proximate analysis, total moisture, calorific value, and total sulphur. The analysis results are consistent with the results obtained from the historical drillings. The minor differences in seam thickness between underground channel samples and nearby boreholes of seam D shows the consistency of the coal seam.


– 225 –

Table 8-3 shows the correlations between TekMIRA’s average data and SRK’s sampling data from 2015.

Table 8-3: Data Evaluation from 2015 Underground Sampling

UG Sample ID

TM IM Ashadb VMadb FCadb TSadb CVadb

(%) (%) (%) (%) (%) (%) (kcal/kg) S_1 4.98 3.71 7.46 45.01 43.82 0.22 7198 S_2 5.87 4.27 6.27 44.57 44.89 0.24 7225 S_3 4.93 3.58 6.73 45.08 44.61 0.24 7291 S_4 5.16 3.61 13.7 41.76 40.93 0.17 6630 S_5 4.64 3.64 7.59 44.76 44.01 0.24 7168 Average SRK 5.12 3.76 8.35 44.24 43.65 0.22 7102 Average TekMIRA 4.32 3.55 12.66 43.01 40.38 1.17 6592

Both sets of sample comparisons show that data from TekMIRA’s samples are generally showing lower values than the channel samples taken by SRK. Therefore, SRK considers that all TekMIRA data is suitable for use in resource estimation.

8.4 Coal Seams

To check the validation of the coal seam correlations identified by TekMIRA, SRK modelled the seams in cross-section using Minex V6.1.3 software. The result shows that all the coal measures have been identified and correlated properly, the coal seam numbers are consistent with the coal seams in the area surrounding the open pit, and no coal measures are missing.

Appendix 4 graphically shows the coal seam correlation created using Minex software.

8.5 Conclusion

SRK validated all the TekMIRA data from 18 holes and 75 coal samples. The results show a high degree of data consistency, although SRK could not directly confirm the data by confirmation drilling. However, the 2008 drilling program was conducted based on SRK’s guidance and the statistical data verification program can be considered to have established the data validity.

In SRK’s opinion the data delivered by the TekMIRA can be accepted for use in resource estimation in compliance with the JORC Code. However, SRK only validated the provided data and did not conduct any confirmation drilling; therefore, SRK cannot accept any responsibility for the reliability of the data delivered by TekMIRA.


– 226 –

9 COAL RESOURCE

9.1 Geological Modelling and Interpretation

SRK created a stratigraphic model in Minex software. Validated boreholes and topography data were imported to create a database. The coal seams were then correlated and the stratigraphical model was created. During the modelling process, the coal seam data from borehole logging were used to build roof, floor, partings, and seam structure using general purpose grid seam method. The clean coal thickness grids used for resource estimation were modeled arithmetically. SRK adopted a grid size of 25 m by 25 m both for stratigraphic and coal quality models.

Table 9-1 shows the Statistics of Seams within the license areas.

Table 9-1: Seam Statistics of Boreholes within the Mining License Areas

Coal

Seam Floor Depth Seam Thickness

Seam Min. Max. Average Min. Max. Average Coefficientof

(m) (m) (m) (m) (m) (m) Variation (%) A 82.00 455.45 280.58 0.15 2.40 1.29 44.18 B 136.36 498.12 320.12 0.95 6.10 3.77 41.21 C 144.24 509.49 331.99 1.09 2.90 2.22 16.76 Dup 156.05 520.24 355.64 0.34 1.71 0.98 38.43 D 162.37 526.61 350.76 2.38 3.36 2.82 7.71

The geological domains were defined based on the regions of coal-bearing formation and faults in the geological map associated with borehole loggings. In the model, the areas covered by Tanjung Formation and Berai Formation were defined as the estimation domains. Figure 9-2 shows the geological domains SRK used for the resource estimation. A cross-section of these domains is shown in Figure 9-1.

NW SE

Figure 9-1: Approximate Seam Cross-Section of Section Line 2


– 227 –

Figure 9-2: Geological Domains for Resource Estimation


– 228 –

9.2 Estimation Parameters (Resource Limits)

Borehole data shows that the overburden of the topmost seam A is over 200 m thick in most of the license area; this strongly suggests that the Project deposit will not be amenable to open pit mining. SRK therefore conducted the estimation assuming that coal would be extracted by underground mining, using the parameters given in Table 9-2.

Table 9-2: Estimation Parameters (Limits)

Parameters Unit ValueClean Coal Thickness m ≥ 0.7Clean Coal/Parting Thickness Ratio n/a ≥ 2Sulphur Content (db) % ≤ 3.0Ash Content (db) % ≤ 40Calorific Value (db) kcal/kg ≥ 4000

Within the geological domains, minor faults occur in localized areas and the coal seam correlation is simple and clear, therefore, the geology is considered uncomplicated.

The region, where the mine is located, is well-studied: an extensive history of mining and exploration has accumulated abundant information about local mining conditions. Considering the existing knowledge base for geological and mining conditions in the Project area as well as the semivariogram results, SRK decided to set the observation point spread as presented in Table 9-3.

SRK carefully considered the distances between observations points for the resource estimation. Commonly the distance between an observations point should not exceed 1000 m for the indicated resource and 500 m for the measured resource. However, the JORC Code 2012 Edition and the “Australian Guidelines for the Estimation and Classification of Coal Resources 2014”ends these traditional requirements in preference to determine the distance between observations points at the Competent Person interpretation and discretion. SRK ran numerous statistical analyses and simulations of semivariograms for each seam, based on seams thickness, ash content, and calorific value. Variogram ranges varied from seam to seam and for different properties, but only seam B shows a range minimally less than 1,600 m (1520 m) for the variation of thickness of the seam. Other parameters were remaining consistent for over 1600 m. The semivariograms are presented in Appendix 4.


– 229 –

The SRK is aware that this increase of spread of observation points could increase the possibility of error in the indicated and measured resources estimation but it is SRK’s opinion that the existing distances between the boreholes correctly present the property’s possible resources. In order for any possible remaining uncertainties to be minimised and for JORC or Stock Exchange requirements to be further satisfied, SRK is recommending that the Company drill additional infill boreholes in the northern and western parts of the property. Such infill drilling could upgrade and possibly add to the resources and could increase the accuracy of the resources estimate.

Table9-3:ResourceCategoryClassification

Radius ofResource Category Observation Point (m)Measured Resource 400Indicated Resource 800Inferred Resource 1500

9.3 Resource Estimation

All resources are limited to the area within the mining and exploration licence boundaries held by the MMHL and vertically from the surface to the bottom of the relevant coal-bearing strata. The estimation does not include weathered coal within 40 m of the topographic surface. Areas within 30 m of a fault line are also excluded from the resource estimation.

This coal resource was estimated by SRK using Minex V6.1.3 software under the supervision of a Competent Person and in accordance with the JORC Code guidelines. The review of the geology and exploration results for the license area by SRK indicates that the Coal Resource has a reasonable prospect for economic extraction.

SRK notes that the area outside of the exploration license is covered by the Agreement between MESD and PD Baramarta, which gives PT Merge the opportunity to develop the area in conjunction with Baramarta. According to Clause 4 of the Agreement, both parties must make separate agreements with terms and conditions on underground mining cooperation when the open pit mining is completed. SRK notes that the resources subject to this Agreement area are not included in this Report. The resource estimates are presented in Table 9-4. The coal resource and quality for each coal seam are shown in Table 9-4.


– 230 –

Table 9-4: Coal Resource Estimate of Rantau Nangka Coal Mine as at 30 June 2015

Resource

MMI MESD MCM MCM MCM

Category IUP 470 IUP 471 Block 1 Block 2 Block 3 Total

(Mt) (Mt) (Mt) (Mt) (Mt) (Mt) Measured 55.02 0.30 0.00 0.00 0.00 55.32 Indicated 33.17 50.85 4.41 0.00 0.00 88.43 Measured+Indicated 88.19 51.15 4.41 0.00 0.00 143.76 Inferred 64.15 53.33 1.29 2.01 0.001 120.78 Measured+Indicated+ Inferred

152.34 104.48 5.70 2.01 0.00 264.53

JORC Code Statement: The information in this Report which relates to the Coal Resource is based on information provided by TekMIRA and compiled by staff of SRK Consulting China under the supervision of Mr Jan Smolen, the Associate Principal Geologist of SRK Consulting China and a member of AusIMM. Mr Smolen has sufficient experience relevant to the kind of project, style of mineralisation, and type of deposit under consideration, and the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”, the JORC Code. Mr Smolen consents to the reporting of this information in the form and context in which it appears.


– 231 –

Tabl

e 9-

5: C

oal R

esou

rces

and

Coa

l Qua

lity

of R

anta

u N

angk

a C

oal M

ine

by S

RK

as a

t 30

June

201

5

MM

I IUP4

70 ME

SD IU

P471

MCM

MMI IU

P470

IUP4

69 Blo

ck I

MCM

IUP4

69 Blo

ck II

Co

al Re

source

Re

source

Th

icknes

s TM

ar As

h ar GC

V adb

TSadb

Re

source

Th

icknes

s TM

ar As

h ar GC

V adb

TSadb

Re

source

Th

icknes

s TM

ar As

h ar GC

V adb

TSadb

Re

source

Th

icknes

s TM

ar As

h ar GC

V adb

TSadb

Tot

al S

eam

Categ

ory

(M

t) (m

) (%

) (%

) (kc

al/kg)

(%)

(Mt)

(m)

(%)

(%)

(kcal/k

g) (%

) (M

t) (m

) (%

) (%

) (kc

al/kg)

(%)

(Mt)

(m)

(%)

(%)

(kcal/k

g) (%

) (M

t)

A Inf

erred

10.97

1.31

4.24

15.80

6328

1.37

2.83

0.95

3.94

14.65

5989

1.12

0.79

1.32

4.28

16.72

6277

1.42

0.00

— —

— —

— 14.

59

Tot

al 10.

97 1.3

1 4.2

4 15.

80 632

8 1.3

7 2.8

3 0.9

5 3.9

4 14.

65 598

9 1.1

2 0.7

9 1.3

2 4.2

8 16.

72 627

7 1.4

2 0.0

0 —

— —

— —

14.59

Measu

red

25.06

3.78

4.70

16.64

6364

0.67

0.14

3.78

4.65

15.52

6636

0.80

0.00

— —

— —

— 0.0

0 —

— —

— —

25.20

B

Indica

ted

16.43

4.49

4.83

17.17

6689

1.11

23.91

4.05

4.59

16.74

6536

1.08

1.05

1.97

4.67

11.99

678

20.67

0.00

— —

— —

— 41.

39

Inf

erred

21.93

5.48

4.75

15.24

6466

1.35

23.64

3.72

4.62

15.93

6698

1.25

0.04

1.90

4.64

11.73

6753

0.69

1.04

2.80

4.38

11.93

6622

1.10

46.66

Total

63.43

4.58

4.76

16.35

6506

1.04

47.69

3.85

4.62

16.06

6623

1.04

1.10

1.97

4.66

11.86

6768

0.68

1.04

2.80

4.381

1.93

6622

1.10

113.26

Measu

red

11.15

2.10

4.00

1.23

6641

1.90

0.08

2.12

4.06

13.17

6713

1.25

0.00

— —

— —

— 0.0

0 —

— —

— —

11.23

C

Indica

ted

7.18

2.14

3.98

12.95

6627

1.97

11.54

2.11

3.36

11.40

6828

1.19

1.53

2.62

4.00

11.56

6450

2.08

0.00

— —

— —

— 20.

25

Inf

erred

8.72

2.31

3.96

9.96

6849

1.41

12.41

2.09

3.62

9.39

6902

1.05

0.07

2.65

4.06

11.31

6457

1.96

0.76

2.03

3.89

5.70

7282

0.80

21.95

Total

27.05

2.18

3.98

12.05

6706

1.76

24.02

2.08

3.68

11.32

6814

1.16

1.60

2.62

4.03

11.44

6453

2.02

0.76

2.03

3.89

5.70

7282

0.8

053.43

Du

p Inf

erred

12.49

1.15

3.76

12.67

645

2.04

3.31

0.90

2.60

14.79

6014

1.06

0.31

0.79

3.26

11.91

6550

2.14

0.00

— —

— —

— 16.

11

Tot

al 12.

49 1.1

5 3.7

6 12.

67 643

5 2.0

4 3.3

1 0.9

0 2.6

0 14.

79 601

4 1.0

6 0.3

1 0.7

9 3.2

6 11.

91 655

0 2.1

4 0.0

0 —

— —

— —

16.11

Measu

red

18.80

2.76

4.46

13.06

6603

0.62

0.09

2.45

4.45

13.99

6569

0.94

0.00

— —

— —

— 0.0

0 —

— —

— —

18.89

D

Indica

ted

9.56

2.76

4.43

13.20

6576

0.97

15.40

2.81

4.61

13.43

6543

1.08

1.83

3.22

4.57

13.11

6564

0.51

0.00

— —

— —

— 26.

79

Inf

erred

10.03

2.76

4.41

13.93

6486

0.69

11.14

2.77

4.63

13.31

6543

1.23

0.08

3.24

4.59

13.15

6555

0.52

0.21

2.91

4.87

13.45

6454

0.62

21.46

Total

38.40

2.76

4.43

13.40

6555

0.76

26.63

2.68

4.56

13.58

6552

1.08

1.90

3.22

4.58

13.13

6560

0.52

0.21

2.91

4.87

13.45

6454

0.62

67.14

Measu

red

55.02

2.91

4.48

14.73

6495

0.90

0.30

2.91

4.44

14.48

6629

0.95

0.00

— —

— —

— 0.0

0 —

— —

— —

55.32

Indica

ted

33.17

3.16

4.53

15.11

6636

1.26

50.85

2.99

4.32

14.53

6597

1.10

4.41

2.64

4.40

12.30

6570

1.09

0.00

— —

— —

— 88.

43

All

Measu

red

88.19

3.04

4.49

14.98

6587

1.18

51.15

2.98

4.32

14.51

6591

1.07

4.41

2.64

4.40

12.30

6570

1.09

0.00

— —

— —

— 143

.76

+In

dicate

d

Inf

erred

64.15

1.98

4.31

13.91

6487

1.39

53.33

1.97

4.23

13.72

6627

1.18

1.29

1.25

4.06

14.91

6384

1.54

2.01

2.60

4.38

10.36

6786

0.84

120.78

Total

152.34

2.4

0 4.4

2 14.

47 652

2 1.2

9 104

.48

2.39

4.27

14.12

6612

1.14

5.70

2.27

4.32

12.89

6528

1.19

2.01

2.60

4.38

10.36

6786

0.84

264.53

Not

e:

No

any

reso

urce

for M

CM

IUP

469

Blo

ck II

I


– 232 –

Figure 9-3: Resource Map of Seam B

Figure 9-4: Resource Map of Seam C


– 233 –

Figure 9-5: Resource Map of Seam D

10 COAL RESERVES

10.1 Introduction

The Coal Reserves as stated in this Report were estimated by SRK in accordance with the JORC Code 2012. The reserve estimate is based on SRK’s Resource estimate (see Section 9 of this Report), information from the 2010 PMD and from the revised and updated mining plans of 2015 provided by the Company for review. A mining assessment has been carried out (see Section 11) and mining factors and Modifying Factors (mining, processing, coal, quality, infrastructure, economic, marketing, legal, environment, social and government factors) as specified in the JORC Code were considered with the assessment and for possible limitations when converting Resource to Reserve.

The PMD report was prepared by Zoucheng Huajian Design and Research Institute (“Zoucheng Institute”), who holds a qualification certificate for mine design issued by the China’s Ministry of Housing and Urban-Rural Development (“MOHURD”) of China which is the authority of such qualification accreditation in China.

The cut-off date for reporting of the Coal Reserve in this Report is 30 September 2015. As at this date coal production has not commenced. The coal extracted during the development of the initial roadways and gateways is marginal and is excluded from the reported reserve tonnage.


– 234 –

The total Coal Reserves of the mine within the area of all three IUP licenses amounts to 92.0 million tonnes (“Mt”). The reference point for estimating the coal reserve is run-of-mine (“ROM”) coal as received at the surface before screening. ROM coal is considered to be a marketable product and therefore also represents the “Marketable Coal Reserve”.

Coal Reserves reported are limited to areas covered by IUP 470, IUP 471, and IUP 469 Block I. All Indicated Coal Resources was excluded by SRK from conversion to Coal Reserves.

SRK considers that the PMD study undertaken for this Project is of pre-feasibility study or higher level (for further details see Section 11.1) and is suitable to support a Coal Reserves estimate in accordance with the JORC Code. Coal from Seam A and Seam D-up were excluded from consideration for Reserve due to uncertainty of its eventual economic extraction.

For the areas of the future Mining Section No. 2 and 3 which are presently covered by an Exploration IUP only, SRK assumes that a Production IUP together with the other necessary sub-permits required (i.e. forest permit) could be expected to be obtained within the timeframe required by mining.

10.2 Reserve Estimate

SRK used Minex V6.1.3 software for the Reserve model (estimate) superimposing the mining plans for the individual coal seams over the Resource model to estimate the Coal Reserves.

Only Measured and Indicated Coal Resources were considered for conversion to Coal Reserves. In addition to the general consideration of mining factors as described in the JORC Code, the model considers a mining loss from the roof and floor of the coal seam and dilution from bands and partings within the coal seam as derived from the geological data and seam model.

SRK has considered mining factors including protection pillars and barriers for watercourses, villages, mine workings, and other surface structures according to the mine surface and topographical maps. Coal under these areas was excluded from Coal Reserves. The previous (historical) reserve estimates by other parties may have included these coals in the reserve.


– 235 –

The other main parameters considered as limit for the Coal Reserve estimate are as follows:

• Minimum mineable seam thickness: 1.6 m (equipment related);

• Minimum sulphur, calorific value and ash content (sectional): as per the Coal Resources estimate;

• Exclusion of seam sections with seam partings in excess of 40 cm thickness;

• A coal loss of 10 cm at the roof and 10 cm at the floor; and

• An overall panel recovery rate of 95%.

The consideration of a loss of coal at the roof and floor is considered to minimize dilution in ROM coal. It is expected that a coal washing process will not be required to achieve a Marketable Coal Product..

The Coal Reserves estimated in accordance with the JORC Code, within and covered by Mining IUP 470, Exploration IUP 471, and Mining IUP 469 Block I as outlined by the mining plan for the 1st Mining Section, 2nd Mining Section, 3rd Mining Section, and 4th Mining Section are shown in Table 10-1 below. Coal outside these IUP areas was not considered for the reserves estimate.


– 236 –

Table 10-1: Coal Reserves According to the JORC Code (Cut-off Date 30 Sep 2015)

Mining Mining IUP Coal Reserve Coal Reserve IM TM Ashadb TSadb CVadb Section Sub- License Seam Category (JORC) Section (Mt) (%) (%) (%) (%) (Kcal/kg) Production B Probable 19.4 3.4 4.7 19.0 0.7 6161 1 1 IUP 470 C Probable 10.3 3.2 3.9 15.3 2.0 6490 D Probable 14.0 3.3 4.4 16.2 0.7 6325 Proved 0.0 — — — — — Coal Reserve in 1st Mining Section Probable 43.8 3.4 4.4 17.0 1.0 6279 Total 43.8 3.3 4.4 17.2 1.0 6291 Production B Probable 12.7 3.5 4.8 18.5 1.2 6689

2

2b IUP471 C Probable 5.0 3.0 3.5 13.5 1.4 6618 D Probable 6.5 3.3 4.4 16.5 1.4 6321 Production B Probable 4.9 3.8 5.0 19.3 1.5 6897 2a C Probable 1.6 3.5 4.1 13.9 1.8 6556 IUP 470 D Probable 2.2 3.3 4.3 13.7 1.5 6541 Proved 0.0 — — — — — Coal Reserve in 3rd Mining SectionCoal Probable 32.9 3.4 4.5 16.9 1.4 6620 Total 32.9 3.4 4.5 16.9 1.4 6620 Production B Probable 5.0 3.2 4.4 14.4 1.1 6368 3 3a IUP471 C Probable 2.8 3.0 3.5 8.4 0.9 7119 D Probable 4.6 3.6 4.8 15.6 0.8 6285 Proved 0.0 — — — — — Coal Reserve in 3rd Mining Section Probable 12.4 3.3 4.3 13.5 0.9 6505 Total 12.4 3.3 4.3 13.5 0.9 6505 Production B Probable 0.7 3.2 4.4 27.2 0.8 5377 4 4a IUP470 C Probable 1.0 4.5 5.9 16.2 1.9 6018 D Probable 1.2 4.0 5.5 17.1 0.6 6195 Proved 0.0 — — — — — Coal Reserve in 4th Mining Section Probable 2.9 4.0 4.3 19.3 1.1 5927 Total 2.9 4.0 4.3 19.3 1.1 5927 Proved 0.0 — — — — — Total Coal Reserve Mine Probable 92.0 3.4 4.4 16.3 1.2 6508 Total 92.0 3.4 4.4 16.7 1.1 6426

Note: The Coal Resource as estimated considers 20 cm mining loss from roof and floor and a panel recovery factor of 0.95 Reference Point at which Coal Reserves are defined is ROM Coal as received at the surface plant

IM: Inherent Moisture

TM: Total Moisture

CVadb: Calorific Value on Air Dried basis

Ashadb: Ash on Air Dried basis

TSadb: Total Sulfur on Air Dried basis


– 237 –

Table 10-2: Coal Reserves According to the JORC Code by Coal Seam (Cut-off Date 30 September 2015)

Coal Reserve per Seam/All Mining Sections Reserve Coal Reserve Mining Loss Recovery Dilution Coal Seam Category (JORC) Rate (Mt) (%) (%) (%) B Probable 42.8 4.8 2.3

C Probable 20.6 9.0 95 2.3

D Probable 28.5 7.2 4.5 Proved 0.0 Probable 92.0 Total 92.0

Note: Mining Loss and Dilution are considered in Coal Reserve tonnage The mining loss considered is 10 cm coal at roof and floor; the recovery rate considers the overall panel recovery. Dilution considers dilution from seam bands (dirt bands) and partitions; dilution is included in the ash content of the coal.

JORC Code Statement: The information in this Report which relates to the Coal Reserve is based on SRK’s Resource estimate and information compiled by Mr Bruno Strasser, a full time employee of SRK Consulting China Ltd. and a member of AusIMM. Mr Strasser has sufficient experience relevant to the kind of project, the style of mineralisation, the type of deposit under consideration, and the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”, the JORC Code. The reserve estimate is based on SRK’s Coal Resource estimate and was conducted by Ms Bonnie Zhao and Mr Roger Hou under the supervision of Mr Strasser. Ms Zhao and Mr Hou are full time employees of SRK Consulting China Ltd. and members of AusIMM. Ms Zhao and Mr Hou are specialists for computerized reserve estimate and have relevant experience for the style of mineralization and type of deposit under consideration. Mr Strasser, Ms Zhao, and Mr Hou consent to the reporting of this information in the form and context in which it appears.


– 238 –

As a result of the mining assessment, (see Section 11), review of the project permits and licenses (see Section 5), environmental and social issues (see Section 18) and consideration of the other “Modifying Factors” as outlined in the JORC Code, SRK considers that some uncertainties with regard to coal market, project costs, and legal/permit issues remain to be finally solved. For that reason all Reserve which were estimated based on underlying Resource and mining plans which may otherwise be classified as Proved Reserve were classified to “Probable Coal Reserve”.

All coal classified as Inferred Coal Resource including all coal in Seam A and Seam D-up were excluded from consideration as Coal Reserve

10.3 Historical Reserve Estimates

The Zoucheng Institute estimated the coal reserves in Rantau Nangka in 2010 based on the TekMIRA resource estimate of 2009 using a MineSight Grid Seam model. The results for Seams B, C, and D are summarised in Table 10-3 below, which is presented for reference and comparison only and is not a JORC Code compliant reserves estimate.

Table 10-3: Chinese Standard Coal Reserve (July 2010)

Chinese Category Seam “Proven” “Probable” “Inferred” (Mt) B 13.8 12.7 66.5 C 7.8 6.4 31.6 D 11.1 10.9 38.0 Total 32.7 30.0 136.1 62.7

Note: This Chinese standard estimate by Zoucheng Institute is based on old license boundaries and 2010 mining plans which are deviating from the 2015 license boundaries and mining plans.


– 239 –

The main differences between the estimates and results by Zoucheng Institute and SRK are:

• SRK’s estimate is according to the JORC Code 2012;

• Zoucheng Institute’s estimate is according to Chinese standard;

• SRK considered only reserves within IUP 470 and IUP 471 areas;

• JORC Code and Chinese standards use different Reserve definitions (i.e. “mining inventory”); and

• Zoucheng Institute’s estimate does not apply a dilution factor or mining losses.

Overall, SRK is of the opinion that the Zoucheng Institute’s estimate compares reasonably in terms of modelling and estimated coal tonnage if dilution would be considered. SRK’s estimate further includes additional points of observation (samples from underground development) which allow for some increase in Proved and Probable Reserves. The “inferred reserves” in Zoucheng Institute’s estimate do not allow for a comparison as the JORC Code does not allow for Inferred Coal Resources as per SRK’s resource estimate to be converted to Coal Reserve. The discussion of the Modifying Factors is in Chapter 10.5 of this report.

10.4 Potential for Additional Coal Reserves

SRK noted that areas in the west of the 2nd Mining Section and the 3rd Mining Section as planned only include Inferred Resources and coal there can therefore not be converted to either Proved or Probable Reserves. These areas are covered by IUP 470 and IUP 471. Additional infill drilling and lab tests should provide the necessary data to allow for estimating and upgrading of coal there to either Measured or Indicated Resources first, then to be converted to either Proved or Probable Reserve categories. The potential for additional reserves in these areas might be good.

The Coal Reserves could further be increased if the PT Merge would be granted mining license or could secure mining rights for area still covered by license granted to PD Baramarta, the previous license holder over the entire area. Infill drilling would additionally be required to obtain data for modelling and conversion of Inferred Resources into Measured and Indicated Resources and related Coal Resources. Substantial potential for additional Coal Reserves might exist northeast of the 3rd Mining Section on remaining PD Baramarta area.


– 240 –

10.5 Discussion of Modifying Factors

The following provides a summary of the considerations regarding “Modifying Factors” as recommended by the JORC Code which could have an influence on the reserve estimate and reserve tonnage. Further detail is described in Chapter 11 Mining Assessment.

The mining study, mining method and mine design for the Project is considered to be appropriate for the style of deposit. The mining equipment is considered to be suitable for the prevailing mining conditions. Geotechnical conditions, despite some lack of data, appear to be safe and should allow for mining operations as planned. Sterilizing of coal reserve by mine design and operation sequence seems to be avoided. Other installations, buildings and structures in the mining field appear to be able to be removed or relocated prior to mining. Compensation payments in the area should be negotiable.

Processing (preparation) of run-of-mine (“ROM”) coal is not required. ROM coal is directly delivered to the river terminals. Coal moisture differentials along the transport chain are expected to be small.

The ROM coal quality as received at the mine stockpile fulfils the required sales specifications. The metallurgical/lab testing process and procedure of coal at the mine is to be established to control the coal quality. Coal quality variations are not expected over LOM.

The infrastructure in the region and at the mine is sufficient and secure and can serve the needs of a major mining project.

The coal production costs (mine) are economical. Coal price and market for good quality thermal coal are assumed to be resilient with some potential for increase over LOM and considering the present low price situation.

With regard to legal factors, SRK has sighted the mining license (“IUP”) which was issued to the Company. For the Exploration IUP covering Mining Section 2 and 3 the Indonesian Mining Law(s) and general practice should allow for a conversion extension of this IUP to Production IUP. SRK is not aware of contracts of the Company with third parties which may have influence on the mining right and operations; such contracts if any were not sighted or reviewed by SRK. Land rights of other parties may generally exist for farming and plantation but should allow for mining considering the appropriate compensation and land reclamation if necessary after mining. No adverse impact on the coal reserve should be expected.

The environmental approvals for Mining Section 1 are obtained; and social issues or community problems related to the mining project appear to be satisfactorily resolvable or controllable. No larger settlements were found to be located in the mining field.


– 241 –

Government influence appears to be circumstantial or might even be a supporting factor for the project considering the project to be the first underground coal mining project in Kalimantan with the potential to mine remaining coal which could not be reached by open pit mining. The underground mine could possibly also contribute to the continuing development of the area after open pit mining is coming to a close. The Indonesian Ministry of Mines was quoted as expressing general support for the development of underground coal mining in newspaper articles in Indonesia.

11 MINING ASSESSMENT

11.1 Introduction

The Rantau Nangka underground coal mine project is in an advanced development stage but has, as of the date of this Report, not commenced with commercial coal production. The projected production of the mine according to the mining plan is 6.0 million tonnes per annum (“Mtpa”) ROM coal.

SRK was provided with the original general conceptual study of the mining project, “Exploitation Outline and Economic Appraisal Study for PT Merge Coal Mine Project, September 2008” and with the “Preliminary Design Study of PT Merge Coal Mine in Indonesia, February 2010”, the Preliminary Mine Design Study (“PMD”) for review. Both of these documents were prepared by Zoucheng Huajian Design & Research Institute Co., Ltd., Yankuang Group, Shandong, China, who holds a qualification certificate for mine design issued by the Ministry of Housing and Urban-Rural Development (“MOHURD”) of China, which is the authority of such qualification accreditation in China. Additionally, updated mine development and mine design drawings and schedules of 2015 were provided to SRK. SRK is of the opinion that the PMD prepared by the Chinese design institute is more detailed than a Preliminary Feasibility Study as described by Clause 39 of the JORC Code 2012. SRK is of the opinion that together with the updated or revised mining plans of 2015 the available information meets the requirements to support the Coal Reserves estimate and results as reported in Section 10.

SRK held a meeting with key personnel involved in the preparation of the PMD for the project from the Zoucheng design institute in October 2015 to discuss the PMD and the updated mine designs which were prepared by the institute for the Company. SRK is satisfied with the PMD and acknowledges the professional knowledge and experience of the team members. SRK keeps copies of the PMD in its files. The title page, names of the institute and the authors, and table of content is shown for reference in Appendix 7.

SRK visited the mine site and underground workings on 9 June 2015 and 26 September 2015 and noted the advanced stage of development. Two inclined shafts and the main roadways section leading to the gateways of Panel 1D in Seam D were completed. The panel gateways were driven to designed length and the longwall entry was completed. Installation of belt conveyors in the gateways, roadways and inclined shafts was in progress. SRK noted that development of the project thus far has followed the study plans, and that no significant problems had been encountered during the mine development work.


– 242 –

11.2 Mine Technical Data and Design Parameters

Table 11-1 below provides an overview of the main mine technical data and parameters considered for mine planning and design.

Table 11-1: Main Mine Technical Data

Item Unit DescriptionMining Method and Technology Underground/ Fully Mechanized LongwallNumber of Longwalls 2Annual Production Capacity Mtpa 6.0/5.3 (target/as designed)Coal Reserve (JORC) Mt 92.0Calorific Value of Coal (range) kcal/kg 6,000-7,000Coal Rank Thermal Coal/SubbituminousSurface Plant Elevation (“SPE”) m ASL +82Depth of Mine at Inclined Shafts m 140-152 (at Inclined Shafts) (from SPE)Maximum Depth of Mine m 522 (planned; from SPE)(Coal Seam A — Average Thickness) m 1.29Coal Seam B — Average Thickness m 3.77Coal Seam C — Average Thickness m 2.22Coal Seam D — Average Thickness m 2.82Dip of Coal Seams ° 7-13Working Days per Year days 330Operating Hours per Day (effective) hours 12-16Shifts per Day (Operation/Maintenance) hours 2/1

11.3 Mining Conditions

11.3.1 Mine Geological Conditions

From the available geological information, SRK interprets that the geological conditions for the MMHL mining area in general are relatively simple, although they do get more complex adjacent to thrust faults and folded strata representing the limits of the mining area. Synclines and basement strata (igneous intrusive) can, in the opinion of SRK, be expected to impact the geotechnical conditions and designs for the MMHL project.


– 243 –

In 2010 SRK conducted a brief structural assessment for the project (SRK, Project SHK089, July 2010) and concluded that the coal seam geological structure is comparatively simple in the mining areas (mining sections). The Eocene coal-bearing deposits were interpreted to strike approximately north-south, and dip towards the west at around 5°.

The coal seams that are to be mined are located within the Tanjung Formation that has an interpreted thickness of about 750 m. This formation has been described by TekMIRA (ref. Service Agreement No. 1275/05/BLT/2008) as being made up of quartz sandstone, claystone, shale, and coal seams. The quartz sandstone is described as fine to coarse grained with bedding thickness of 50 to 150 cm, with laminations and cross bedding. The claystone is described as grey in colour and is identified as having shale intercalations and limestone lenses, and a bedding thickness of 30 cm to 150 cm.

The coal seams which are considered for mining are Seam B, Seam C, and Seam D with average thicknesses of 3.7 m, 2.2 m, and 2.7 m, respectively. All seams have developed one or two bands and partitions. These bands are not expected to influence the extraction process and are considered with the ash content.

11.3.2 Interpretation of Geotechnical Conditions

11.3.2.1 General

A brief description of interpreted geotechnical conditions is given in the geological report provided by MMHL. This document presents the results of geotechnical and geomechanical testing as summarized in Table 11-2 below. SRK interprets that this data set is derived from testing of rock samples (range of depths) from a single borehole (hole number JC-01).


– 244 –

Table 11-2: Geotechnical Properties of Rock Units

Depth of Rock (m) Parameter Unit Sandstone Claystone Claystone Claystone Claystone Claystone 34.0-35.0 85.0-86.0 114.0-115.0 122.0-123.0 132.0-133.0 142.0-143.0 Physical PropertiesDensity (g/cm3) 2.37 2.51 2.23 2.15 2.37 2.58Saturated Density (g/cm3) 2.46 2.54 2.29 2.29 2.43 2.61Dry Density (g/cm3) 2.35 2.46 2.13 2.03 2.29 2.51App. S.G 2.35 2.46 2.13 2.03 2.29 2.51True S.G 2.63 2.66 2.56 2.73 2.68 2.77Water Content (%) 0.94 1.99 4.75 6.17 3.42 2.71Saturated Water Content (%) 4.47 3.08 7.94 12.71 6.43 3.66 (Absortion)Degree of Saturation (%) 20.38 65.17 59.58 48.64 53.08 74.06Porosity (%) 10.49 7.56 16.87 25.78 14.69 9.19Void Ratio 0.12 0.08 0.20 0.35 0.17 0.10

The geological report identifies the average water content of rocks tested at 7.17% to 10.12%, and states that they have a porosity of 16.40% to 22.70%. On the strength of this very limited data the report concludes that “.....geotechnically, the rocks at this area are relatively impermeable and could not store water in their pores or voids”. From the results of geomechanical testing, the report also concludes that “....condition of rocks in this area are fairly solid, so could be considered safe for underground mine planning”.

Coal seam characteristics are summarized in the geological report as shown in Table 11-3.

The geological report notes that no pump tests were done at the Project due to the interpreted low permeability of in-situ rock units. On the basis of water level observations made during drilling the report concludes that “.....surface water is not possibly coming into the coal seam”. SRK cautions that stress conditions will be changed by mining, and that subsidence will occur above the mined seams. This has significant potential to impact permeability, and SRK therefore recommends that further work be done to better define hydrogeological conditions.


– 245 –

Table 11-3: Geomechanical Properties

Depth of Rock (m)Parameter Unit Sandstone Claystone Claystone Claystone Claystone Claystone 34-35 85-86 114-115 122-123 132-133 142-143 Mechanical Properties σc (MPa) 35.74 17.94 6.33 2.35 6.55 25.91Compresive Strength E (GPa) 2.10 2.36 0.73 0.47 1.59 6.44 (UCS) μ 0.27 0.27 0.31 0.29 0.32 0.32Uniaxial Tensile σt (MPa) 3.34 3.83 1.02 0.48 2.45 2.85 StrengthResidual Shear ϕr (°) 29.47 28.94 13.87 22.20 22.73 28.01 Strength Cr (kPa) 96.04 96.04 64.68 109.76 2.94 11.76

Source: Geological Report 75CM-2.doc

Table 11-4: Coal Seam Characteristics

Coal Seam Thickness (m) Interval (m) Structure Roof Floor Seam M_______in-Max M_______in-Max of Seam Average Average

A 0.15-2.40 Parting Fine Sand Fine Sand

1.29 55.05-455.30 0-2 Rock Rock

B

0.95-6.10 47.16 Parting Mud Rock Mud Rock

3.77 6.21-18.90 0-2

C


2.22 10.70-14.58 0-2

Dup

0.34-1.71 12.72 Parting Fine Sand Mud Rock

0.98 2.92-6.12 0-1 Rock

D


2.82 0-2

On the basis of the information provided, SRK is of the opinion that the geotechnical conditions may not all be well understood. SRK considers that the geotechnical input to the underground mine is less than would be expected, even in view of the fact that there is very little (if any) underground mining experience in the vicinity of the Project. SRK also notes that no significantly adverse geotechnical conditions were observed during either of the two brief underground visits made by SRK personnel.


– 246 –

11.3.2.2 In-situ Stress

SRK is not aware of any site specific in-situ stress measurements having been made. In the absence of site specific in-situ stress data, SRK has accessed the World Stress Map database to ascertain if information in the public domain could provide a useful preliminary overview of likely in-situ stress conditions to validate mine design and planning assumptions that have already been made.

In-situ stress measurement information (from The World Stress Map database release 2008) in the vicinity of the MMHL Project is shown graphically in Figure 11-1. Unfortunately in-situ stress measurements, in close proximity to the Rantau Nangka mine, have not been identified.

Figure 11-1: Public Domain Insitu Stress Measurements

Anecdotal evidence suggests that high horizontal stress zone may be present at the MMHL mine site. This includes, for example disking of core as shown in Figure 11-2.


– 247 –

Figure 11-2: Example of Core Disking at MMHL Project

SRK opines that it is important to properly understand in-situ stresses at the mine site to address safety and also to optimize mine design (including planning to prevent sterilization of reserves). For conditions observed at the Project SRK anticipates that in-situ stress measurements could be quickly and cost effectively collected using the Flat Jack method within the existing underground mine openings.

An alternative method that could be considered for the determination of stress tensors is the Western Australian School of Mines acoustic emission (“WASM AE”) method. This technique involves the testing of oriented core. For standard WASM AE stress measurement, the rock samples received from the test site are usually supplied as a 2 m to 3 m continuous run of HQ diamond drill core (63 mm diameter). Core that contains less than 4 breaks per metre and without fractures parallel to the core axis is preferred. Each piece of core is marked to indicate drilling direction and the bottom of the core. The orientation and the start and finish coordinates of the core run are required relative to a coordinate reference system.

Irrespective of the in-situ stress testing method, SRK notes that it is important that sufficient testing is done to properly define the in-situ stress regime across the site, and the depth of mining.


– 248 –

11.3.2.3 Subsidence

The PMD prepared by Zoucheng Institute identifies the potential for subsidence, recognizes that changes in rock quality will occur and that there will be subsidence at the surface.

Zoucheng Institute notes that “production of the mine will inevitably destroy surface configuration, and influence caused by the destruction of surface configuration shall be minimized through appropriate technical measures based on current technical and economic conditions.” SRK notes that this observation is very general in nature, and recommends that further, more detailed study be done to properly assess subsidence. Once this is complete MMHL should implement appropriate management/mitigation plans that will be acceptable within the overall requirements of the mining licenses and Environmental Impacts Analyses (“AMDAL”), whilst at the same time optimizing mining.

The PMD specifically recommends that:

• Before commencement of mining a complete exploration survey should be performed and protective coal pillars for surface buildings (structures) must be set; and

• Deformation monitoring should be carried out during the mining phase.

In the information that has been provided to SRK, no evidence has been sighted to demonstrate that Zoucheng Institute’s recommendations given above have been implemented, or that there is a plan to implement them. SRK opines that it is important to properly understand site specific subsidence issues to manage design and safety issues as well as future liability.

Zoucheng Institute clearly identified the risks of the Sungai Siam Kiwa River to mining (and vice versa), and conclude that the river will definitely be impacted upon by the mining, in a way or ways that will impact flood flow. The PMD clearly states that treatment will be required and provide general guidance as follows:

• Predict the settlement quantity of the river channel (Sungai Riam Kiwa and tributary streams) to be influenced prior to the start of mining;


– 249 –

• Based on predicted settlement quantity and the landform and topography of the area surrounding the river channel, evaluate the influence of underground mining on residences and farmland near the affected river channel;

• If the assessment result shows that underground mining will influence the channel, raised banks should be built on both sides of the river channel to guarantee that river water will not flood over the sides after the river channel subsides;

• During the mining, impacted channels should be continuously monitored; and

• After the conclusion of mining operations, assess any damage to river banks reinforce them if necessary.

SRK would alternatively recommend the consideration of sufficiently dimensioned permanent protective mining pillars for sections of the river, other water bodies, and other affected structures on the surface. SRK has considered the loss of coal for such pillars under sections of the river in the Coal Reserves estimate. SRK would also suggest consideration for equipment suitable for dredging sections of the local river for drainage and water flow in case subsidence or related landslips cause backwater formation.

SRK notes that an Operational Cost of U$1.18/t has been provided for in the study documentation that has been reviewed. At year four of mining the cost provision for compensation for surface subsidence amounts to U$7.06 million/year. In the opinion of SRK there is a need to provide for both compensation and remedial measures that could include engineered solutions.

SRK concurs with Zoucheng Institute that subsidence is an important issue that needs to be given the appropriate level of input. In the information that has been provided to SRK, no evidence has been sighted to demonstrate that the Zoucheng Institute recommendations given above have been implemented, or that there is a plan to implement them. SRK considers that detailed studies and designs to mitigate/manage subsidence and damage at the surface are essential and need to be prioritized.


– 250 –

Note: Goaf = Gob

Figure 11-3: Illustration of Typical Longwall Roof Collapse over the Mined Out Coal Seam and Subsidence

The PMD study elaborates that coal production at the mine will inevitably cause subsidence and some disturbance and destruction on the surface. However, appropriate technical measures should allow minimizing surface damage.

After the mine is put into production and the gob areas expand overlaying rock will cave in and surface subsidence will occur as a consequence. Predictions for such subsidence by the design institute range from 0.8 m to several meters.

It is suggested that during mining subsidence and deformation observation should be implemented. Before mining starts a complete surface survey should be performed which will also allow to quantify damage after it occurs.

It is suggested that protective coal pillars for surface buildings and structures are left standing. The treatment of subsidence area should start immediately after mining with filling cracks and leveling the land. Collapsed craters and holes should be timely backfilled and leveled. Forest lands, grasslands and agricultural terraces should be treated according to local conditions. Slope slides may be contoured and trees and grasses should be planted at places where such slope slides have occurred to recover the vegetation and prevent water and soil loss.


– 251 –

The river in the mine field with its natural river banks has water all the year round but the flow rate increases in the rainy season. Underground mining and subsidence will definitely impact the river bed and influence water flow in the river channel. Treatment will be necessary after subsidence occurs. Treatment methods are described as follows:

• elaborate flow rate and water volumes; implement monitoring

• assessment of the river banks

• survey of farmland, settlements, etc. which could be impacted by changed river flow for precautions and later assessment of damage

• repair damaged river banks and level river bed after subsidence if necessary

After discussion with the mine management, SRK is of the opinion that the impacts of subsidence are considered by the mining plans. Areas along the roadways with villages on the surface are protected by mining pillar. The pillar can be extended to also protect the local river in this section. Subsidence along the further course of the river and the river banks could be controlled and levelled with suitable earth moving and excavator equipment. For the other areas impacted by subsidence, compensation for landowners and the necessary levelling work for reclamation of damaged land may be sufficient.

11.3.2.4 Design Specifications in the Context of Geotechnical Conditions

The ZHDRI Preliminary Design Specifications report for the Pt. Merge Coal Mine (Project Number YC1041, report dated February 2010) identifies the project as having simple geological structure, with gently inclined coal seams. This report also identifies that “Hydrogeological conditions are quite simple and technically no aquifer (water strata) can be found in coal seams. It is also a low gas mine. The roof and floor of coal seam are mostly of mudstone, and the wallrock has relatively low strength.”

SRK opines that the ZHDRI comments given above appear to be in conflict with the interpreted geology for the region. However, SRK also notes that ZHDRI has identified a number of issues that they consider further work is required to properly address the design issues. These include:

• 1:5000 geologic/topographic map is not available at the moment, we suggest to entrust some qualified institute to conduct a survey of the mine area in order to satisfy subsequent requirements of design and production.


– 252 –

• Inadequate control structure requires a prompt supplementary 3-D geological prospecting to be conducted in the first mining field, aiming to get thorough information of the main geological structure of the mine and meet the future requirements of design and production.

• No forecasting on shaft water inflow has been made in the geological exploration report. Hydrogeological conditions need to be clarified during the future construction and production processes as to provide reliable basis for water prevention and control of mine shafts.

• The coal mine strata are mostly made of mudstone with low intensity. Verification on shaft support pattern carried out by a qualified scientific research institute is recommended.”

In the information that has been provided to SRK, no evidence has been sighted to demonstrate that the ZHDRI recommendations given above have been implemented, or that there is a plan to implement them. SRK opines that substantial further geotechnical investigation is required to confirm design assumptions, optimize design and ensure a safe working environment.

11.3.2.5 Observed Underground Conditions

SRK visited the mine from 8 to 10 June 2015 and 26 September 2015. The following key geotechnical observations with respect to the underground operation:

• The portal area and first 100 m or so of the decline are formed with a concrete lining. SRK considers this concrete lining to have been formed to a high standard. On the basis of observed performance, the design is appropriate.

• Drive backs and walls are supported by rock bolting and shotcrete. SRK understands that the mine applies one of a number of generic designs as judged appropriate by the miners. SRK did not sight any verification or evidence of design selection process.

• At some locations wire mesh has been used as a part of the support process.


– 253 –

• The mine was essentially dry at the time of SRK’s site visit. Slight seepage into mine workings was observed at a depth of about 100 m below ground level. All observed water seepage was interpreted to be associated with geological structures. SRK sighted no evidence of cover drilling and opines that cover drilling is important both from a safety perspective and also to provide information with respect to design confirmation.

• On 26 September 2015, slight seepage was observed within the Roadway in an area beneath the river. SRK is of the opinion that this water may be related to both geological structure and the river. It is judged by SRK that further work is required to confirm hydrogeological conditions, in particular as they may relate to subsidence and the flow of surface water.

• Slabbing, buckling, and squeezing types of distress were observed within localized areas on the drive back.

• A wedge type failure was observed at one isolated location from the drive wall. Drive walls were judged to generally be stable.

• No failures or distortions of the drive floor were observed at the time of the site visit.

11.3.2.6 Roof and Floor Behaviour at the Mining Face

Roof and floor of the coal seam is exposed in the new gateways in Seam D and at coal seams in the high cut of the adjacent open pits. The immediate roof stratum is formed by mudstone. These observations are supported by the available data from borehole samples. Based on the observations and borehole available data, and on experience gained in other mines, SRK anticipate that the roof behind the longwall should cave about 4 to 8 m from the last support. However, the actual roof behaviour on the gob side can only be seen after the longwall face is in operation. SRK recommends that provision is made for trials to evaluate roof behaviour during start-up operations to determine the optimum practice for safe and cost effective mining operations.

Floor conditions as observed in the development gateways should allow the assumption of few or only minor problems during operation.

Information on the influence of seepage water on the stability of the roof and floor (swelling) is not known.


– 254 –

11.3.3 Support Requirements

From assumptions in the PMD, available rock test data, and observations of the coal and rock conditions in the already developed roadways and gateways and in the surrounding open pits, it could be assumed that the rocks have sufficient strength to keep the underground workings open over a sufficient period and with standard support means. Areas in the vicinity of the faults may need to be defined more carefully by means of additional geophysical assessment and adequate support modifications. The types of support proposed and already applied in the mine are summarised in Table 11-5 below.

Table 11-5: Overview of Support Used in Rantau Nangka Coal Mine

Area Type of Support Material/Model /Cross Section

Inclined Shafts Arch Concrete, Shotcrete, Rockbolts, Steel Frame Roadways Arch; rectangular Concrete, Shotcrete, and Chambers Rockbolts, Steel Frame

Gateways rectangular Rockbolts, Anchors, Mesh

Longwall (Face) 2-Leg Hydraulic Shield Seam B-ZY6000 Seam D & C-ZY5200

From observation in the gateways for panel 1D01 SRK concludes that steel frame support may be required for sections of the gateways instead of or additional to rock bolting to keep the cross section open over the required time.

11.3.3.1 Geotechnical Opportunities and Recommendations

On the basis of information that has been provided, SRK opines that the site specific geotechnical knowledge is very rudimentary. This is not unusual for a Project of this nature at an early stage in the project life. However, SRK strongly recommends that additional geotechnical work be carried out to more confidently understand and properly manage geotechnical conditions that may impact mining. A better understanding of geotechnical conditions is very important from an underground safety perspective, and it will also no doubt present opportunities to optimize mining. SRK strongly urges that the following be implemented with priority:

• Interpretation of local geological structure at a level of detail that is adequate to validate mine design aspects;


– 255 –

• In-situ stress tests;

• Assessment of subsidence potential;

• Surface water hydrology;

• Hydrogeology;

• Cover drilling in drives that are being advanced to prove groundwater conditions and validate mining assumptions; and

• Underground mapping and documented reconciliation of support requirements as mine workings progress.

11.3.4 Summary Geotechnical Assessment

11.3.4.1 Sufficiency of Geotechnical Drilling

Evidence for the drilling of only one borehole, and the testing of materials from that hole, was provided. On the basis of information that has been provided, SRK is of the opinion that the geotechnical conditions may not be all well understood, and SRK considers that the geotechnical input to the underground mine is less than would be expected, especially in view of the fact that there is very little (if any) underground mining experience in the vicinity of the project. Importantly SRK notes that geotechnical fatal flaws to the project have not been identified by SRK, and it is noted that underground conditions observed during two short visits were interpreted to be favourable.

To properly manage geotechnical risks and optimize both safety and mining SRK recommends that additional geotechnical drilling and testing is done. Geotechnical drilling programs should be structured to provide:

• Information to support an evaluation of subsidence;

• Cover drilling to identify conditions in advance of mining, in particular as they relate to water inflow and support; and

• Confirmation of support designs.


– 256 –

11.3.4.2 Evaluation of Underground stability

SRK notes that underground conditions were judged, at the time of two underground visits, to be favourable. No underground support issues were identified by SRK. SRK recommends that there is a formal reconciliation between conditions encountered, support installed, and performance of support. An underground mapping and monitoring program will be a part of this.

11.3.4.3 Review the Underground Support Plans and Records

Underground support plans and designs are generic in nature. As identified above no support issues were identified by SRK.

Records of support have not been sighted by SRK. As stated above, SRK recommends that there is a formal reconciliation between conditions encountered, support installed, and performance of support. An underground mapping and monitoring program will be a part of this.

11.3.4.4 Insitu Stress and Underground Mining

Site specific insitu stress conditions and their potential impact on mining are not known. SRK recommends that insitu stress is determined by means of insitu flat jack tests in the mining operation initially. To measure stress at depth SRK recommends consideration be given to the use of the WASM AE method. This method will require oriented coring.

11.3.5 Load Bearing Capacity for Surface Structures

No data was available for review. SRK would assume that the observed surface and soil conditions at the mine industrial area should allow for sufficient bearing capacity for the general surface structures. The coal stockpile area was levelled and appeared to be over solid ground. For the location of the proposed coal fired mine mouth power plant SRK recommends thorough investigation.

11.3.6 Coal Gas, Coal Dust, Spontaneous Combustion

11.3.6.1 Coal Bed Methane

The geological report and PMD concludes that the mine will be in the low-gas mine category with relatively low coal bed methane content. Lab tests from samples taken from boreholes ZK202, ZK103, and ZK001 during the exploration program show low gas content and confirm such assumption. Only one sample from Seam C showed higher methane content. This allows for mine design to assume the conditions and parameters for a low gas mine. Gas management by ventilation is considered sufficient.


– 257 –

11.3.6.2 Coal Dust Explosion

According to the PMD study, three (3) coal samples were tested for coal dust explosiveness. The test result indicates that Project coal dust is slightly prone to explosion. Standard preventive measures are addressed in the PMD, such as dust suppression by water spraying and water barriers to contain the danger of coal dust explosion.

11.3.6.3 Spontaneous Combustion

According to the spontaneous combustion tendency tests undertaken by the Shandong Bureau of Coal Geological Exploration, all seams in the coal field are prone to spontaneous combustion:

• Seam B: high propensity for spontaneous combustion;

• Seam C: medium propensity for spontaneous combustion; and

• Seam D: medium propensity for spontaneous combustion.

The PMD recommends monitoring to detect developing hot spots and allow for preventive measures. The PMD also recommends the installation of a fire fighting system for the mine.

SRK has not observed any hot spots neither underground nor at the stockpile during the site visits.

11.3.7 Mine Hydrology and Hydrogeology

The Sungai Riam Kiwa River enters the eastern border of the licence area, flowing SW through the mine area. No exact information on the average flow rate and fluctuations was available to SRK for review. As the region has a tropical climate with frequent torrential rains, SRK assumes that the flow rate will fluctuate substantially and attention must be paid to flood protection of the mine infrastructure area and collars of inclines and shafts. The PMD notes that these areas lie above the highest known river flood levels. Other substantial sources of water exist in the surrounding open pits. Once the sub-surface coal reserve is exhausted, the pits will be flooded with water to a depth of up to 110 m. This in turn represents water pressure over 10 atmospheres. The PMD indicates that a protection barrier of about 100 m would be left between the coal face in the flooded open pits and underground extraction faces. SRK opines that for the reserve estimate the present design is reasonable, and recommends that protection barriers against an inrush of water must be carefully designed once the final position of the depleted open pit is known and MMHL is allowed to operate in the area between the existing license and open pits.


– 258 –

Underground water is mainly concentrated in a phreatic aquifer of Quaternary alluvial cover. According to the TekMIRA geological report, only a locally-developed sandstone aquifer is developed above the coal seams and is sporadically saturated by water. As such, it does not constitute a substantial source of water inflow to the mine. Deep drilling has not confirmed any aquifer of significance and therefore pumping tests were cancelled. Considering the geological structure in the Rantau Nangka area, SRK opines that the hydrogeological conditions are predictable and that the underground mine will not be significantly impacted by ground water. However, SRK recommends monitoring of the situation and if required to prepare the necessary study and design to adapt mine dewatering and pumping system.

11.4 Mining Method, Mine Layout and Design

11.4.1 Mining Method

The Rantau Nangka coal mine is mining coal seams between and next to mined out open pit operations. These open pits were working the same coal seams but only to a depth within an approximate geological overburden to coal ratio limit of 12 bank cubic metres (“bcm”) to 1 tonne (“t”). A proportionally large coal bearing area was therefore left untouched by open pit mining. The company is now considering mining these untouched parts of the coal seams by underground mining.

Due to the relatively shallow burial depth of some sections of the coal seams considered for underground mining, it was possible to open up the mine by inclined shafts. The development by inclined shafts presents a technical and economic advantage as compared with vertical shafts due to the less demanding technology and lower construction costs. In inclined shafts it is also possible to adopt continuous belt conveyor haulage of coal to the surface instead of a vertical hoist with a skip.

The specific mining technology chosen for the planned underground operation is fully mechanised longwall mining along the strike with retreating panel extraction and with a single head and tailgates, a proven and accepted mining method. The full length of gateways driven in the coal seam for panel development prior to coal extraction will provide additional information on the local geological conditions before the longwall retreats from the end point. The mined out area (gob) is collapsing (caving) behind the mining front and will be sealed when a panel is mined out.


– 259 –

Figure 11-4: Schematic of Longwall Mining Method

11.4.2 Mine Layout

The layout of the mine is determined by the boundaries of the MMHL’s mining licenses (IUPs), the Coal Resources located within the license areas, and geological parameters. The geological fault line along the western boundaries and in west-east direction in the central area is the most influential of the geological parameters.

The mine industrial area (surface plant area) is located in the east of the Project area. The inclined shafts lead down into the coal seams toward the SE. From the point where the inclined shafts reach the coal seams, the main roadways are planned and partly already developed heading west, first serving the 1st Mining Section. After the 1st Mining Section is mined out, the roadways will be extended to cover the panels for the 2nd Mining Section further west. The 3rd Mining Section will be developed towards the north after the roadways are adjusted to this higher underground elevation behind the fault line. The 4th Mining Section is planned in the northeast of the mine industrial area with its main roadway connecting to the inclined shafts landing area. This mining section is according to the latest mining plans considered for operation by longwall at the end of LOM. This section could also be developed earlier to support production from the two main mining faces if required.

SRK considers the chosen layout a practical and optimized solution with regard to development and mining requirements. The layout and associated mining plan covers well explored areas and established Coal Reserves first, and allows for sufficient time to upgrade and possibly add Coal Reserves with mining progress over time.


– 260 –

Figure 11-5: Schematic Mine Layout, License Blocks, and Mining Plan

11.4.3 Design and Development of the Underground Workings

11.4.3.1 Inclined Shafts

Entry to the underground mine is provided by three inclined shafts located in the eastern sector of the IUP 470 licence area where Seam D is 152 m below the surface. The collars of all three inclined shafts are at 82 m ASL. The main inclined shaft is 5.4 m wide. It is 704 m long and declines at 12.5°. It serves for air intake, coal transport, and for personnel transport and equipment transport. The second inclined shaft is designated to ventilation. It is 4.2 m wide and descends at 12.5° with a length of 730 m. The third inclined shaft further west is for material transport by track-less equipment and is designed similar to a “ramp”, descending at 5° with a length of 1,750 m. This inclined shaft is also 5.4 m wide. All inclined shafts are driven and decline towards SE and hit the eastern boundary of the mine field.


– 261 –

NW SE

Figure 11-6: Schematic Cross Section showing Inclined Shafts and Coal Seams

11.4.3.2 Design and Development of Roadways and Panels

The main roadways are designed to be driven in the coal seams generally toward the west. The longwall panels of the 1st and 2nd Mining Sections lie south of the main roadways. The longwall panels of the 3rd Mining Section are planned to point north from the main roadways. The roadways for the 3rd Mining Section are at a higher elevation due to a geological fault line splitting the coal seams and dividing the 2nd Mining Section from the 3rd Mining Section.

The direction of the panels is designed to follow the strike of the coal seams with the production face (longwall) dipping with the coal seam. The designed size of the panels is 200 m wide and 1,500 m to 4,000 m long.

Between the panels, pillars (barriers) of 40 m width will be left standing in the 1st Mining Section in the panels under the area of the local river. 6.0 m to 12 m wide barriers are designed for panel separation in the other areas. The width may be adapted to the requirements. A protection pillar (barrier) is planned for the surface plant area, the inclines and the main roadways which will also protect the villages Rantau Nangka and Rantau Bakula. SRK has further considered for its coal reserve estimate a wider pillar along the roadway which would also support the river along this section from Panel 1 to about Panel 6.

A total of about 14 km of roadways are planned, of which about 10 km will be in the coal seam and the remainder is to be driven in rock. Up to four (4) driving faces are assumed to be required in order to provide timely panel development during full production.

Driving work in the roadways and the gateways of the mine is carried out by a road-header and by conventional drilling and blasting if development work is in rock.


– 262 –

The planned width of the main roadways is 4.2 to 5.4 m with an arched roof. The gateways to the panels are designed to be 4.5 m wide and 3.0 m high.

For the possible mining operation in the 4th Mining Section the main roadways are designed and will be driven in the coal seam. These roadways will be connected to the inclined shafts and are planned to be used for coal and waste rock haulage, equipment and personnel transport, and for ventilation. The designed width of the roadways is 5.0 m. The pillars separating and protecting the roadways towards the mining panels are designed to be 15.0 m wide.

11.5 Operation and Coal Production

11.5.1 Mining Operation

Coal will be extracted in three main Mining Sections which will be mined successively over the life of the mine (“LOM”). Additional coal to complement production could be mined in the 4th Mining Section. Mine planning for the 4th Mining Section exists, but the company has not yet made a decision on whether this Section will be mined.

All three minable coal seams, Seam D, Seam C, and Seam B, are considered for mining in single lifts. Two operating faces (longwalls) at different seams, also representing different mine levels, are planned to extract the required annual tonnage of coal. The panels at each mine level will be extracted in a planned sequence in order to avoid sterilizing coal in upper level coal seams and to minimize subsidence at the surface.

At the mining face (longwall), the coal will be extracted by double drum coal shearers expected to cut 80 cm deep webs. The coal will then fall into an armoured face conveyor which will transport it to the headgate. The longwalls will be supported with hydraulic shields. At the headgate, the coal will be transferred to a feeder belt with coal crusher and then conveyed to the surface by a system of belt conveyor. Near to the belt conveyor transfer point at the inclined shaft, a coal bunker will provide buffer stock capacity for the underground operation.

Operations in Coal Seam B will have the potential for a higher output than Seams D and C due to the bigger seam thickness, which should allow the longwall to operate at a higher capacity.


– 263 –

The PMD and the current panel mining and production schedule indicate the following ranges in expected capacities from the mining faces in the different seams:

• Seam B: 3.5 – 3.60 million tonnes per year (“Mtpa”);• Seam C: 1.75 – 2.00 Mtpa; and• Seam D: 2.00 – 2.75 Mtpa.

Two (2) longwalls are planned to be operated simultaneously in different seams.

The belt conveyor system is designed to match the output from the longwalls. A bunker to equalize surge loads is planned just before the transfer point of coal to the belt conveyor in the incline shafts.

Main mine equipment and technical specifications are summarized in Table 11-7.

The PMD and the MMHL assume that the mine will operate in three shifts over 24 hours a day, 330 days per year. For the initial mining years, 12 to 15 effective operating hours per day are assumed. From Year Three on, and during the full production period, 16 effective operating hours per day are expected and are used in production estimates.

11.5.2 Coal Production and LOM

11.5.2.1 Production Forecast

In September 2015 the MMHL provided a revised coal production schedule (forecast) for the years 2016 to 2031 showing an annual production target of 6.0 Mt ROM coal. A detailed panel extraction schedule (Gantt chart) was also provided to support the production schedule. According to plan coal production would commence in January 2016 with 1.0 Mtpa ROM coal from Seam D. Full production of 6.0 Mtpa is expected to reach in 2020 after a ramp-up period of 4 years.


– 264 –

The

com

pany

’s c

oal p

rodu

ctio

n fo

reca

st is

show

n in

Tab

le 1

1-6

belo

w.

Tabl

e 11

-6: R

OM

Coa

l Pro

duct

ion

Sche

dule

(For

ecas

t)

Mi

ning

Coal

Coal P

roduct

ion by

Year

(Mt)

Sec

tion

Seam

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

1st

Minin

g B

1.5

0 2.7

0 3.0

0 3.5

5 3.5

5 3.5

5 2.0

0

Section

C

1.00

1.65

2.10

2.10

2.10

2.10

0.90

D 1.0

0 0.8

0

1.55

2.40

2.50

2.20

2.20

2nd

Minin

g B

2.40

3.20

3.50

3.50

3.55

0.85

Sec

tion

C

2.1

0 2.1

0 2.1

0

D

2.7

0 2.7

0 2.7

0

3rd

Minin

g B

0.85

2.40

Sec

tion

C

0.60

1.50

D

2.8

0

4rd

Minin

g B

Sec

tion

C

2.9

0

D

Tota

l Coal

from L

ongwa

lls 1.0

0 2.3

0 3.7

0 4.6

5 5.6

5 5.6

5 5.6

5 5.6

5 5.7

0 5.7

0 5.7

0 5.7

0 5.6

5 5.6

5 5.6

5 5.7

0 4.3

0 2.1

0 0.8

0

Coal f

rom

0.08

0.10

0.30

0.35

0.35

0.35

0.30

0.35

0.30

0.30

0.30

0.30

0.35

0.35

0.35

0.30

0.30

De

velopm

ent W

orks

Tot

al 1.0

8 2.4

0 4.0

0 5.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 4.6

0 2.1

0 0.8

0

Not

e:

SRK

wou

ld li

ke to

em

phas

ize

that

a c

oal p

rodu

ctio

n sc

hedu

le o

ver a

n ex

tend

ed p

erio

d as

sho

wn

mus

t be

cons

ider

ed in

dica

tive.

O

ver t

ime

min

ing

cond

ition

s or o

ther

fact

ors m

ay re

quire

adj

ustm

ents

and

cha

nges

. Dev

iatio

ns in

LO

M m

ay a

rise.


– 265 –

SRK has reviewed the coal production schedule provided and would see an annual production target of 6.0 Mt as possible with regard to the availability of coal in the individual panels scheduled for extraction in each year over LOM.

Mine production planning considers a four (4) year ramp-up period before full output must be achieved. Such period should be sufficient to achieve the set goal.

For Seam D and Seam C operation, up to 2.5 Mtpa output would be required after the full production stage is reached in 2020. SRK would expect that the equipment as proposed and delivered for operation in Seam D and Seam C could reach the required capacity with the mining conditions as expected. A concern could be if the 16 operating hours assumed in the PMD for output estimate could effectively be achieved.

For operation in Seam B an annual output of 3.5 Mt is required. The larger equipment specified in the PMD for this seam should be able to achieve this output. This equipment has not yet been procured.

The mine development work (driving of roadways) may contribute about 0.3 Mt of coal per year to production.

If a shortfall in annual production should occur it might be possible to compensate it with an equipment upgrade or with coal from a third operating or stand-by longwall in the 4th Mining Section as planned.

At the annual production of 6.0 Mt as per production schedule and considering the presently confirmed Coal Reserves of 92 Mt, the LOM could be expected to be about 18 years. The 1st Mining Section may hold Coal Reserves for about eight (8) years of mining including the first four (4) years of reduced production during the ramp-up period. After eight years coal from the 2nd Mining Section is required according to production forecast.

11.5.2.2 Current Coal Production

As of the date of this Report, regular commercial coal production has not commenced. Records of actual produced coal from roadways and gateways development are not available to SRK but these tonnages are considered marginal.

11.5.2.3 Historical Production

Rantau Nangka Project is the first underground operation planned in the concession area. No previous underground operations have taken place and no data is available for comparison.


– 266 –

11.6 Main Mining Equipment

11.6.1 Equipment Selection

Fully mechanised longwall mining technology was proposed in the PMD. Double drum coal shearers with armoured face conveyors (scraper conveyors) are considered for the two planned mining faces. At the headgate a stage loader conveyor with coal crusher will be installed to crush coal to belt conveyor size. A system of belt conveyors will further haul the coal to an underground coal bunker near the inclined shaft. A belt conveyor in the inclined shaft will then haul the coal to the surface where it will be screened and stockpiled before being loaded onto coal trucks for transport to the river coal terminal.

Most of the main mining equipment is planned to be purchased from China and is of Chinese make. The company mentioned that second-hand equipment would be considered as well. At the time of SRK’s June 2015 site visit, no main mining equipment other than the equipment already installed for mine development (mainly the belt conveyors) had arrived at site. No longwall equipment was at site and no inspection of such equipment and its conditions was possible. No information about the schedule and progress of equipment procurement, including shipment to the site and installation, was provided to SRK.

The main belt conveyors in the mine with a belt width of 1.4 m and a belt speed of 3.55 m/s are expected to achieve a nominal capacity of 1,800 t/h under the conditions (inclination) in the mine. This capacity should be sufficient to manage the daily and annual production. SRK noted that the mine design considers an underground coal bunker for equalizing the coal load before the conveyors in the inclined shaft. This bunker was not constructed when SRK visited the mine. For continuous operation to achieve the required daily tonnage such bunker which should have a capacity of several hours of production may be essential.

The double drum shearer delivered to the site will be employed in Seam B and C. The height range of the shearer is indicated as suitable for the seam thickness expected. The shearer is expected to work at a web depth of 0.8 m. The PMD study expects such web thickness should be reached with acceptable roof conditions and with the expected strength of the in situ coal. Supporting data has not been sighted by SRK. A performance test of the equipment during initial operation should establish and confirm the performance of the shearer. The associated armoured conveyor is specified at 1,800 t/h which should allow for peak loads from the shearer. The descending installation in the longwall should be supportive to reach the designed output.


– 267 –

SRK has noted during the latest site visit in September 2015 that the equipment for the first longwall has arrived at site. 150 hydraulic shield supports where at site awaiting installation. The shields are suitable for the 1.6 to 3.0 m seam range which is expected for Seam D.

SRK considers that the equipment proposed is suitable for the mining conditions expected and is comparable with equipment used in coal mines with similar conditions in China. The rated capacity of single equipment units should be sufficient. The achievable system utilization (effective operating hours) may be the criteria for the overall system/mine output.

SRK observed during the site visits that the equipment which was delivered to the site already is generally in accordance with the design and specifications as per PMD. However, SRK has not carried out a detailed audit with regard to the specifications and for compliance with applicable safety regulations.

The proposed main mining equipment is summarized in Table 11-7 below.

Table 11-7: Proposed Main Mine Equipment for Rantau Nangka

Proposed Model InstalledEquipment Qty (PMD) Capacity Main Specifications Power

(t/h) (kW)Main Equipment (Longwall 1-Seam D)Double Drum Coal Shearer 1 MG300/700-AWD max. 500 1.6-3.2 m; 0.8 m drum depth 700Armoured Face Conveyor (AFC) 1 SGZ-830/630 1200 (for 200 m longwall) 2×3152-Leg Hydraulic Shield Support 130+13 ZY5200/13/28 5200 kNFace End Supports 6 RX-315/25Stage Loader 1 SZZ830/250 50 m 250Coal Crusher 1 PLM1500 double roller 110Gateway Belt Conveyors 1500 1200 mm; 3.15 m/s 2×315Roadway Belt Conveyors 1800 1400 mm; 3.55 m/s 4×630

Main Equipment (Longwall 2-Seam B)Double Drum Coal Shearer 1 MG400/980-WD max. 900 2.1-4.0 m; 0.8 m drum depth 980Armoured Face Conveyor (AFC) 1 SGZ-900/1050 1800 (for 200 m longwall) 2×5252-Leg Hydraulic Shield Support 130+13 ZY6000/20/40 2.0-4.0 m; 6000 kN; 22.4 tFace End Support 6 ZTF6500/19/32Stage Loader 1 SZZ900/315 2000 50 m 315Coal Crusher 1 PLM2000 2000 double roller 200Gateway Belt Conveyors 1500 1200 mm; 3.55 m/s 3×315; 2×315Roadway Belt Conveyors 1800 1400 mm; 3.55 m/s


– 268 –

Proposed Model InstalledEquipment Qty (PMD) Capacity Main Specifications Power

(t/h) (kW)Inclined ShaftsCoal Bunker 1Belt Conveyor-Inclined Shaft 1 ST2000 1200mm,1500t/h, 3.55m/sScreen (Surface) 1 CBV2461 800t/h 30

SurfaceCoal Screen 2 CBV2461 800t/h 30Oversize Coal CrusherStockpile Belt ConveyorsMobile Loading Equipment

Auxiliary EquipmentDewatering Pumps 3 MD155-30×7 200Primary Fan 2 FBCDZ34/400 2×400Auxiliary Fans 8; 4 2×30; 2×22Air Compressor 4 SM250 41.5m3/min, 0.85MPa 250Emulsion Pump 6 GRB-315/31.5 200Underground Vehicles (for material) 12 WC5E;W8 5t; 8t 65Underground Vehicles (for personnel) 1 WC24RE 24 personnels 50

Equipment for Mine DevelopmentPneumatic Rock Drill YT-28Rock Loader 4 FBZL16 50Rock Truck 12 WC8 8 tRoadheader 4 EBZ200/150 325;325;236Belt Conveyor 4 SSJ800/2×75 2×75Scraper ConveyorBolter 18 MQT-120

11.7 Mine Industrial Area and Structures (Surface Plant)

The mine industrial area (mine surface plant) is located near the mine entry (inclined shaft collars). The area is well accessible and fenced. The mine power station and coal stockpile are located north of the inclined shafts. Workshops, storage facilities, and office and dormitory buildings are located west of the industrial area, and further northwest is an area reserved for a future coal-fired mine-mouth power plant. The area surrounding the mine industrial area is inhabited by a small number of local farmers; surrounding land use is agricultural, dominated by rubber tree orchards and fields for vegetable produce. At a further distance are closed open pit mines and the associated outside dumping areas.


– 269 –

11.8 Mine Services and Facilities

11.8.1 Mine Ventilation

According to PMD designs, two axial fans with two 400 kW drive motors each are planned to be installed at the mouth of the return airway incline. The capacity of each fan should be adjustable from 164 cubic metres per second (“m3/s”) during periods of low demand to 176 m3/s during high demand periods. The air intake is through the main and subsidiary transport incline. The required capacity of fans has been calculated for the most difficult mining scenario. The maximum air requirement of the mine therefore in the early development stage is 156 m3/s and in later development stages increases to 164 m3/s. One of the two installed fans could provide this air volume. An additional air intake shaft is planned to be sunk near the end of the designed roadways when development reaches this area. Roadway and panel development faces are ventilated by auxiliary fans with 450 mm canvas ducts.

11.8.2 Gas Drainage

No methane gas drainage system is required or planned, according to the PMD. The relatively low gas content of coal samples tested in the coal labs and the low volumes of gas experienced in the development workings of Seam D would seem to confirm that gas drainage is not required. Gas levels could be expected to be kept within safe levels by ventilation and air flow means.

11.8.3 Compressed Air

The air compressor system for the mine is designed to meet the requirements of underground mining and is planned to be equipped with four sets of SM250 compressors when the mine is in full production. Three air compressor units will operate at once and the fourth will be idle for back up. The capacity of each unit is specified as 41.5 cubic metres per minute (“m3/min”) at 0.85 megapascals (“MPa”), powered by a 250 kW motor. SRK opines that the designed compressed air supply is adequate for the mine as designed.

11.8.4 Water Management

The PMD estimates the required nominal mine dewatering pumping capacity at about 100 cubic metres per hour (“m3/h”) with a peak of 150 m3/h. The actual water influx into the mine through local hydrogeology, groundwater flow patterns, and infiltration and recharging of aquifers during the rainy season, as well as possible stormwater through the inclined shafts, is not determined in detail and the actual requirements might be higher than the above estimates. SRK recommends establishing a water monitoring system in the mine to obtain actual data. The currently planned pumps have a capacity of 169 m3/h each, which is adequate to deal with the influx experienced during development.


– 270 –

The designed mine dewatering system for the full production stage proposes three (3) pumps and two (2) pipelines. One pump is planned to be in operation, one pump would be on stand-by for back-up, and one pump would be allowed for repair and maintenance. Settlement for the mine water is planned at the surface plant.

SRK further considers surface water drainage at the mine industrial area and especially around the inclined shafts and its maintenance as important to avoid water inrush from the surface which may not be excluded in a tropical environment. Water in the surrounding closed open pits should also be monitored and observed in order to assure overall mine safety.

11.8.5 Repair, Maintenance and Storage Facilities

The mine is using a workshop at the nearby open pit mine operated by PT Pama for repair work and maintenance during the development stage of the mine. The PMD provides a description of facilities which are proposed to be constructed at the site, including a mine workshop with hydraulic equipment testing and repair devices, a bridge crane, and storage. A machine repair shop with a bridge crane is also considered for the repair of mechanical and electrical equipment.

Maintenance and repair of mine equipment is planned to be carried out by the mine.

A material shed about 500 square metres (“m2”) is planned for storage of concrete, sand, anchors, and other materials required for operating of the mine.

11.8.6 Communication and Mine Control

Mobile phone communications and radio communication are available at site.

SRK has not sighted possible plans or the existence of a central mine control room for monitoring operations by closed-circuit television (“CCTV”), communications, or mine data recording.

11.8.7 Coal Sampling and Lab

A coal sample room and lab for daily coal quality control is considered in the PMD.

11.8.8 Personnel and Materials Transport at the Mine

A tram car for personnel transport is installed in the secondary inclined shaft. The PMD proposes transport in the mine levels by trackless vehicles.


– 271 –

Materials transport to and from the mine and in the roadways would be handled by trackless vehicles through the auxiliary inclined shaft. A hosting device for equipment is planned in the secondary inclined shaft.

11.8.9AccommodationandSiteOffice

The mine has set up office and residential quarters for mine management and supervisory staff. Accommodations for mine workers have also been built, and space is reserved for extension of these accommodations. Some local workers are also expected to have/find accommodation in local villages. The office area is separated from the workers accommodations.

11.8.10 Medical Facilities

A first aid room exists at the site according, to information from mine management. The closest medical facility is the paramedic station in PT Pama mine.

11.8.11 Subcontractor Services

Generally, the mine is not planning to contract mining operations to subcontractors.

12 COAL HANDLING AND COAL PREPARATION

12.1 Coal Handling and Stockpile

The raw coal extracted from the coal seams will be crushed (sized) at the feeder conveyor at the headgate of the longwall. The raw coal will then be hauled to the surface by belt conveyors. The mine design is considering a coal bunker to provide a buffer before the coal is transferred to the belt conveyor in the inclined shaft. At the first belt conveyor transfer point at the surface after the inclined shaft the coal will be pre-screened and then conveyed to stationary stacker conveyors for stockpiling. Reclaiming of coal from the stockpile(s) and loading onto the coal trucks for transport to the river terminals is planned by wheel loaders and small mobile excavators.

According to the PMD, the conveyor system from the mine is designed for a capacity of 1,500 tonnes per hour (“tph”) and uses a belt 1,200 mm wide moving at 3.55 metres per second (“m/s”). Two vibrating screens are considered. The capacity of one vibrating screen is indicated as 800 tph. Theoretically, the scheduled annual coal production of 6.0 Mt could be accommodated in about 12 hours daily (at 330 operating days) when utilizing the full belt conveyor capacity.


– 272 –

The stockpile area seems to be adequate and should have sufficient capacity to allow for a sufficient buffer for coal sales/transport to the terminal and a production buffer from the mine in case of interruptions. The stockpile area is not planned to be roofed. A coal dust problem at the stockpile should be limited considering the tropical wet and humid environment but may be more pronounced during the dry season. Water spraying or other dust suppression measures may be required.

From designs SRK concludes that the stacker conveyor system of the stockpile is stationary. If blending of different coal qualities arriving from the mine is require at the stockpile to meet customers specifications, a review of the design may be recommended.

At the time of SRK’s site visit, the surface coal handling and stockpile equipment was not completely installed. Concrete foundations and steel supports for belt conveyors have been sighted in place.

12.2 Coal Preparation (optional)

MMHL is at this stage not considering beneficiation of the coal through a coal preparation process (coal washing). The PMD assumes that the low ash ROM coal, which will be sold as thermal coal, would not require coal washing. The average ash content of the in-situ coal as per assay supports this assumption. Dilution with non-coal rocks from roof, floor, and bands and partitions in the coal seams is expected to be mostly held out during the mining process and will not substantially increase the overall ash content in the ROM coal. Some sacrificial coal is also considered in the Coal Reserves estimate, which would cover coal left at the roof and floor in critical areas to avoid dilution by non-coal rock (gangue).

It is assumed and expected that the ROM coal would be a marketable product after screening and crushing of oversize. The ROM coal to be screened through a 50 mm aperture is planned. Underflow will be conveyed to the stockpile and oversize will be handpicked for larger gangue (non-coal rock), crushed, and then fed back to the belt conveyor to the stockpile.

If the gangue content in the coal reaches a percentage at which handpicking is inadequate, a mobile sieve jig is proposed in the PMD to remove gangue. This is a simple and flexible raw coal preparation technology which may allow for separation of sufficient gangue to keep the overall ash content within the expected limits. Screening techniques only including wet screening may also be able to slightly improve the coal quality by reducing/separating waste rock dirt and gangue. If it is necessary to upgrade the ROM coal quality to achieve a marketable product, SRK would recommend tests for such simple and low cost technology before the option for a more sophisticated preparation process (coal washing plant) is considered.

A stationary option for coal washing with sieve jig technology is considered as additional option in Chapter 12.3.


– 273 –

A final conclusion as to whether the overall ash content of the ROM coal including the gangue material will satisfy the required customer specifications for coal quality and if coal preparation is necessary or not can only be made after the mine commences with coal production or after a performance test provides additional data. However, space for additional equipment for coal preparation or a coal washing plant has been indicated/ reserved in the mine surface plant layout and would be available if needed.

12.3 Coal Preparation Process

12.3.1 Summary

The raw coal of Rantau Nangka is a long-flame coal with high volatility and a high calorific value. The mine construction plans include hand-picking and if necessary moving-sieve jig to remove refuse. Lumps with a diameter greater than 50mm are the limit for hand picking. The costs for this process are marginal.

For a coal washing plant, SRK recommends the following approach after the mine is put into production:

Consider an annual raw coal processing capacity of 3.0 Mt (Phase 1); take bulk samples and complete raw-coal screening and float-and-sink analysis, both of which can provide a basis for coal preparation techniques; conduct a slurry test on the coal to additionally facilitate production and preparation of coal water slurry fuel (“CWSF”) to replace heavy oil.

A washing plant for 3.0 Mtpa may require a staff of 15. The water consumption is expected to be about 0.02 m3/t, and installed power around 1,350 kW must be considered. The equipment cost could be expected to be about USD 0.65 M, and the construction cost is approximately USD 1.75 M. After waste rock is removed from the raw coal, the calorific value could be expected to range from 6,500 kcal/kg to 7,000 kcal/kg.

Phase 1 could serve a first mining stage which works with one longwall and reaches up to 3.0 Mtpa output. For the full production stage of 6.0 Mtpa a second coal washing plant unit would need to be added.

12.3.2 Coal Quality

The existing coal quality data indicates the total moisture is between 3.15% and 5.90%, the ash content ranging from 7.62% to 27.24%, volatile matter ranging from 41.24% to 46.20%, calorific value ranging from 5373 to 7205 kcal/kg, and fixed carbon ranging from 36% to 48%. The coal type is long-flame coal.


– 274 –

With regard to the coal seams, the main coal mining seams are Seam B, Seam C, and Seam D, each of which is long-flame coal with high volatility and high calorific value. Seam B is low-medium ash and low-sulphur coal; Seam C is low ash and low-sulphur coal; and Seam D is low-medium ash and low-medium sulphur. The coal in the main mining seams is excellent thermal coal.

12.3.3 Process and Selection of Main Process Equipment

Given that the mined coal type is thermal coal, a plant for Phase 1 for 3.0 Mt throughput should adopt coal preparation technology with low construction and processing costs to reduce production costs and to increase market competitiveness. The coal preparation process proposed for a stationary coal washing plant is actually similar to recommendations in the PMD which proposes sieve-jig technology but would consider it a stationary plant.

The basic flow chart of the proposed jig process is as shown in Figure 12-1.

Figure 12-1: Proposed Coal Preparation Process Flow Chart


– 275 –

The equipment for such a plant would be generally as summarized in Table 12-1.

Table 12-1: Main Coal Washing Equipment (Sieve-Jig Technology)

Equipment ModelandSpecification Qty Notes belt conveyor access to raw coal B=1200 mm, L=127.46 m, α=0-12.5° N=200 kW workshop Q=1500 t/h, V=3.55 m/s vibration classification sieve CBV2461, Mesh: 50mm, Q=800t/h 2 N=30 kW electric vibration screening feeder coal feed capacity: 500 t/h 1 N=2×4 kW moving-sieve jig model: TDY/4.5 1 N=110 kW processing capacity: 180-300 t/h double-geared roller crusher model: 2DSKP80180 2 N=2×75 kW processing capacity: 300 t/h coal tub elevator B=800 1 N= 15 kW high-frequency screen GPS1231 1 N=2×5.5 kW circulating pump 50LZ-250 DC Drive 2 N=11 kW K3 feeder feeding capacity: 300 t/h 1 N=7.5 kW hand-picking belt conveyor B=1400 mm, L=16.80 m, α=0° 1 N=4 kW Q=300 t/h, V=0.3 m/s de-ironing separator RCDB-12 1 N=4 kW refuse belt conveyor B=1000 mm, L=71 m, Q=300 t/h, 1 N=37 kW V=1.6 m/s refuse loading gate DZJ1000 1 N=3 kW belt conveyor for raw coal after screening B=1200 mm, L=127 m, Q=1200 t/h, 1 N=160 kW V=2.5 m/s belt conveyor for raw-coal storage B=1200 mm, L=165.5 m, Q=1400 t/h, 1 N=90 kW V=3.15m/s filter press 400 m2 1 N=15 kW deep-cone thickener D = 10 m 1 N=95 kW

Additionally to the equipment listed building and structures for the plant are required.

12.3.4 Power and Water Supply

The capacity of installed equipment related to the coal preparation system is 1,350 kW, and the supply voltage is 660 V.


– 276 –

A moving-sieve jig is used as a part of a technique to separate waste rock from coal that has a diameter less than 50 mm. The jig’s water consumption is only about 0.02 m3/t. If the annually processed coal fraction would total 1.5 million tons, the hourly water consumption will be 5.7 m3. The mines water sources should be able to meet this requirement.

12.3.5 Product Quality Control

A coal sampling room for sample lab analysis for product quality control would be required.

The laboratory is mainly serves for the daily inspection of coal quality, including assaying the coal’s ash content, sulphur content, moisture, volatility and calorific value. Elemental analysis, industrial analysis, gasification, coking, and other indexes would be completed by an external third-party service.

12.3.6 Disposal of Refuse and Slime

The mine adopts a full seam roadway arrangement with less refuse. In the early stages, the refuse is used for fillings on the industrial site and for paving roadbeds. After that, it is used for the construction of several roadways in the permanent pillar (main-roadway coal pillar, industrial-site coal pillar, etc.). Because it is being used for filling, refuse does not require being lifted to the surface. This method can solve the problem of waste rock pollution and can help to prevent ground subsidence.

The amount of slime content produced throughout the lump coal separation process is relatively small. Because of this, the slime can be incorporated into the product for sale.

12.3.7 Work Force

The coal preparation system to be used at the plant includes 15 staff members, who are spread across the hand-picking, moving-sieve jig, and belt conveyor posts.

12.3.8 Cost Evaluation for Coal Preparation

The estimated cost for the main equipment would be expected to be in the range of USD 600 – 700 thousand (RMB 4 M). For the structure and for the construction of the plant about USD 1.75 million (RMB 11 M) may have to be expected.

The operating cost could be expected to be in a range of 1.6 – 2.4 USD/t (RMB 10-15 per ton of coal).


– 277 –

12.3.9 Recommendations

The thickness of Seam B is significantly inconsistent, and Seam C and Seam D contain partings. Most of the coal strata are mudstones of low intensity. Therefore, during production of raw coal, it is possible that the ash content may exceed the standard. After the mine is put into production, bulk samples and complete raw-coal screening and float-and-sink analysis should be taken and carried out. Whether the coal preparation plant should be constructed is determined by market conditions and ROM quality, while various technical tests and analyses provide a design basis for which coal preparation techniques and which equipment models are to be used.

To improve product value coal water slurry fuel (“CWSF”) technique could further be considered. The coal product of the mine is characterized by high calorific value, high volatility, relatively low inherent moisture, and a high ash fusion point. These characteristics provide conditions for the preparation of high-quality CWSF. However, the high coal grindability index which is about 40 is not conducive to the production of CWSF theoretically because obtaining microfine-grained coal is difficult and slurry is not easily formed by the coal. However, additionally testing, such as a slurry test, is is still recommended to determine whether the coal can indeed produce CWSF.

If the calorific value of heavy oil is calculated as 10,000 kcal/kg, about 2.2 tons of CWSF will replace 1 ton of heavy oil.

The capital cost of such a plant is about USD 15.8 per tonne of slurry, and the main operational costs of CWSF are as follows: i) additive cost of USD 4.7 per tonne of slurry and ii) power consumption of 60 kWh per ton of slurry.

CWSF is a coal-replacing oil fuel internationally developed in 1970s. It is a mixture of pulverized coal, water, and additives. Compared with coal, CWSF features an easily adjusted combustion condition and is low in pollution, high in efficiency, easily stored, and inflammable. It also possesses certain oil characteristics, such as mobility, stability and atomization. Therefore, it can replace fuel oil used in boilers, power plants, and various industrial furnaces. In 1982, China began research on CWSF technology. In 1983, the State Science and Technology Commission of China officially listed “CWSF Preparation and Combustion Technology” as one of the key science and technology projects of “the Sixth Five-Year Plan.”


– 278 –

CWSF technology is one of China’s nationally recommended clean coal technologies. After decades of development, China’s current CWSF technology has been fully industrialized and commercialized, and its technologies for preparation and combustion have matured. China has produced a series of documents related to technical standards. CWSF technology has been applied in the thermal power plant of Yanshan Petrochemical; Baiyanghe Power Plant, in Shandong Province; Maoming thermal power plant, in Guangdong province; Guangdong Shantou Thermal Power Co., Ltd.; Guangdong Nanhai power plant; and a large number of industrial boilers, kilns and other fields. China has professional CWSF equipment manufacturing companies, specialized boiler manufacturing companies for CWSF combustion, and professional CWSF additive manufacturing companies.

Over the past several years, oil prices have remained relatively low in Indonesia, where there are numerous oil-fired power plants, industrial boilers, and furnaces. However, oil-refining technology has been improved worldwide as the price of heavy oil increases continuously and oil resources become scarcer (it is said the government has already cancelled the previous fuel subsidies). The use of the mine’s high-quality coal resources for CWSF to replace heavy oil will bring greater economic benefit to the enterprise as compared with the direct sale of coal products. Recommendations are as follows: i) Conduct the slurry test on the coal; and ii) Conduct an investigation of the fuel market in Indonesia to demonstrate the economic feasibility of applying CWSF fuel in Indonesia.

13 PROJECT SCHEDULE

Exploration work at Rantau Nangka under MMHL started in 2008 after completion of a conceptual mining study. This could be considered as the start of project activities and payments with regard to project costs. In 2010, the main project design study, the Preliminary Mine Design (“PMD”), was completed.

First site preparation and construction work started in 2011. In 2012 work on the inclined shafts started. Roadways and gateways for Panel 1D, which is in Seam D and is the first panel which will be mined, were completed in mid-2015 with the opening of the longwall entry.

Installation of all equipment in Panel 1D is scheduled to be completed in late 2015. With equipment in Panel 1D installed the project has reached its “1st Stage” and is operational. After commissioning of equipment and plant and a trial operation period commercial operation is scheduled to start in early 2016.

According to schedule, the first panel in Seam B should be fully developed in 2017. Additional equipment of different specifications is required for this panel. With operation in Panel 1B the “2nd Stage” of the project would be achieved allowing coal production from a second longwall face. Development work for Seam B has not yet commenced and equipment was not yet procured.


– 279 –

Development of Panel C1 in Seam C should be completed in 2018. The equipment from Seam D would be changed over to Panel C1.

With regard to coal production, in 2016 about 1Mtpa coal production is planned to be achieved from operation in Seam D only. According to schedule, 2.4 Mtpa are expected in 2017 coming from panels in Seam D and Panel 1B. In 2018, Seam C and Seam B together should produce 4.0 Mtpa and 5.0 Mtpa in 2019. From 2020 on full coal production of 6.0 Mtpa is scheduled which will come from Seam C and Seam B until 2023 when Seam D will be mined again instead of Seam C. Coal production at the 4th Mining Section is presently assumed to take place towards the end of LOM and no development work is required before.

At the end of September 2015, the temporary buildings for accommodation and administration were completed. The other mine buildings required for start-up operation were mainly complete. The building for the mine power plant was erected. Three (3) gen-set units were installed and operating and three (3) units were delivered to the site and are ready for installation.

Installation on the belt conveyor system was in progress. Coal screens and crusher for the coal yard were at site. Trestles for the stockpile conveyors were erected and the conveyor components for the stockpile conveyors were delivered to the site and ready for installation. The third inclined shaft which serves as transport ramp for material to and waste rock from roadway development from the mine was not completed but is not required for start-up operation.

Plans for permanent surface facilities and buildings for administration and accommodation, for water storage and treatment, and for improvement of other temporary facilities exist with MMHL but SRK has not sighted and reviewed an updated construction schedule for it.

MMHL has also plans for constructing a coal fired mine mouth power plant at their site. SRK has not sighted nor reviewed detailed studies, a costs estimate, or a construction schedule for this project.

From information provided by MMHL and the original project schedule of the PMD, SRK has compiled the following simplified project schedule which should allow an overview of the present project status and progress of mine development and construction.


– 280 –

08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

##

Production in 2nd Mining Section

All Development Work 3rd Mining Section

Production in 3rd Mining Section

All Development Work 4th Mining Section

Production in 4th Mining Section

Production (“Stage 2”/Longwall 2) - Seam B

Seam C - 1st Panel - Development

Changover of Longwall Equipment Seam D to C

Production in Seam C

All Development Work 2nd Mining Section

Installation of Longwall Equipment in Seam D

Production - Seam D

Seam D - 2nd Panel - Development

Seam B - 1st Panel and Roadway - Development

Installation of Longwall Equipment in Seam B

Inclined Shafts 1 & 2

Inclined Shaft 3 (Ramp)

Initial Roadways and Structures

Initial Conveyors and Installations

Seam D - 1st Panel - Development

Calendar Year

Permanent Administration and Accommodation

Temporary Surface Plant Facilities

Merge Exploration Drilling Program

Mine Design Study

Site Preparation

ActivitySection

Temporary Administration and Accommodation

Permanent Surface Plant Facilities

Mine Power Supply (Diesel Gen-Sets) 3 MW

Mine Surface Plant

Construction

Exploration & Design

Detailed Designs

Mine Power Supply (Diesel Gen-Sets) 6 MW

Mine Water Supply and Treatment

4th Mining Section

Inclines and Roadways

Development & Production 1st Mining

Section

2nd Mining Section

3rd Mining Section

Figure 13-1: Project Schedule of Rantau Nangka Coal Mine

SRK concludes that underground mine development and construction of the surface facilities has reached an advanced stage and that the remaining installation work of mining equipment for operation in Seam D could be concluded in 2015. This would represent a “1st Stage” in which coal production from one longwall face and at one coal seam could commence. Coal production with this equipment in place could reach between 2.0 Mtpa to 2.5 Mtpa according to the mining plans and capacity of the equipment.

SRK notes that the equipment for Seam B operation which would allow for full coal production of 6.0 Mtpa (“2nd Stage”) according to plan has not yet been purchased. According to schedule, this equipment needs to be operational in 2017.


– 281 –

14 CAPITAL AND OPERATING COSTS

14.1 Introduction

Zoucheng Institute conducted a conceptual project study in September 2008 to determine the projects viability based on earlier coal resource estimates entitled “Exploitation Outline and Economic Appraisal Study for Merge Coal Mine Project”. After the exploration program by TekMIRA was completed in 2009, Zoucheng Institute completed an updated study entitled “Preliminary Mine Design Report for Merge Coal Mine, Indonesia” (“PMD”) in February 2010. In addition, MMHL provided SRK with updated capital and operating costs as well as a summary of sunk investment and future investment plans for the project as of June 2015. Updated operating cost based on estimate was also provided to SRK by September 2015 for review. Actual (or accrued) operating costs were not available during to ongoing construction stage of the project. The cost estimate carried out by Zoucheng Institute followed Chinese standards for cost estimate of a mining project. Cost information and cost estimates of the PMD and the updated costs and cost estimate of 2015 were reviewed by SRK. SRK’s applied the cost breakdown and terminology as shown in Table 14-1 below which is commonly used for cost estimate in Chinese projects. In cost accounting practice for individual projects and for mining operations companies may apply cost breakdown (cost centres) which deviates from the cost breakdown as shown in Figure 14-1.

Item Breakdown Labour and Contractor Fees Operating Materials Costs Energy (Fuel & Power) Safety Simple Re-production Fee

Production Capital Costs Depriciation

Cost

Equipment Replacement and Reparation

Production Sustainable Development Fund

Coal Overall

Funds

Industry Transferring Fund

Product Cost

(China only) Environment Recovery Fund

Pricing Adjustment Fund

Taxes Resource Tax

Other Taxes and Duties Marketing Charges Administration Financial Railway Transportation Cost Road Port and Shipping

Figure 14-1: Typical Coal Cost Breakdown for Thermal Coal


– 282 –

SRK considers this cost definition and the cost items as per this breakdown as practical for coal mining. It also allows cost comparison between different mines. If needed, other factors such as fixed or variable costs, which may be different from mine to mine, may be applied after this basic breakdown is applied.

The cost models of PMD and of 2015 generally consider costs for maximum pit extension (distances) and haulage capacity. Variable and incremental costs would therefore not apply to a cost model. However such approach should hold potential for cost cutting in the future.

14.2 Capital Cost

14.2.1 Capital Cost as of 2010 PMD Estimate

Based on the 2010 PMD, the total investment (capital) required for the development and during operation of the mine over LOM was estimated at about US Dollars (“USD”) 223.96 million (“M”) including a capital cost of USD 7.82 M for the 4th Mining Section. The investment per tonne of coal produced per year (or “Tonne Capacity Investment”) is USD 37.33 which could be used as indicator when comparing with other projects.

The 2010 exchange rate of USD 1.0 to Chinese Yuan (“RMB”) 6.8 was used for the estimation of this indicator; as of July 2015 the exchange rate is USD 1.0 to RMB 6.3, and the unit investment indicator would drop to USD 31.62 per tonne of annual coal production.

The expected capital expenditures (“CAPEX”) during the project were estimated in the 2010 PMD on an annual basis as shown in Table 14-1 below as cash cost. The PMD assumed that all capital required over LOM of the project will be sunk within three (3) years. No extensive capital expenditures would be expected during the later project years.

According to the PMD of 2010, MMHL planned to raise all capital privately and would not consider bank loan financing.


– 283 –

Table 14-1: Capital Cost as of 2010 PMD

Construction Year 1 Year 2 Year 3 Total Cost

Capital Items (USD Million)

Mine Construction 24.82 19.93 2.46 47.21Civil Engineering 0.94 6.30 10.79 0.00 18.03Equipment and Installation 2.01 13.95 48.90 11.53 76.38Highway Transportation 19.41 0.18 19.59 VehiclesEquipment and Installation 7.82 7.82 (4th Mining Section)Others 8.40 7.03 6.89 4.23 26.56Sub Total 11.36 59.92 105.92 18.40 195.59Contingencies 1.14 5.99 10.59 1.84 19.56Working Cash 8.82 8.82Total Investment 12.49 65.91 125.33 20.24 223.96Tonne Capacity 37.33 Investment (USD/Tonne)

The equipment for the 4th Mining Section was considered for Year 1 in the original cost estimate. According to the latest updated mining plans, equipment for this mining section would only be required towards the end of LOM. The equipment would most likely be switched over from the 3rd Mining Section. Only development costs for the roadways and panels would now apply as capital costs for the 4th Mining Section.

Highway transport trucks are not required in the latest mining plan. Transport of coal to the terminals is provided by contractors and should therefore be considered in operating costs.

Capital costs for the 4th Mining Section and coal trucks amounts to about 25 Million USD in the original estimate.

For comparison, a summary of the updated accrued and forecasted capital investment as of 2015 is provided in Table 14-2 below. The cost figures shown are as provided to SRK by MMHL.


– 284 –

Table 14-2: Summary of Updated Capital Investment and Status as of May 2015

Item Unit AmountSunk Initial Investment (May 2015) USD Million 36.55Total Investment (till end of 2015) USD Million 68.65Forecast Investment (2016-2019) USD Million 121.04 Total Investment USD Million 189.69 Tonne Capacity Investment USD/t 31.62

SRK notes that the updated capital investment forecast of USD 189.69 million as of 2015 is about USD 10 million lower than the original estimated amount if deducting capital costs for 4th Mining Section and coal transport equipment.

For the period of 2016 to 2019 MMHL is now forecasting capital expenditures of USD 121.04 million.

SRK sees these expected future cash capital expenditures of USD 121.04 million as realistic in the light of the increasing depth of the mine which will require higher development cost and higher costs for equipment and installations. Capital cost for the actual main mining equipment in the longwalls is actually limited to two mining faces (longwalls). Only if the capacity as planned should not be reached additional capital investment for a third longwall may have to be considered.

14.2.2 Capital Expenditures as of May, 2015

According to information by MMHL, as of May 2015 USD 36.55 million have been spent on the project of which USD 32.11 million have been sunk as capital expenditures for construction, development and equipment. USD 3.93 million thereof is working capital. USD 4.44 million was additionally spent during the construction phase as “operating costs”. However, all costs incurred prior to start of mining operation (coal production) could be considered as capital costs for the purpose of project cost estimate.

MMHL provided SRK with a detailed cash flow statement covering investment expenditures as of May 2015 which is shown in Table 14-3 to support the data used for cost estimate.


– 285 –

Table 14-3: Project Cash Flow Statement as of May 2015

Item

Value

USD MillionCurrent Assets (Working Capital) 3.93

Monetary Capital 0.40Account Receivable 0.08Inventory 3.02Advance Payment 0.44

Non-current Assets 28.17Deferred Assets for Amortization 11.53 Apartments, office buildings and other deposit 0.02 Road and Bridge Works 4.48 Mine Management Expense 3.41 Drilling Expense 0.32 Tools, Material and Diesel Remained Unmortized 2.27 Expense for Mining Annuity, Mapping, EIA and Feasibility Report 0.07 Land Purchanse and Mining Annuity Tax 0.97Equipment for Depreciation (Original Value) 11.13 Office Equipment 0.05 Vehicles 0.25 Engineering Equipment 8.56 Tenement and Large Buildings 1.66 Supplies (water,electricity,communication and road) and Ground Leveling 0.61Project Under Construction 5.51 Undeground Development 5.32 Dormitory for Staff 0.19

Total 32.11

14.2.3 Investment Schedule

According to the latest updated project and coal production schedule of MMHL a ramp-up period of 4 years is required to allow the mine to achieve the designed production capacity of 6.0 Mtpa. The capital investment scheduled for the period 2015 to 2019 which would allow developing and equipping the mine for the full capacity is summarized below in Table 14-4.


– 286 –

Table 14-4: Future Investment Plan

Items

Capital Investment (USD Million) till 2015 2016 2017 2018 2019 TotalMine Construction 16.19 15.22 13.26 5.24 33.72Civil Engineering 10.32 3.99 4.88 0.11 8.98Installation 5.91 0.79 5.59 2.48 0.38 9.25Equipment 21.73 10.68 16.41 8.27 3.54 38.91Equipment Shipping 1.27 0.54 1.06 0.43 0.18 2.21Other Costs 13.23 4.33 3.52 2.43 2.41 12.69Subtotal 68.65 35.56 44.72 18.97 6.51 105.75Contingency (10% of Subtotal) 3.56 4.47 1.90 0.65 10.58Working Cash 4.72 4.72Total 68.65 43.83 49.19 20.86 7.16 189.70

14.2.4 Sustaining Capital

The project is expected to have a Life of Mine (“LOM”) of up to 18 years. The permanent underground workings (i.e., roadways and inclines) should reach such life span with the necessary maintenance and repair. The main mining equipment underground should reach such life span if periodically overhauled. A general replacement of main equipment after reaching its service life is not considered in the cost estimate.

After reviewing the latest updated investment plan, SRK notes that a sustaining capital is not indicated. However, SRK would assume that the operating costs for maintenance, repair and spare parts used in the cost estimate consider well over 3% of the initial capital expenditure annually and should be sufficient to upkeep operation as planned. The expenditures to cover these costs could most likely be covered from revenues/cash flow from coal sales of a profitable mining operation. SRK has included a sustaining capital charge of 3% of each year’s operating cost in this valuation.


– 287 –

14.2.5 Conclusions

By the end of 2015 USD 68.65 million is forecasted to be spent on the project. USD 36.55 million has been sunk by May 2015 according to the accounting records. At the end of 2015, the project should be developed and equipped for operation of one (1) longwall (or “1st Production Stage”). For the development and procurement of the second longwall and for development of the deeper seam sections of the mine, as well as for completion of construction and upgrading of some facilities of the surface plant additional USD 121.04 million are now estimated to be required. SRK considers this amount as realistic for a 6.0 Mtpa mine if compared with the capital investment required for mines of comparable size. Some optimization and savings may still be possible in the course of the development.

The cost model provided to SRK does not separately show the capital cost required for only the 1st Production Stage. According to the project schedule and equipment required for this 1st Production Stage, the capital investment of USD 68.65 million which is forecasted to be spent by the end of 2015 includes the main capital expenditures required for the 1st Production Stage as well as capital expenditures needed for future upgrading of surface structures and for ongoing mine development.

14.3 Operating Cost and Production Cost

In September 2015 the Project was still under construction. MMHL stated accrued operating expenses of USD 4.44 M during the construction period. These costs are, however, considered and added to the pre-operation project capital expenditures. SRK has not sighted a detailed cost breakdown of these operating expenses during construction.

The operating costs for the production period of the project were calculated for a marketable ROM coal product plus the cost for transport and shipment to FOB definition point (transhipment point). Cost drivers such as salaries, energy and material costs are based on Indonesian prices and cost information from comparable Chinese mines. In Indonesia, no comparable underground coal mines exist which could provide data for comparison.

In September 2015, the client provided a detailed updated operating cost estimate (cost model) for the period covering the production ramp-up to the year 2020 when full production is reached. The estimate considers diesel driven generators on site for power supply and for energy cost. It also provides an optional estimate for electricity from a coal fired power source which could later be erected at the site. SRK doesn’t consider this option as relevant and applicable for at least several more years. The operating costs estimated for different options are listed in Table 14-5 below for comparison.


– 288 –

As per the requirement of Chapter 18.03(3), if it has commenced production, provide an estimate of cash operating costs including the costs associated with:

(a) Workforce employment;

(b) Consumables;

(c) Fuel, electricity, water and other services;

(d) On and odd-site administration;

(e) Environmental protection and monitoring;

(f) Transportation of workforce;

(g) Product marketing and transport;

(h) Non-income taxed, royalties and other governmental charges; and

(i) Contingency allowance

The mine is still under construction and not yet commenced production, the operating cost is estimated/forecasted in line with the requirement above.

In the table below, item (a) and (f) are included in the Labour (Wage & Welfare) cost; item (b) is in Material cost; the Fuel and Power cost in the table covers the item (c); item (d) is counted in Administration cost; item (e) is included in Safety cost and Compensation for surface subsidence cost; cost of item (g) is listed in Marketing & Sales cost and transportation & shipment cost respectively; item (h) goes to Royalties, Local taxes and Fees; the item (i) is considered in the investment plan/schedule, with the value 10% of the capital investment (see Table 14-4).


– 289 –

Table 14-5: Summary and Comparison of the Unit Operating Costs of PMD 2010 and the 2015 Updated Cost Estimate

No.

Cost Items

As of PMD 2015 Update (USD/t) (USD/t) 1 Material 3.00 7.06 2 Fuel and Power 0.85 0.91 3 Labour (Wage & Welfare) 1.71 2.18 4 Major Repair 0.88 0.94 5 Safety 0.74 0.79 Subtotal — Production Cost 7.18 11.88 6 Compensation for Surface Subsidence 1.18 1.26 7 Roadway Development Fund 1.32 8 Simple Reproduction Fee 1.18 1.26 9 Depreciation 2.47 10 Woodland Lease 0.16 0.16 11 Royalties, Local Taxes and Fees 4.85 4.59 Subtotal — ROM All-in Cost 18.34 19.14 12 Marketing and Sales 0.44 0.35 13 Administration 1.47 2.32 Subtotal — Operating Cost 20.25 21.82 14 Transportation and Shipment 17.25 16.74 Total — Coal Overall Cost 37.50 38.56

As shown in Table 14-5, the updated operating cost estimate of 2015 for each ramp-up stage (1.2 Mtpa, 3.0 Mtpa, and 6.0 Mtpa coal production) arrives at generally higher costs than the figures in the PMD report of the year 2010 and for the 6.0 Mtpa full production stage. The updated estimate assumes diesel fuelled generator sets are used during the ramp up period which results in much higher unit cost for energy (“fuel and power”) in these initial years. Costs for “materials” are estimated to be at almost two (2) times the original cost estimated in 2010.

SRK concludes that unit cost for “fuel and power” for electricity from for the diesel gen-sets operated during the ramp up period cannot be about six (6) times higher during the ramp-up period than for the estimated unit costs for the 6.0 Mtpa full production stage. Power costs for the initial years of operation may have been estimated on erroneous assumptions and it is recommended to review these costs. SRK further recommends to review or add an estimate comparing the operating cost and particularly the costs of energy for the first year of 6.0 Mtpa production in year 2020 and the year in which operation reaches the deepest level in the mine.


– 290 –

With regard to costs for “materials”, which are usually defined as costs for consumables used in a mine such as smaller spare and wear parts, wood, mesh, concrete, chemicals, lubricants, but possibly also rock anchors and general structural steel and building materials used in the mine, SRK would suggest to analyse the breakdown of this cost item. Only if major spare and replacement parts or even costs for periodical major equipment overhaul are included these costs which are stated at 7.06 USD/t of coal produced at full production stage could be justifiable. 7.06 USD/t of coal produced represents about USD 42.0 Million annually or 22% of the total capital investment. Data from cost data bases on equipment maintenance and repair would suggest that such percentage or amount if applied to individual main mining equipment would cover costs for a major overhaul of such equipment. However, SRK has doubts that such overhaul would be required annually on all equipment and installations but may only be required every five to ten years. SRK would further suggest analysing if a “roadway engineering/reproduction fee” as prescribed for cost estimate in Chinese mining studies is applicable for the project or if these costs are covered in “mine construction” as capital expenditures.

14.4 Coal Overall Cost

The Coal Overall Costs which include CAPEX and OPEX were estimated in the PMD 2010 at USD 37.50 per tonne of coal mined. The estimate of 2015 for an annual production of 6.0 Mtpa results in USD 38.56 per tonne overall cost without depreciation. A depreciation for capital investment was not provided in the estimate. If the same depreciation allowance of USD 2.47 per tonne as applied in the 2010 estimate would be applied and added, the Coal Overall Cost at 6.0 Mtpa production stage would amount to USD 41.03 per tonne.

SRK notes that Indonesia royalties for coal producers holding mining licenses issued by regional governments are calculated in accordance with the coal rank at 7% of revenue for high rank coal, 5% of revenue for medium rank coal, and 3% of revenue for low rank coal. The PMD adopts a royalty rate of 5% of the FOB coal price, and latest estimate uses 4% and 6.5%.

SRK also notes that transportation and shipment costs make up a very large share of the overall coal costs, due to the relatively long truck transport distance (approximately 90 km) and the barging distance from the river terminal to the ship loading point offshore. Separate analysis and study of transportation and transportation cost to achieve reduced transport costs in the future may be recommended.

SRK would further suggest analysing the cost item “material” in operating costs for the possibility of a cost reduction or for overstated costs.


– 291 –

14.5 Coal Price and Market

The coal mined in Rantau Nangka is thermal coal of high quality and will be mainly used for electricity generation. The mine’s key clients are expected to be power producers in China, and potentially power producers in Japan and Taiwan. To the knowledge of SRK the mine has not yet concluded any sales or supply agreement.

Agritrade has provided typical as-received coal specifications as required by Japanese power plants which show the following limits:

• Total Moisture .................................... 9%• Inherent Moisture ............................... 2.5%• Ash (adb) ............................................ 15%• Volatile Matter ................................... 30-32%• Total Sulphur ...................................... 0.8%• Calorific Value ................................... 6300 kcal/kg• Hardgrove Index ................................ 50-55• Ash Fusion Temperature .................... 1250°C

Such quality could generally be achieved by the mine within tolerable deviations and small price adjustments.

Agritrade which has experience with coal and coal trading in Kalimantan points out that coal quality taken from underground samples and as used in Coal Reserve estimates by SRK in accordance with JORC cannot fully reflect the coal quality on as-received basis as requested by consumers. While ash content is a quality item to be confirmed during mining operation, moisture content is expected to increase after mining. The average sulphur content of all Coal Reserves may also be tolerable but slightly over limit for use in a power plant. Higher sulphur content is penalised. The slightly below limit calorific value of the Rantau Nangka coal would possibly also cause a slight price adjustment. As a result, some price deductions from the actual prices achievable for standard coal may have to be considered for estimate of cash flow, profit and valuation.

Considering all factors including the presently achievable spot-prices and actual index prices for Indonesian and Australian coal, and the price forecasts for the future, SRK would assume at coal price for the Rantau Nangka coal of 50 USD/t and increasing over the next years to 60 USD/t.

If considering such coal prices as achievable and with expected “overall coal cost” for the project of about 42 USD/t as estimated by MMHL, coal sales should generate sufficient revenue and the necessary margin to warrant economical operation.

With regard to price forecast, SRK would assume that the presently low coal price has hit or is near its cyclical low and that at least a moderately rising coal price over the next few years could be expected after consolidation of the industry. On the other hand, the present low prices for other primary energy could still weigh on the coal price.


– 292 –

With regard to the coal market in general, SRK considers that coal will still be the main resource for power generation for an extended period, but alternative energies, possible new market restrictions by lower CO2 or hydrocarbon combustion limits, restrictions for coal ash disposal for power plants, harmful trace elements limits, calorific value limits for imports, and other environmental and political restrictions may have influence on the future coal market and price. The peak in coal consumption may have been reached in countries like China and oversupply and overcapacity certainly exists in the market.

15 VALUATION REPORT

This Valuation Report is part of a combined Competent Persons Report and Valuation Report. The Valuation Report relies on information presented in the CPR report and should be read in conjunction with the CPR report.

15.1 Valuation Approach

15.1.1 Introduction

The following section provides discussion and comment on the valuation approach and methodologies adopted by SRK in determining the value for the asset. Valuation methods in common usage for mineral assets are dependent on numerous factors including and not necessarily limited to: the purpose of the valuation undertaken; the development status of the mineral assets; and the extent and reliability of available information.

15.1.2 Mineral asset — development status

In accordance with VALMIN Code (2005), mineral assets comprise all project including but not limited to real property, intellectual property, mining and exploration tenements held or acquired in connection with the exploration of, the development of and the production from those tenements together with all plant, equipment and infrastructure owned or acquired for the development, extraction and processing of minerals in connection with those tenements.

Most mineral assets can be classified as one of the following:

Exploration Project: Properties where mineralisation may or may not have been identified to date, but where a Mineral Resource has not been identified.

Advanced Exploration Project: Properties where considerable exploration has been undertaken and specific targets have been identified that warrant further detailed evaluation, usually by drill testing, trenching or some other form of detailed geological sampling. A Mineral Resource estimate may or may not have been made, but sufficient work will have been undertaken on at least one prospect to provide both a good understanding of the type of mineralisation present and encouragement that further work will elevate one or more of the prospects to the Mineral Resource category.


– 293 –

Pre-Development Project: Properties where Mineral Resources have been identified and their extent estimated (possibly incompletely) but where a decision to proceed with development has not been made. Properties at the early assessment stage, properties for which a decision has been made not to proceed with development, properties on care and maintenance and properties held on retention titles are included in this category if Mineral Resources have been identified, even if no further Valuation, Technical Assessment, delineation or advanced exploration is being undertaken.

Development Project: Properties for which a decision has been made to proceed with construction and/or production, but which are not yet commissioned or are not yet operating at design levels.

Operating Mines: Mineral properties, particularly mines and processing plants that have been commissioned and are in production.

15.1.3 Exploration Project and Advanced Exploration Project

In the case of an Exploration Project, and to a lesser extent, an Advanced Exploration Project, the potential is more speculative and the valuation is dependent to a large extent on the informed, professional opinion of the valuator. Where useful previous and committed future exploration expenditure is known or can be reasonably estimated, the Multiple of Exploration Expenditure (MEE) method is considered to represent one of the more appropriate valuation techniques. This method involves assigning a premium or discount to the relevant effective Expenditure Base (EB), represented by past and future committed expenditure, through application of a Prospectivity Enhancement Multiplier (PEM). This factor directly relates to the success or failure of exploration completed to date, and to an assessment of the future potential of the asset. The method is based on the premise that a ‘grass roots’ project commences with a nominal value that increases with positive exploration results from increasing exploration expenditure. Conversely, where exploration results are consistently negative, exploration expenditure will decrease along with the value.

The MEE method (also known as the Past Expenditure Method) relies on the assumption that well directed exploration adds value to a project. This is not always the case and exploration can also downgrade a project. The PEM which is applied to the effective expenditure therefore commonly ranges from 0.5 to 3.0.

The PEM generally falls within the following ranges:

0.5 to 1.0 where work to date or historic data justifies the next stage of exploration

1.1 to 2.0 where strong indications of potential for economic mineralisation have been identified


– 294 –

2.1 to 3.0 where quality intersections or exposures indicative of economic resources are present.

Where Mineral Resources remain in the Inferred Mineral Resource category, reflecting a lower perceived level of technical confidence, the application of mining parameters is inappropriate and their economic value may not be demonstrated using the more conventional DCF/NPV approach.

A similar situation may apply where economic viability cannot be readily demonstrated for a Mineral Resource assigned to a higher confidence category.

In these instances, it is frequently appropriate to adopt the Yardstick method of valuation for these mineral assets or properties. This technique involves application of a heavily discounted valuation of the total in situ metal contained within the resource.

15.1.4 Pre-Development, Development and Operating Project

Mineral assets and or properties which are classified as either a Pre-Development, Development or Operating Project are generally accompanied by Measured and Indicated Mineral Resources and Ore Reserves, specifically where technical studies completed to a minimum of PFS level demonstrate that extraction is both technically feasible and economically viable. In such instances mining and processing assumptions, operating expenditures and capital expenditures are either known or can be reasonably determined. Accordingly, valuations can be derived with a reasonable degree of confidence by compiling a DCF and determining the NPV.

15.1.5 Summary

Accordingly, SRK considers on this basis that the asset can be classified as a Development Project. SRK has estimated the value of the project using three discreet techniques: Discounted Cashflow, The Yardstick Method and Comparative Transactions. The valuation was undertaken by Mr Anthony Stepcich, Principal Consultant (Project Evaluations) at SRK Consulting (Australasia) Pty Ltd, BEng, MSc, Grad Dip, Dip, FAusIMM(CP), has undertaken this valuation based on the review of technical reports. Mr Stepcich assumes the responsibility for the estimates presented here in and has the relevant experience to be considered an Expert under the VALMIN guidelines. Mr Stepcich also has the necessary experience required to be considered a Competent Evaluator in accordance with listing rules 18.21(2), 18.22 and 18.23 of the Hong Kong Stock Exchange. Mr Stepcich is a Fellow and Chartered Professional of the Australasian Institute of Mining & Metallurgy, Member No 110954.


– 295 –

SRK believes it has selected the most appropriate valuation techniques for the asset, based on the development stage of the project and the amount of available information. This SRK Valuation Report expresses an opinion regarding the Technical Value and Fair Market Value of the mineral assets. It does not comment on the ‘fairness and reasonableness’ of any transaction between the project’s owners and any other parties.

15.2 DCF Valuation Results

The valuation of the Project has been prepared in accordance with the VALMIN Code. SRK has constructed a Technical Economic Model (“TEM”) and determined the value of the Project. Technical Value defined in the VALMIN Code is an assessment of a Mineral or Petroleum Asset’s future net economic benefit at the Valuation Date under a set of assumptions deemed most appropriate by an Expert or Specialist, excluding any premium or discount to account for such factors as market or strategic considerations. SRK adopted discounted cash flow (“DCF”) approach constructing the TEM. The TEM is based on Proved and Probable Reserve of the Project. In accordance with Chapter 18 of the Listing Rules, SRK has not included any consideration of Inferred Mineral Resources in determining the value for the Project.

SRK considers the DCF approach is most appropriate because it is the most widely used valuation method for pre-development, development and operating mines. This method considers the majority of factors that can influence the value of the Project. Under this approach, it is necessary to utilize projections of revenues, operating expenses, depreciation, income taxes, capital expenditures and working capital requirements. The present value of the resulting cash flows provides an indicative value of the Project.

In order to eliminate the impact on value of the different long-term financing arrangements that have been or could be implemented, analysis is generally done on a debt-free basis. The net present value (“NPV”) of the projected real terms pre-finance cash flows, using either mid-year or end-year discounting, provides an indication of the value for the mineral asset or property appraised. This NPV at the appropriate discount rate would have to be reduced by the value of the debt at the valuation date to derive the net value of the property or asset.

The project valuation and financial analysis is generally based on the OPEX and CAPEX information provided by the client. The main assumptions and parameters are listed in Table 15-1. The coal price used in the model is acceptable and matched with information from public and professional sources and from actual price information available to the client.


– 296 –

Table 15-1: Main Assumptions and Parameters

Item Units ValueCoal from Longwall Mt 86.9Development Coal Mt 5.08Total Coal Mined/Processed Mt 91.98Capital Cost USD Million 248.70Operating Cost USD/t mined 38.90 (incl Royalty and Tax)Operating Cost USD Million 3,578 (incl Royalty and Tax)Ave. Coal Price USD/t 57

15.2.1 Resources and Reserves

This valuation relies on the Resources and Reserves as reported previously in this CPR document.

15.2.2 Production Schedule

Please refer to Chapter 10, 11 and 12 of this report for a detailed discussion of Coal Reserves, Mining Assessment and Coal Handling & Coal Preparation respectively. These chapters cover in detail the proposed mining and processing of this asset.


– 297 –

The

prod

uctio

n sc

hedu

le (T

able

15-

2) fo

r the

Pro

ject

was

pro

vide

d by

MM

HL

and

audi

ted

and

revi

ewed

by

SRK

Chi

na.

Tabl

e 15

-2: P

rodu

ctio

n Sc

hedu

le u

sed

for

DC

F M

odel

Mi

ning

Coal

Coal P

roduct

ion by

Year

(Mt)

Sec

tion

Seam

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

1st

Minin

g B

1.5

0 2.7

0 3.0

0 3.5

5 3.5

5 3.5

5 2.0

0

Section

C

1.00

1.65

2.10

2.10

2.10

2.10

0.90

D 1.0

0 0.8

0

1.55

2.40

2.50

2.20

2.20

2nd

Minin

g B

2.40

3.20

3.50

3.50

3.55

0.85

Sec

tion

C

2.1

0 2.1

0 2.1

0

D

2.7

0 2.7

0 2.7

0

3rd

Minin

g B

0.85

2.40

Sec

tion

C

0.60

1.50

D

2.8

0

4rd

Minin

g B

Sec

tion

C

2.9

0

D

Tota

l Coal

from L

ongwa

lls 1.0

0 2.3

0 3.7

0 4.6

5 5.6

5 5.6

5 5.6

5 5.6

5 5.7

0 5.7

0 5.7

0 5.7

0 5.6

5 5.6

5 5.6

5 5.7

0 4.3

0 2.1

0 0.8

0

Coal f

rom

0.08

0.10

0.30

0.35

0.35

0.35

0.30

0.35

0.30

0.30

0.30

0.30

0.35

0.35

0.35

0.30

0.30

De

velopm

ent W

orks

Tot

al 1.0

8 2.4

0 4.0

0 5.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 6.0

0 4.6

0 2.1

0 0.8

0


– 298 –

The coal qualities of the ROM coal are outlined in Table 9-5.

The Mining Loss, Recovery and Dilution assumptions for the ROM Coal conversion is outlined in Table 10-2 above.

Figure 15-1 shows the proposed material (coal) movement schedule for the Rantau Nangka Mine (the Mine).

As per the Reserves Schedule, 100% of the coal tonnes mined in the schedule is sourced from the Probable Reserve category. There are currently no Proved, or Inferred coal tonnes in the mining schedule.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Prod

uctio

n M

t

Mining Schedule by Mining Section

1st Mining Section 2nd Mining Section 3rd Mining Section 4th Mining Section

Figure 15-1: Total Material (Coal) Movement

SRK notes that the Project does not incorporate any processing of the coal therefore ROM tonnes are considered to be suitable as a marketable product. There is currently no requirement for a CHPP or any coal processing. Therefore 100% yield is assumed from the ROM coal.

Under the VALMIN Code it is necessary to report “relevant” prior performance pertinent to the valuation in relation to tonnage mined, coal quality or production costs. As the mine is currently being developed and is in pre-production SRK does not believe that the reporting of such items in this valuation report would be material to the valuation.


– 299 –

15.2.3 Operating Cost Estimates

The estimated operating cost inputs for the project were provided by MMHL in the 2010 PMD study and have also been updated to 2015 for SRK’s review. SRK used the updated production cost info for valuation and financial analysis. It should be noted that the operating cost used in the valuation model contains more items than in the cost section above in the Report; it generally includes all the items in the production cost, except depreciation.

SRK further notes that the royalty on coal in Indonesia is based on a 5% tax of the FOB USD/t and therefore cannot be limited to a set USD/t cost. Additionally and as stated in the PMD report there is a local tax of USD1.10 per production tonne. SRK has calculated and applied these costs without inflation.

Table 15-6: Estimated Operating Cost (as of 2010 and 2015 Update)

No.

Cost Items

As of PMD 2015 Update (USD/t) (USD/t) 1 Material 3.00 7.06 2 Fuel and Power 0.85 0.91 3 Labour (Wage & Welfare) 1.71 2.18 4 Major Repair 0.88 0.94 5 Safety 0.74 0.79 Subtotal — Production Cost 7.18 11.88 6 Compensation for Surface Subsidence 1.18 1.26 7 Roadway Development Fund 1.32 8 Simple Reproduction Fee 1.18 1.26 9 Depreciation 2.47 10 Woodland Lease 0.16 0.16 11 Royalties, Local Taxes and Fees 4.85 4.59 Subtotal — ROM All-in Cost 18.34 19.14 12 Marketing and Sales 0.44 0.35 13 Administration 1.47 2.32 Subtotal — Operating Cost 20.25 21.82 14 Transportation and Shipment 17.25 16.74 Total — Coal Overall Cost 37.50 38.56


– 300 –

Figure 15-2 below shows the forecast annual operating costs for the Rantau Nangka Mine.

0

50

100

150

200

250

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Year

Ope

ratin

g C

osts

USD

M

Figure 15-2: Operating Costs

15.2.4 Capital Cost Estimates

15.2.4.1 Sunk Capital

The sunk cost for the Project to date was provided by MMHL as of May 2015 (Table 15-4). SRK has included these costs in the depreciation schedule.


– 301 –

Table 15-4: Updated CAPEX Estimate (till May 2015)

Item

Value

USD MillionCurrent Assets (Working Capital) 3.93

Monetary Capital 0.40Account Receivable 0.08Inventory 3.02Advance Payment 0.44

Non-current Assets 28.17Deferred Assets for Amortization 11.53 Apartments, office buildings and other deposit 0.02 Road and Bridge Works 4.48 Mine Management Expense 3.41 Drilling Expense 0.32 Tools, Material and Diesel Remained Unmortized 2.27 Expense for Mining Annuity, Mapping, EIA and Feasibility Report 0.07 Land Purchanse and Mining Annuity Tax 0.97Equipment for Depreciation (Original Value) 11.13 Office Equipment 0.05 Vehicles 0.25 Engineering Equipment 8.56 Tenement and Large Buildings 1.66 Supplies (water,electricity,communication and road) and Ground Leveling 0.61Project Under Construction 5.51 Undeground Development 5.32 Dormitory for Staff 0.19

Total 32.11

SRK was provided the information that by the end of 2015, the total sunk investment will reach USD 68.65 million. However the investment details during the period of May to December 2015 is not clearly clarified. Given such situation, SRK uses the USD 68.65 million as sunk investment for the year 2015, and the valuation period begins by Jan 1st, 2016.


– 302 –

15.2.4.2 Future Capital Expenditure

The forecast capital costs for the Project were provided by MMHL (Table 15-5). SRK has included these costs in the depreciation schedule.

Table 15-4: Future Capital Investment Plan

Items

Capital Investment (USD Million) till 2015 2016 2017 2018 2019 Total

Mine Construction 16.19 15.22 13.26 5.24 33.72Civil Engineering 10.32 3.99 4.88 0.11 8.98Installation 5.91 0.79 5.59 2.48 0.38 9.25Equipment 21.73 10.68 16.41 8.27 3.54 38.91Equipment Shipping 1.27 0.54 1.06 0.43 0.18 2.21Other Costs 13.23 4.33 3.52 2.43 2.41 12.69Subtotal 68.65 35.56 44.72 18.97 6.51 105.75Contingency (10% of Subtotal) 3.56 4.47 1.90 0.65 10.58Working Cash 4.72 4.72Total 68.65 43.83 49.19 20.86 7.16 189.69

15.2.4.3 Sustaining Capital

SRK has not been provided with an estimate for sustaining capital for future investments, to in line with the client’s investment plan. SRK has estimated annual sustaining capex to be 3% of each year’s annual OPEX. SRK believes this to be a reasonable estimate based on our experience with similar sized projects.

15.2.4.4 Depreciation

SRK has not been provided with or sighted a depreciation schedule. As per standard international practice SRK has implemented a 10 year depreciation schedule at 10% per year.


– 303 –

0

10

20

30

40

50

60

70

80

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Year

Sunk Sustaining Capital Initial Capital Ongoing Capital Sustaining Capital

Extra Contingency Sunk Capital Closure Cost

Cap

ital C

ost U

SD M

Figure 15-3: Capital Costs

15.2.5 Commodity Price

Global demand for thermal coal resulted in a steep rise in the thermal coal price from 2004 to 2011. The increase in thermal coal prices led to substantial investments in coal mine and port capacity. The resulting increase in supply has led to lower prices post 2011. Concerns about Global Warming have also reduced demand for Thermal coal in recent years. The thermal coal market is currently in a position of cyclical oversupply resulting in weak prices over the past few years.

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

$200.00

Oct

200

5Fe

b 20

06Ju

n 20

06O

ct 2

006

Feb

2007

Jun

2007

Oct

200

7Fe

b 20

08Ju

n 20

08O

ct 2

008

Feb

2009

Jun

2009

Oct

200

9Fe

b 20

10Ju

n 20

10O

ct 2

010

Feb

2011

Jun

2011

Oct

201

1Fe

b 20

12Ju

n 20

12O

ct 2

012

Feb

2013

Jun

2013

Oct

201

3Fe

b 20

14Ju

n 20

14O

ct 2

014

Feb

2015

Jun

2015

Oct

201

5

Historical Thermal Coal Prices US$/t FOB

Figure 15-4: Historical Thermal Coal Prices


– 304 –

SRK has applied an estimated coal price forecast considering increasing coal prices from USD 50/t to USD 60/t over LOM. The coal price forecast for the LOM years is shown below in Figure 15-6.

To arrive at an estimated price, SRK considered the Company’s coal price analysis provided to SRK for deriving a price for October 2015 based on Indominco’s West coal where the HBA price for Indominco’s coal with 6,171 kcal/kg is US$55.52/tonne FOB which applies a pro rata CV adjustment to produce US$53.61/tonne price from which penalties for Ash and Sulphur above the Indominco coal are levied to produce an overall price of US$48.42/tonne FOB. SRK further compared this price with spot prices of Australian “Newcastle”, and with current prices of Chinese coal for similar specifications. As a result SRK uses a coal price of USD 50/t as forecast for 2016 price. Considering long range forecasts of several coal indexes SRK applied a forecast for an increasing coal price from 2020 to 2025 to USD 60/t. For the future years a constant coal price of USD 60/t is assumed. SRK believes that these are reasonable price forecasts after consideration of factors including mineral economics, current coal market conditions, and current sharemarket and economics conditions.

44

46

48

50

52

54

56

58

60

62

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Coa

l Pric

e Fo

reca

st (U

SD/t)

Figure 15-5: Coal Price Forecast


– 305 –

15.2.6 Revenue

Figure 15-6 below shows the forecast project revenue over the life of mine. The revenue forecast was based on the production schedule and forecast coal price. All revenues are on a 100% equity basis.

0

50

100

150

200

250

300

350

400

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Rev

enue

(USD

Mill

ion)

Figure 15-6: Forecast Revenue

15.2.7 Discount Rate

SRK has calculated the Discount Rate from first principles, as shown in Table 15-9 below. SRK has used the Weighted Average Cost of Capital (WACC) as the basis for its calculation of discount rate. SRK’s calculations are outlined below resulting in a Real Discount Rate of 10.89% that was used in the valuation.


– 306 –

Table 15-6: Discount Rate Calculation

Item AmountIndonesia Central Bank Rate 7.50%Market Risk Premium 9.46%Beta 1.5Cost of Equity 21.69%

Debt Margin 3.00%Cost of Debt 10.50%Project Tax Rate 25.00%Post-tax cost of debt 7.88%

Target Debt Equity Ratio [D/(D+E)] 30.00%WACC-Nominal 17.55%Indonesia Inflation Rate 6.00%WACC in Real terms 10.89%

15.2.8Cashflow

Figure 15-7 shows the forecast Net Profit after Tax and the forecast after Tax Cash Flow is shown in Figure 15-8.

-40

-20

0

20

40

60

80

100

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Net

Pro

fit A

fter T

ax (U

SD M

illio

n)

Figure 15-7:ForecastNetProfitafterTax


– 307 –

-40

-20

0

20

40

60

80

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034Afte

r Tax

Cas

h Fl

ow (U

SD M

illio

n)

Year

Figure 15-8: Forecast after Tax Cash Flow

For mine closure, USD 30 M is considered and expected to be used for water treatment and management, rehabilitation of mine waste rock dumps and affected areas, decommissioning and rehabilitation of the camp, plants and industrial area, final mitigation of the subsidence area, and related land compensation. This amount is comparable to the coal mines of the similar size.

SRK has been informed by MMHL to finalize plans for mine closure, including a process for closure cost estimation and financial provisions. The plan will be finalized before production commences as required by local laws and regulations.

15.2.9 DCF Valuation Result

This valuation assumes finance is on a 100% Equity basis, As this valuation was undertaken on a 100% Equity basis SRK is not aware of and thus has not taken into account liabilities, commitments and financial exposures such as creditors, under-insurance, security deposits, capital gains taxes or redundancy commitments as noted in the VALMIN Code.

Table 15-7: Results of the Valuation

NPV Valuation High Preferred LowDiscount Rate% 8.89% 10.89% 12.89%Net Present Value USD M 408 335 277Internal Rate of Return % 55.1%


– 308 –

SRK has calculated a Technical Value from DCF analysis for the Rantau Nangka project. SRK’s DCF valuation has a Low value of US$277M at a Discount Rate of 12.89%, and a High Value of US$408M at a Discount Rate of 8.89%. SRK’s Preferred Value for the project is US$335M at a Discount Rate of 10.89% and at a Valuation Date of 01 January 2016. SRK has calculated that the project has an Internal Rate of Return of 55.1%.

15.2.10 Sensitivity Analysis

SRK has conducted a Sensitivity Analysis for the Project, the results of which are shown in Figure 15-9 and Figure 15-10. The results indicate that the predominant effect on the NPV is the coal price, and it is followed by the OPEX. Clearly, the CAPEX has the less impact on the NPV.

-100

0

100

200

300

400

500

600

700

800

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Variance %

OPEX CAPEX Coal Price

NPV

@10

.78%

Dis

coun

t Rat

e U

SD M

illio

n

Figure 15-9: Sensitivity Analysis


– 309 –

$0

$200

$400

$600

$800

$1,000

$1,200

0% 10% 20% 30% 40% 50% 60%

Discount Rate %

NPV

USD

Mill

ion

Figure 15-10: Discount Rate Sensitivity

Figure 15-10 above shows the sensitivity of the projects NPV to changes in Discount Rate.

15.3 Yardstick Valuation Method

SRK has used a second valuation technique to check the DCF valuation result. SRK has utilised the Yardstick Method as the second technique.

In the Yardstick method of valuation, specified percentages of the spot price of the coal is used to value the resources. Commonly used Yardstick factors are:

• Not in reported resource: <0.5% of spot price

• Inferred Resources: 0.5% to 1% of spot price

• Indicated Resources: 1% to 2% of spot price

• Measured Resources: 2% to 5% of spot price

The spot price applied to this valuation is US$55.89. This spot price represents the October 2015 FOB Newcastle 5500 specification export thermal spot price. For reference, the 90-day price of FOB Kalimantan 5,900 kcal/kg GAR coal has averaged about $55.17/mt in the second quarter of 2015. Following a technical assessment of the likely coal product, SRK uses a coal price of US$ 50/t to USD 60/t over LOM price as part of the financial modelling.


– 310 –

An analysis of the Yardstick method pricing based on a spot price index of US$55.89 is shown in Table 15-8.

Table 15-8: Analysis coal price by Yardstick Method

Resource Yardstick factor Yardstick factor Yardstick factor Category Applied US$/t Applied US$/t Applied US$/t (low) (mid-point) (High) Measured 1.12 1.95 2.79 Indicated 0.56 0.84 1.12 Inferred 0.28 0.42 0.56

The Yardstick pricing structure has then been applied to the appropriate Resource categories below in Table 15-9.

Table 15-9: Percentage spot pricing applied to Resources

Yardstick Yardstick Yardstick

Resource Resource factor factor factor

(Mt) Category Applied Applied Applied

(low) US$M (midpoint) (High) US$M 55.32 Measured 62.0 107.9 154.3 88.43 Indicated 49.5 74.3 99.0 120.78 Inferred 33.8 50.7 67.6 Total US$145.3M US$232.9M US$321.0M

Applying the appropriate Yardstick factoring method, the technical value ranges from a low US$145.3M to a high of US$321.0 with a preferred value of US$232.9M.


– 311 –

15.4 Comparable Transactions Valuation Method

Using SRK’s internal database and the IntierraRMG (Intierra) and SNL Financial (SNL) subscription databases, transactions relating to exploration stage projects were researched over the past 5 years for Indonesia. SRK examined a range of comparative transactions and selected a number that have some similar characteristics to the Rantau Nangka Coal Project.

15.4.1 Comparative Transactions based on Early Exploration areas

The valuation of the permits was divided according to Development Stage Categories (Page 21 of the VALMIN Code 2005). The permits are:

• Pre-Development Projects — properties where Mineral or Petroleum Resources have been identified and their extent estimated (possibly incompletely) but where a decision to proceed with development has not been made. Properties at the early assessment stage, properties for which a decision has been made not to proceed with development, properties on care and maintenance and properties held on retention titles are included in this category if Mineral or Petroleum Resources have been identified, even if no further Valuation, Technical Assessment, delineation or advanced exploration is being undertaken.

SRK has identified a total of 39 Indonesian coal project transactions dated between April 2010 and July 2015. Of those transactions SRK has identified 5 transactions that were considered comparable (collectively ‘the transactions’) these transactions are summarised in Table 15-13. SRK has chosen to give greater weight to those more recent transactions to more accurately reflect the current sentiment of the Indonesian thermal coal market.


– 312 –

Tabl

e 15

-10:

Com

para

tive

Coa

l Pro

pert

y Tr

ansa

ctio

ns in

Indo

nesi

a 20

10 to

Nov

embe

r 20

15

Norm

alised

To

tal

Norm

alised

US

$/t

Tran

sactio

n As

sets

Coal

price

(US$

/t )Se

ller

Buye

r Sy

nops

is Eq

uity

Regio

n Sta

ge

Resou

rce

US$/t

(M

easu

red an

d

Date

(%

)

(M

t) (In

ferred

In

dicate

d

Tonn

es

Tonn

es

basis

) ba

sis)

In Fe

bruary

2013

, Aust

ralia-

based

Altur

a Mini

ng Lt

d.

ha

s acq

uired

a 33%

stake

in D

elta c

oal m

ine fro

m

Feb-1

3 De

lta

101.7

2 Al

tura M

ining

PT

Delt

a Ind

onesi

a-base

d PT D

elta U

ltima C

oal. W

ith th

is 10

0 Ka

liman

tan

Produ

ction

57

.363

0.37

0.9

Lim

ited

Ultim

a Coa

l acq

uisitio

n Altu

ra Mi

ning h

as acq

uired

direc

t 1/3r

d stak

e

Timur

in PT

Delt

a Ultim

a Coa

l. For

a con

sidera

tion o

f

US

$ 25 M

illion

In Ap

ril 20

10, M

umba

i-base

d Essa

r Grou

p unit

Po

rt Lou

is, M

auriti

us-ba

sed Es

sar En

ergy p

lc

Apr-1

0 Ar

ies

107.3

Es

sar G

roup

Undis

closed

selle

r ha

s acq

uired

Indo

nesia

-based

Aries

coal

mine

from

33

.33

Kalim

antan

Re

serve

s 10

0 0.3

2 0.7

8

an

undis

closed

selle

r. The

acqu

isitio

n for

a 100

%

Tim

ur De

velop

ment

consi

derat

ion of

the A

ries P

roject

wa

s US$

118 M

illion

In De

cembe

r 201

0, Ka

ngaro

o Reso

urces

acquir

ed th

e

rem

aining

15%

intere

st in t

he M

amah

ak pr

oject

Kang

aroo

fro

m Sc

ore Re

source

s for

a nom

inal p

ayme

nt of

$1.00

,

Kalim

antan

Dec-1

0 Ma

maha

k 12

6.74

Resou

rces L

td Sc

ore Re

source

s wi

th the

transa

ction

form

ing pa

rt of a

prev

iously

10

0 Tim

ur Pro

ducti

on

10.22

0.4

3 1.0

4

ag

reed c

oope

rative

arran

geme

nt be

tween

the

two c

ompa

nies o

f 85%

for a

consi

derat

ion

of —

US$

11 M

illion

.

In Fe

bruary

2012

, PT I

ndika

Energ

y Tbk

(INDY

)

Ind

ika PT

anno

unced

that

their w

holly

-owne

d sub

sidiar

ies ha

ve

Multi

Indika

Energ

y

signe

d a co

nditio

nal sa

le an

d purc

hase

agree

ment

Kalim

antan

Feb-1

2 Ta

mbang

jaya

125.3

8 Tb

k who

lly

Undis

closed

selle

r to

acquir

e, tog

ether

with

a co-v

entur

er, 10

0% sta

ke of

10

0 Tim

ur Pre

-prod

uctio

n 75

.2 0.4

5 1.0

7

Ut

ama

ow

ned s

ubsid

iary

PT

Mult

i Tam

bang

jaya U

tama (

MTU)

as w

ell as

its

coal

distrib

ution

rights

for a

comb

ined i

ndica

tive

purch

ase pr

ice of

appro

ximate

ly US

$132

milli

on.

Se

p-13

Angg

ana

83.16

CM

Basin

Coal

As

ia Ea

st In

Septe

mber

2013

, Tiar

o Coa

l throu

gh its

55%

intere

st

Ho

lding

s Ltd

Intern

ation

al Ltd

in

CM Ba

sin H

olding

s reac

hed a

n agre

emen

t 10

0 Ka

liman

tan

Produ

ction

0.5

10

.75

25.81

with

Asia

East I

nterna

tiona

l to in

vest $

1.6 m

illion

to

Tim

ur

sec

ure a 2

0% in

terest

in th

e Ang

gana

proje

ct.

Not

es:

Out

lier t

rans

actio

ns h

ighl

ight

ed in

yel

low

. Dat

a so

urce

d fr

om S

NL

data

base

and

com

pany

web

site

s and

ann

ounc

emen

ts.


– 313 –

Four of the transactions involved a 100% acquisition by cash ±shares. The remaining transactions involved an equity interest stake. SRK is not aware of a royalty stake involved with any of these transactions

To value exploration holdings with either Reported Resources and/or Reserves, comparable market transactions (within the last 5-6 years) was researched. The aim of this is to arrive at a range of $US/t values per Resource tonne (or Reserve tonne) that is then applied to the Asset to estimate a market value.

The transaction prices have been factored/adjusted to a US$/t value using the coal price index at the time of transaction. The US$/t has then been internally benchmarked to adjust for the differential in value between Resource categories to achieve an Inferred US$/t and a combined Indicated/Measured US$/t value. The differential factor derived is a function of the average difference between the cost of Inferred and Indicated/Measured Resources. Transactions that are near 100% Inferred or Indicated/Measured can be used and compared where for example geological, exploration, commodity, quality and mine type factors are similar as a check on the method. Currently, the factor determined is around 2.4, where Indicated/Measured Resources are around 2.4 times the price of an Inferred Resource.

The analysis of the comparable project transactions is summarised in Table 15-10, and summarised in Table 15-11

Table 15-11: All Comparable transaction valuation for the Rantau Nangka Coal Project

Measured and Inferred Indicated US$/t US$/t Min 0.32 0.78 Median 0.43 1.04 Average 2.47 5.92 Max 10.75 25.81 Weighted Average 0.4 0.96


– 314 –

15.4.2 Comparative transaction Summary

In SRK’s opinion, 4 of the comparative transactions (Table 15-12) can be used to define the appropriate US$/t ranges (reported above) for the potential underground thermal Rantau Nangka Coal Project.

Table 15-12: Comparable transaction valuation for the Rantau Nangka Coal Project

Measured Inferred and Indicated US$/t US$/t Min 0.32 0.78 Median 0.4 0.97 Average 0.39 0.94 Max 0.45 1.07 Weighted Average 0.38 0.91

Based on the above comparative transaction data an implied technical value range from:

• A low of US$0.32/Inferred resource tonne to a high of US$0.45/Inferred Resource tonne, and

• A low of US$0.78/Indicated or Measured resource tonne to a high of US$1.07/ Indicated or Measured Resource tonne.

These value ranges are considered reasonable; in comparison with the transactions summarised above.

The resulting implied value range for 100% of the project in US Dollars is summarised in Table 15-13. The implied values range has been applied to a total Resource. SRK has assumed that during the transaction process, some level of geological risk has already been factored into the pricing (US$/t) and therefore, no further discounts to the Resource are appropriate for the comparative transaction method.


– 315 –

Table 15-13: Comparable transaction valuation for the Rantau Nangka Coal Project

Total Resource US$/t Low Preferred High Project Resources Category Range (US$M) (US$M) (US$M) (Mt) 0.32 120.78 INF – 38.6 54.4 54.4 Rantau 0.45 Nangka 0.78 120.78 IND/MEA – 112.1 153.8 153.8 1.07 Total 264.53 150.8 208.2 208.2

Notes: MEA = Measured Resource; IND = Indicated Resource; INF = Inferred Resource.* based on reasonable prospects to economically extract.

15.5 Nature of Value

SRK has valued the Project on the basis of Fair Market Value. The “Technical Value” and “Fair Market Value” are defined in the VALMIN Code (2005) as shown below:

D36 and D43 below set out the meaning of Technical Value and Fair Market Value as defined by the VALMIN (2005) Code.

D36 of the VALMIN (2005) Code: Technical Value is an assessment of a Mineral or Petroleum Asset’s future net economic benefit at the Valuation Date under a set of assumptions deemed most appropriate by an Expert or Specialist, excluding any premium or discount to account for such factors as market or strategic considerations.

D43 of the VALMIN Code (2005): Value is the Fair Market Value of a Mineral or Petroleum Asset or Security. It is the amount of money (or the cash equivalent of some other consideration) determined by the Expert in accordance with the provisions of the VALMIN Code for which the Mineral or Petroleum Asset or Security should change hands on the Valuation Date in an open and unrestricted market between a willing buyer and a willing seller in an “arm’s length” transaction, with each party acting knowledgeably, prudently and without compulsion. Value is usually comprised of two components, the underlying or ‘Technical Value’ of the Mineral or Petroleum Asset or Security, as defined in D36, and a premium or discount relating to market, strategic or other considerations. Value should be selected as the most likely figure from within a range after taking account of Risk and the possible variation in ore grade, metallurgical recovery, capital and operating costs, commodity prices, exchange rates and the like.


– 316 –

SRK have calculated the Technical Value of the project using three discreet valuation techniques:

• Discounted Cashflow

• Yardstick Method

• Comparative Transactions

Table 15-14: Technical Valuation Results

Technical Valuations Low Preferred HighDiscounted Cash Flow Method US$277.0M US$335.0M US$408.0MYardstick Method US$145.3M US$232.9M US$321.0MComparative Transaction Method US$150.8M US$208.2M US$208.2M

US$0.0M

US$50.0M

US$100.0M

US$150.0M

US$200.0M

US$250.0M

US$300.0M

US$350.0M

US$400.0M

US$450.0M

Low Preferred High

Comparison of Valuation Methods

Discounted Cashflow Method Yardstick Method Comparative Transaction Method

Figure 15-11: Comparison of Technical Valuation Methods


– 317 –

SRK has calculated a Technical Value which it has then converted to a Fair Market value. To convert a Technical Value to a Fair Market Value a premium or discount is applied to allow for such factors as market, strategic considerations or special circumstances. In this case SRK has applied a premium/discount of zero to convert the Technical DCF Value above to a Fair Market Value. Therefore in this case the Technical DCF Value is equivalent to the Fair Market Value. SRK’s reasoning for this is as follows. The Yardstick Method uses this month’s spot price (Nov 2015) as the basis for its valuation. The Comparative Transactions method also factors the valuation result to this month’s spot price. In SRK’s opinion current spot prices are approaching what we believe to be the lower end of possible outcomes. The DCF valuation forecasts a gradual improvement in coal prices from US$50/t in 2020 to US$60/t in 2025. This forecast improvement in coal price is the reason why the DCF Valuation exceeds the valuations obtained by the other two methods. The DCF valuation is forward looking, while the other two methods only reference current prices. The DCF valuation also takes into account the production profile, opex, capex, revenue and taxes specific to this project.

Therefore SRK’s Fair Market Value from DCF analysis for the Rantau Nangka project has a Low value of US$277M at a Discount Rate of 12.89%, and a High Value of US$408M at a Discount Rate of 8.89%. SRK’s Preferred Value for the project is US$335M at a Discount Rate of 10.89% and at a Valuation Date of 01 January 2016. SRK has calculated that the project has an Internal Rate of Return of 55.1%.


– 318 –

16 WORKFORCE AND WORK SCHEDULE

16.1 Workforce

The recommended total workforce for the mine as estimated in the PMD study is 866 people: 771 production workers, 35 management personnel, 44 production service personnel, and 36 support services personnel. This recommended total is based on estimates for the minimum staff required and considers a coefficient to cover absences by sick leave, annual leave, religious time-off, national holidays, and an allowance for a relatively low skills workforce recruited from the area.

Total workforce required for full operation as per PMD (for two longwall operations) is detailed in Table 16-1 below.

Table 16-1: Proposed Workforce

Work Department

Minimum Staff Recommended required StaffMine — Underground 469 680Surface — Plant and Facilities 39 53Mine Rescue 18 18Mine Maintenance and Services 44 44Other Services 36 36Mine Management and Administration 35 35Total Staff 641 866

The majority of the workforce will be recruited from Indonesia through a recruitment agent. Training sessions at the mine are planned.

According to information from mine management about 300 staff, including 20 mine managers, supervisors, and experienced miners are expected to be recruited from China during the initial years of operation. In September 2015 about 100 Chinese personnel was at site for equipment installation and development of the first longwall.

A language problem between Indonesian staff and Chinese staff is not seriously expected for operation as language skills are improving on both sides, according to mine management.

SRK considers the workforce numbers as provided acceptable and in line with coal mines of similar output in China.


– 319 –

16.2 Work Schedule

The mine plans to operate 330 days per year, three shifts per day with 8 hours per shift.

16.3 Training

With the high numbers of skilled and experienced Chinese personnel available during initial operation a particular training plan has not yet been established at the mine. Mine management pointed out that each Indonesian worker recruited receives basic training for underground mining at the site. Further training is “on the job” in the mine.

Rantau Nangka is pioneering underground coal mining in Kalimantan. The exclusive mining method in the area is open pit mining. Skilled and experienced mine labourers for underground coal operation are not readily available in the region. The consideration of long term training plans should be beneficial to the mines future operation.

17 MAJOR TECHNICAL SERVICE CONTRACTS AND SUPPLIES

The major services required to maintain uninterrupted operations are considered to be the following:

• Provision and maintenance of haul road and coal transport by trucks to the river coal terminals;

• River coal terminal and barging;

• Maintenance for mine equipment;

• Fuel supply (diesel) for the mine power station; and

• Materials supply (mainly for roadway development).

It is understood that the client is in advanced negotiations with coal transport and river terminal operators, namely PT Talenta Bumi and PT Tapin Coal Terminal. The present coal market situation and the resulting lower coal production from mines in the area should allow for the conclusion of contracts with acceptable conditions.

Mine management has further indicated that it is inclined to carry out maintenance and repairs at the mine with its own workers. All mine development work including roadway and panel development is presently carried out by the mine’s own workforce.


– 320 –

Fuel supplies (diesel) and materials required are readily on offer in the mining area or from the provincial capital. Spare parts for specific Chinese equipment may have to be sourced from China. For general mining equipment, the established dealers and their agents and representatives in Indonesia should be able to assure secure and timely supply of equipment, spare parts, service and maintenance in South Kalimantan.

SRK has not sighted any agreements relating to service or supplies.

18 INDEPENDENT ENVIRONMENTAL AND SOCIAL REVIEW

18.1 Environmental and Social Review Objective

Upton request of Agritrade and its financial advisor, SRK has conducted an Independent Environmental and Social Review (“IESR”) and audit of conformance to the Equator Principles (“EP”) and the International Finance Corporation’s Performance Standards (“IFC’s PS”) for the Rantau Nangka Coal Project located near Banjar Baru, Kalimantan, Indonesia.

The primary aim for the financial advisor is to appraise the Project’s status under the EP/IFC requirements for financing considerations. The EP/IFC requirements to be met for the Project can be summarised as a combination of the following:

• Technical compliance with key Indonesian National environmental legislative requirements.

• Conformance with EP (Principles 1 to 10) and with the associated IFC Performance Standards (IFC’s PS 1 to 8) and relevant IFC Environmental, Health, and Safety Guidelines.

In addition, the financial advisor will require Agritrade and MMHL to commit to an Environmental and Social Action Plan (“ESAP”) to resolve any identified gaps in an agreed timeframe.

18.2 Policies, Directives, and Guidelines

18.2.1 Indonesian National Environmental Legislative Background

The key Indonesian National legislative requirements for the environmental assessment and approval of mining projects are:

• Law of the Republic of Indonesia Number 04 of 2009 regarding Mineral and Coal Mining (“Mining Law”).


– 321 –

• Law of the Republic of Indonesia Number 32 of 2009 regarding Environmental Protection and Management (“Environmental Law”).

• Government Regulation Number 27 of 1999 regarding Environmental Impacts Analysis (“AMDAL”).

The Mining Law and the Environmental Law both require mining companies that are developing projects that are deemed to have significant potential environmental and/or social impacts, to produce an environmental impact assessment and planning document (i.e. an Analisis Mengenai Dampak Lingkungan — AMDAL). An AMDAL consists of a KA-ANDAL (Terms of Reference), an Environmental and Social Impact Assessment (i.e. an Analisis Dampak Lingkungan — ANDAL), an Environmental Management Plan (i.e. a Rencana Pengelolaan Lingkungan — RKL), and an Environmental Monitoring Plan (i.e. a Rencana Pemantauan Lingkungan — RPL).

The Regent Office (Dinas) of Mines and Energy administers the Mining Law and issues the mining licences and the Regional Environmental Agency (Badan Lingkungan Hidup Daerah) administers the Environmental Law and approves the AMDALs. SRK notes the AMDAL commission can be formed at central or provincial levels, depending on likely impacts.

The other key mining project development environmental licence for Indonesia is the ‘Forest Area Borrow and Use Licence’. This licences issued by the Minster of Forestry under the Law on Forestry (No.41 1999) and the Government Regulation (No. 24 2010) — Regarding Utilisation of Forest Areas.

SRK also notes that the key Indonesian National legislative requirements for the development of mine closure plans are covered within the ‘Regulation of the Minister of Energy and Mineral Resources Number 18 of 2008 regarding Reclamation and Mine Closure’, and the ‘Government Regulation Number 78 of 2012 regarding Reclamation and Post-Mining’. These regulations require the development of a mine rehabilitation and closure plan for mining projects prior to the commencement of mining operations.

18.2.2 Equator Principles

The EP is a set of environmental and social benchmarks for managing environmental and social issues in finance of development projects globally. The EP have become the benchmark for assessing environmental and social performance of development projects as relates to attaining financing from EP Financial Institutions (“EPFI”). The primary objective for the EP is to ensure that the Projects that EPFI finance and advice on, are developed in a manner that is socially responsible and reflects sound environmental management practices.


– 322 –

The EP are modelled on the environmental and social standards and policies of the World Bank and IFC. Development projects are assessed to determine, whether the Project is in accordance with the EP requirements and associated IFC Performance Standards identified. The context for this assessment includes National Indonesian statutory obligations and legislative requirements, and any other applicable discretionary corporate social and environmental obligations. Additionally, the assessment identifies any areas where inconsistencies exist between the EP requirements and current performance or where some re-examination or strengthening of current management performance might be warranted. The inconsistencies are then documented in an EPAP which is intended to outline gaps and commitments to meet EPFI requirements in line with the applicable standards.

The EPFI will only provide Project Finance and Project-Related Corporate Loans to Projects that meet the requirements of Principles 1-10:

• Principle 1: Review and Categorisation

• Principle 2: Environmental and Social Assessment

• Principle 3: Applicable Environmental and Social Standards

• Principle 4: Environmental and Social Management System and Equator Principles Action Plan

• Principle 5: Stakeholder Engagement

• Principle 6: Grievance Mechanism

• Principle 7: Independent Review

• Principle 8: Covenants

• Principle 9: Independent Monitoring and Reporting

• Principle 10: Reporting and Transparency


– 323 –

18.2.3 IFC’s Performance Standards

The IFC first issued its “Environment and Social Review Procedures” in 2006. This framework defined the roles and responsibilities for IFC and its clients, requiring clients to meet eight applicable outcome-based IFC Performance Standards. IFC also prepared Guidance Notes to support the eight Performance Standards, and in cooperation with the World Bank revised the existing EHS Guidelines in 2008. These documents comprise the building blocks of IFC’s present safeguard policy framework. They underpin the Equator Principles, a project finance benchmark for assessing and managing social and environmental risks for development projects, and have rapidly become the environmental and social standards independently adopted by many international funding institutions and Banks.

Together, the eight Performance Standards establish standards that the client is to meet throughout the life of an investment by IFC:

• Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts

• Performance Standard 2: Labor and Working Conditions

• Performance Standard 3: Resource Efficiency and Pollution Prevention

• Performance Standard 4: Community Health, Safety, and Security

• Performance Standard 5: Land Acquisition and Involuntary Resettlement

• Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources

• Performance Standard 7: Indigenous Peoples

• Performance Standard 8: Cultural Heritage

18.2.4 Reviewed Project Documents

SRK has been provided with the following key Project environmental and social management documentation:

• PT Mitra Borneo Masyatama: EIA study (ANDAL report in Indonesian) for PT Merge Mining Industri, mine tenement (No. 147/2010 — K.W.01.071 P.BJR 2008), June 2010.


– 324 –

• PT Mitra Borneo Masyatama: RKL document (Environmental Management Plan) for PT Merge Mining Industri, mine tenement (No. 147/2010 — K.W.01.071 P.BJR 2008), June 2010.

• PT Mitra Borneo Masyatama: RPL document (Environmental Monitoring Plan) for PT Merge Mining Industri, mine tenement (No. 147/2010 — K.W.01.071 P.BJR 2008), June 2010.

• Banjar County governmental: Approval (No.130 Tahun 2010) for the EIA, RPL, and RKL for PT Merge Mining Industri, mine tenement (No. 147/2010 — K.W.01.071 P.BJR 2008), 5 February 2010

• PT Mitra Borneo Masyatama: EIA study (ANDAL report in Indonesian) for PT Merge Continental Mining, mine tenement (No. 148/2010 — K.W.01.075 P.BJR 2008), June 2010.

• PT Mitra Borneo Masyatama: RKL document (Environmental Management Plan) for PT Merge Continental Mining, mine tenement (No. 148/2010 — K.W.01.075 P.BJR 2008), June 2010.

• PT Mitra Borneo Masyatama: RPL document (Environmental Monitoring Plan) for PT Merge Continental Mining, mine tenement (No. 148/2010 — K.W.01.075 P.BJR 2008), June 2010.

• Banjar County governmental: Approval (No.130 Tahun 2010) for the EIA, RPL, and RKL for PT Merge Continental Mining, mine tenement (No. 148/2010 — K.W.01.075 P.BJR 2008), 5 February 2010

• Zoucheng Huajian Design Institute: Preliminary Mine Design of PT. Merge Coal Mine, Indonesia, February 2010.

• PT Merge, Comprehensive Occupational Health and Safety (“OHS”) Plan, May 2015

• PT Merge, Emergency Response Plan (“ERP”), May 2015

• PT Merge, Land Reclamation Report for the Project which was developed by MMI, April 2013


– 325 –

18.3 Project Environmental and Social Compliance Review

18.3.1 Project Conformance with Equator Principles

EP Principle 1 (Review and Categorisation) requires that the EPFI categorise a project based on the magnitude of its potential environmental and social impacts and risks. These categories are:

• Category A — Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented;

• Category B — Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; and

• Category C — Projects with minimal or no adverse environmental and social risks and/or impacts.

Based on the review of the documentation provided by MMHL and the observations made during the site visit, it is SRK’s opinion that, for the current project, there are no fatal flaw EP non-conformances associated with environmental and social risks and/or impacts that are diverse, irreversible or unprecedented. However, this IESR has determined that there are some EP non-conformances associated with environmental and social risks and/or impacts though these are generally site-specific, largely reversible and readily addressed through mitigation measures.

Based on this IESR determination, it is SRK’s opinion that the current project falls within the EP Principle 1 — Category B.

The following are the analysis for the compliance with the EP 2 to 10:

Principle 2: Environmental and Social Assessment — SRK notes that recent changes to Project mine design, some facility locations and layouts, and coal processing plant may require some re-assessment of impacts and potential re-submission of updated EIA reports and amendments to the Forest Area Borrow and Use Licence. In addition, the scope of the EIA reports were not in compliance with IFC PS 1 requirements, for example, biodiversity conservation and acid rock drainage assessment were not addressed in the EIA reports.

Principle 3: Applicable Social and Environmental Standards — the EIA reports do not fully cover applicable IFC E&S standards and guidelines, and the project EIA reports followed the Indonesian E&S regulations and standards.


– 326 –

Principle 4: Environmental and Social Management System and Equator Principles Action Plan — There is currently some basic operational Environmental and Social Management Plan (“ESMP”) in the RPL reports and RKL reports and a standalone fully functioning international standard ESMS has yet to be developed. However an EPAP to address the gaps of non-compliance EP is under preparation by SRK.

Principle 5: Stakeholder Engagement — a working system is not in place for the ongoing operational management of the Stakeholder Engagement and Community Consultation process.

Principle 6: Grievance Mechanism — the registry (reporting and filing system) structure for the management of the grievance mechanism has yet to be developed.

Principle 7: Independent Review — SRK in undertaking this independent review only fulfils this in assisting the financial advisor due diligence and assessing EP compliance for the current period of time for which the review is relevant.

Principle 8: Covenants — Not applicable as it is expected that such covenants will be prepared in conjunction with the financing documentation in the future. MMHL will covenant in the financing documentation to comply with all agreed ESAP in a timely manner.

Principle 9: Independent Monitoring and Reporting — there is currently no documented process for an ongoing process to independently verify the Project’s environmental and social monitoring information (i.e. as provided to the EPFI).

Principle 10: Reporting and Transparency — No EIA summary regarding this project is available for the stakeholders and the affected communities, and MMHL will need to report Green House Gas (“GHG”) emission if project GHG emission level triggers the EP requirement.

18.3.2 Project Conformance with IFC’s Performance Standards

On the basis of the review of the related project documents and the site visit observation, all eight ICF’s Performance Standards are considered to be the Project Standards.


– 327 –

Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts

Performance Standard 1 is partially compliant. There are gaps in aspects of the project related Environmental and Social Impact Assessment (“EIA”) reports, Environmental Management Plans (“RKL”), and Environmental Monitoring Plans (“RPL”), and they are not fully in compliance with IFC requirements. MMHL will need to reach an external expert to modify the ESIA in accordance with IFC requirements, and update/finalise key management plans for operational related areas:

• Water management — treatment, monitoring and reporting;

• Waste rock management including Acid Rock Drainage management — practices, monitoring and reporting;

• Hazardous materials management;

• Air quality management;

• Noise and vibration management;

• Biodiversity conservation;

• Mine closure planning (including a process for closure cost estimation/financial provisions);

• Traffic management;

• Public consultation;

• Cultural heritage conservation;

• Other management plans (as per ESMP requirements).

A fully functioning international standard Operational Environmental and Social Management Plan (“OESMP”) has yet to be developed. The purpose of an OESMP is to direct and coordinate the management of the project’s environmental risks. The OESMP documents the establishment, resourcing and implementation of the project’s environmental management programs. The site environmental performance is monitored and feedback from this monitoring is then utilised to revise and streamline the implementation of the OESMP.


– 328 –

Developing an environmental management plan (referred to as the “RKL” document in Indonesian) and submission for governmental approval is a requirement of developing mining projects in Indonesia and will be needed for compliant development and operation of the project. An environmental monitoring plan (referred to as the “RPL” document in Indonesian) is also a requirement of developing mining projects in Indonesia and will be needed for compliant development and operation of Rantau Nangka. However SRK noted that there is currently no formal registry system in place for managing and tracking the preparation and submission of these RKL and RPL to the related government bodies every six months, which is required in the official approvals. SRK recommends that MMHL contact with the local government bodies to address this issue and develop such a registry system.

No documented operational OESMP for the project has been sighted, nor any mention of plan to develop one. SRK recommends that Merge develops and implements an operational OESMP for the project in line with Indonesian National requirements and IFC’s PS. The OESMPs will include the following management systems:

• Air Quality Management (including Greenhouse Gas Emission Management);

• Noise & Vibration Management;

• Surface Subsidence Management;

• Biodiversity conservation Management;

• Water Resources Management;

• Industrial Wastewater and Domestic Wastewater Management;

• Waste Management;

• Waste Rock Management;

• Transport Management;

• Hazardous Materials Management;

• Emergency Response Plan;

• Occupational Health and Safety;

• Cultural Heritage Management;


– 329 –

• Stakeholder Engagement and Grievance Mechanism;

• Resettlement Action (when applicable);

• Labour Management;

• Community Health, Safety & Security Management; and

• Mine Closure Management.

MMHL will need to establish, maintain, and strengthen as necessary an organizational structure that defines roles, responsibilities, and authority to implement the OESMP, of which the MMHL’s COO will be in charge. The COO will have the responsibility to designate specific personnel, including management representative(s), with clear lines of responsibility and authority. Key environmental and social responsibilities should be well defined and communicated to the relevant personnel and to the rest of the MMHL’s organization. Sufficient management sponsorship and human and financial resources will be provided on an ongoing basis to achieve effective and continuous environmental and social performance. Personnel within MMHL with direct responsibility for the project’s environmental and social performance will have the knowledge, skills, and experience necessary to perform their work, including current knowledge of the Indonesian regulatory requirements and the applicable requirements of PS 1 through 8. Personnel will also possess the knowledge, skills, and experience to implement the specific measures and actions required under the OESMP and the methods required to perform the actions in a competent and efficient manner. The process of identification of risks and impacts will consist of an adequate, accurate, and objective evaluation and presentation, prepared by competent professionals. For project activities posing potentially significant adverse impacts or where technically complex issues are involved, MMHL may be required to involve external experts to assist in the risks and impacts identification process.

Performance Standard 2: Labor and Working Conditions

Performance Standard 2 has been partially complied with. SRK noted that MMHL prepared a standalone Occupational Health and Safety (“OHS”) Plan, an Emergency Response Plan (“ERP”), and an OHS training program, and SRK noted that these documents provide the following summary with respect to the proposed OHS management measures for the project:

• Occupational safety and health training;

• Safety mining, and transportation procedures and guidance;

• Electric shock prevention measures;


– 330 –

• Fire prevention measures;

• Underground coal dust explosive and gas explosive prevention measures;

• Safety and hazard signage setup;

• Personal Protection Equipment (PPE) provided to all relevant employees;

• Equipment operation safety guidance; and

• Mechanics maintenance safety guidance.

According to the SRK site observation, a comprehensive ventilation system was installed, which can significantly reduce the risk of methane gas explosion and coal dust explosion. However, other safety operation related equipment, such as gas/dust monitors, underground coal dust depression system, mine water pumping system, underground monitoring and supervision, underground personnel positioning, underground emergency accommodation, underground self-rescue using compression air, underground self-rescue using fresh water, and underground signal communication etc. should be installed before the underground mining operation. MMHL will need to contact a 3rd party to inspect all safety operation related equipment are installed in compliance with IFC’s requirements.

MMHL will need to develop a labour plan to demonstrate open and equitable employment procedures, as well as the intended position regarding issues such as working conditions, worker organization, non-discrimination, etc.

Performance Standard 3: Resource Efficiency and Pollution Prevention

The project EIS Reports, RKL reports, and RPL reports outline measures for pollution prevention and mitigation according to the Indonesian environmental regulations, but there are gaps to fully comply with IFC requirements. MMHL will need to develop an OESMP to include continuous improvement statements and the commitment that MMHL will comply with relevant regulations to ensure pollution prevention. MMHL will also need to further demonstrate their commitment by selecting state-of-the art equipment and technology to limit adverse environmental impacts on the receiving environment — especially in terms of waste management, waste water management, water conservation, emission management etc. Hazard assessment and risk analysis lacked adequate detail, and measures to prevent environmental pollution and to conserve energy were not fully implemented on-site. Thus there is only partial compliance with Performance Standard 3.


– 331 –

PS3 is concerned with avoidance or minimising adverse impacts on human health and the environment by avoiding or minimising pollution from project activities, and through promoting reduction of emissions The detailed comments on the on the conformance of the Project with the IFC Environmental and Social Standards and Guidelines are provided as follows.

Water Aspects and Impacts

SRK notes that groundwater below a depth of 100 m is difficult to source according to the hydrogeological assumption. However, adequate surface water recources are available from the rivers and creeks near the project area, and the main water resource for the project area is the Sungai Riam Kiwa River. The potential impacts to this resource present the main environmental risk for the project. The project site area surface drainage flows into this river drainage system. As such, the project development and operation should focus on the management of these potential surface water impacts.

The PMD states a stormwater water ditch and bounding wall will be constructed for surface water controls. The EIA report and MMHL stated surface runoff from the project site will be diverted around the site and drainage within the site will be collected and treated via sedimentation prior to release. SRK recommends that Merge should also determine current water quality of surface and groundwater bodies in the area to determine baseline conditions for their future operations.

The PMD report states three pumps shall be used for pumping out mine water. The EIA report states, mine water and plant drainage from stockpiles and maintenance areas will be treated via sedimentation in ponds with four cells prior to be used about site or discharged. Only minor amounts of oily waste water are expected to be generated by the project; generated through the general washdown of plant and equipment. The EIA report states all plant drainage will be collected, treated (separation) and used about site or discharged to the river once it meets the required quality standards.

During the site visit, SRK notes that mine water is discharged into two non-standard sedimentation ponds near one of the main inclined shafts, and all the surface run-off is discharged into the environmental without any treatment. SRK recommends that all mine water and surface run-off be collected and diverted into standard sedimentation ponds with multiple cells with flocculation/sediment treatment, and the current sedimentation ponds be upgraded. All domestic wastewater in the main camp is treated by septic tanks, and the overflow is discharged into an area for evaporation and infiltration. SRK observed that the residue overflow in the area was brown and may be above the discharge criteria, which may pollute groundwater and surface water. SRK recommends that MMHL build a comprehensive domestic wastewater treatment plant including anaerobic treatment unit, sediment unit, send filter, and disinfection, etc. to mitigate the environment impacts. Treated water should be reused as much as possible for


– 332 –

underground operation, site irrigation, and industrial area dust depression. Regular water quality monitoring should be conducted on treated wastewater. If coal preparation plant will be built in the future, water recycling system and treatment unit should be included to limit the impact to the environment.

Waste Management

Waste oil is generated through the maintenance of mobile and fixed plants. Designated waste oil collection and management facilities or the management of waste oil is not addressed within this independent review. Although minimal amounts has yet been produced due to the project not yet being operational, SRK recommends the collection and sale of waste oil / grease for recycling and reuse in line with international industry standards on the comprehensive reuse and recycling of waste products. Waste oil management should be included in the OESMP. It is worth noting that the IFC requirements and internationally recognised environmental management practice with regards to waste oil is to explore commercial alternatives for environmentally sound disposal, recycling or reuse.

The proposed project will produce solid wastes during construction and operation, which mainly includes construction and domestic garbage. Long-time storage of the garbage will give rise to fly dust, which will also interfere with the construction work and operation of the mine. Therefore, it is necessary to have proper disposal of such garbage. MMHL stated it will build landfills at site for the burial of domestic rubbish produced at the mine site.

Waste Rock and Coal Refuse/Slime Management

The PMD states a Waste Rock Dump (“WRD”) will be constructed, but provides no details of amounts that will be generated, dumping design, environmental controls, etc. SRK observed that waste rock was dumped into a valley near one of the inclined shafts. According to the PMD, the coal is of spontaneous combustion, which could cause fire and smoke in the coal yard or WRD. Even though SRK did not observe any spontaneous combustion incident occurred in the WRD due to the wet weather condition, SRK recommends measures be taken to avoid any spontaneous combustion incidents.

Acid rock drainage (“ARD”) problem may occur in this project site in the WRD. The coal contains approximately 0.3 — 4.0% sulphur in the form of pyrite, and most possibly the waste rock may contain pyrite as well. The generation of acid water occurs typically when iron sulphide minerals are exposed to both oxygen (from air) and water. As acid water migrates through a site, it further reacts with other minerals in the surrounding soil or rock material and may dissolve a range of metals and salts. The dissolved metals or salts may contaminate soils adjacent to a waste rock dump. During the site visit, SRK observed some brown and red stains on the sidewalls of open pits nearby, which could be an indicator of ARD problem presence.


– 333 –

No plan for conducting a comprehensive geochemical characterisation or mineral composition of the waste rock has been sighted, although the EIA document outlines a waste characterization program. No waste rock dump designs have been sighted as part of this review. The EIA document states that a temporary WRD will be used initially after which waste rock will be back-filled to surface depression areas. SRK recommends that the geochemical assessment of the operational waste rock be undertaken in line with IFC’s requirement to confirm contaminant levels and the potential for ARD impacts.

Coal refuse/slime will be produced via the project’s designed operation if a coal preparation pant will be constructed and operated in the project. Coal refuse/slime dump area should be designed to avoid ARD leaching and spontaneous combustion.

Hazardous Materials Management

MMHL states that no explosive is used during the construction, and no explosive will be stored for operation since MMHL will use longwall extraction method to mine out coal underground. Hydrocarbons will be the only hazardous materials that will be used within project operations. Only materials for development works are currently stored at site as the project is yet to begin actual mining operations.

No information is yet available on hydrocarbon storage conditions. No detailed plan and or design for storage facilities have been sighted. The EIA report though mentions storage facilities will be constructed on concreted areas with spill containment measures installed. SRK recommends developing dedicated contained storage facilities/areas for the hydrocarbons and also providing secondary containment for hydrocarbon transfers areas.

Dust and Gas Emissions

Dust emissions for the project will be from stockpiles, open areas, coal handling and the general movement of vehicles and mobile plant. Dust management measures for coal handling should mainly comprise enclosures for conveyors and transfer points. Watering of roads, stockpiles and unsealed areas should be employed about the site.

No significant dust emissions resulting from the current exploration and site development works were observed during SRK’s site visit as it had been wet at the time. SRK opines that there is though potential for significant dust generation during the dry season if management measures are not adequately employed. SRK recommends including ambient air quality monitoring as part of a site environmental monitoring program, and wind wall should be installed surrounding the coal yard to mitigate fugitive dust emission.


– 334 –

The primary source of gas emissions for the current and future project operations comes from the machinery, vehicles and generators. MMHL also plans to build a coal-fired power plant at site which will have the potential generate significant amounts of gas emissions.

Neither MMHL nor the available reports make any mention / estimate of gas emissions or possible reduction measures. SRK recommends including ambient air quality monitoring as part of a site environmental monitoring program.

Noise Emissions

The main noise sources for the project will be from development work and then the operation of fixed plant (crushers, compressors, pumps etc.) and mobile plant (mainly ore haulage). The EIA report outlines noise reduction measures for plant equipment and site operations management for the project.

SRK observed during the site visit that significant noise sources will be restricted within close vicinity of the project site and vehicle haulage as the area is heavily vegetated which will help reduce noise carrying. SRK recommends including ambient noise monitoring as part of a site environmental monitoring program.

Site Closure Planning and Rehabilitation

The IFC’s requirement for managing site closure is to develop and implement an operational site closure planning process and document this through an operational Closure Plan. This operational closure planning process should include the following components:

• Identify all site closure stakeholders (government, employees, community etc.).

• Undertake stakeholder consultation to develop agreed site closure criteria and post operational land use.

• Maintain records of stakeholder consultation.

• Establish a site rehabilitation objective in line with the agreed post operational land use.

• Describe/define the site closure liabilities (determined against agreed closure criteria).

• Establish site closure management strategies and cost estimates (to address/reduce site closure liabilities).


– 335 –

• Establish a cost estimate and financial accrual process for site closure.

• Describe the post site closure monitoring activities/program (to demonstrate compliance with the rehabilitation objective/closure criteria).

There is currently no conceptual or operational closure planning process in place for the project that covers the above components (as the project is not yet in development phase). The EIA report does outline requirements for the development of a conceptual closure plan for the project that should be developed as part of the full EIA process. SRK recommends that an operational Rehabilitation and Closure Plan for this project be developed and implemented in line with Indonesian requirements and IFC’s requirements, including the future surface subsidence area by underground mining.

Performance Standard 4: Community Health, Safety, and Security

Performance Standard 4 has been partially complied with since the project EIA reports assessed impacts to the affected communities’ health, safety, and security, but they are not fully complied with the IFC requirements.

The EIA report includes a public / community consultation program on the development of the Rantau Nangka Coal Project. Social licence to operate is an important aspect of developing projects in Indonesia and needs to be addressed to ensure smooth relationships in the community and the ability to operate unhindered. Local communities in the area have voiced their concerns over coal mining in Banjar County, impacts to the environment and the local communities (for example, protests over the use of public roads for the transportation of coal, siltation of local waterways, etc). Through the community consultation program Merge was able to address these concerns and assess the risk to the project’s smooth development and operation and define ways in which to develop social license to operate.

MMHL will need to prepare a Public Consultation and Disclosure Plan (“PCDP”) with proposed actions including affected community engagement and grievance mechanism to harmonize the relationship with the affected communities and implement community development.

Performance Standard 5: Land Acquisition and Involuntary Resettlement

The land use for the general surrounding area is a combination of mining, rubber plantations and agriculture. Based on findings of the review the project may potentially cause physical or economic displacement of people if MMHL determined to extract the coal seams right beneath the five villages within the project boundaries, however the land disturbance survey regarding buildings in the affected villages, agricultural farmlands and roadway is not conducted, and community engagement plans may be needed to avoid any involuntary resettlement. Therefore, Performance Standard 5 is partially complied with.


– 336 –

MMHL has stated that a residential relocation and compensation program was implemented within the villagers immediately surrounding the project industrial site, and a formal agreement was reached on compensation for the villagers signed on 25 July 2009. MMHL provided the agreement for review which compensated the affected residences to the amount of IDR 10,719,112,500 which was signed by the head of Rantau Bakula Village and Sungai Pinang District, notarization by Lady Rikawati the land notary in Banjar County and approved by the magistrate of Banjar County. SRK was not provided with any documented resettlement issues between the affected communities and the project operations. However, SRK opines that MMHL will need to reach an external expert to conduct a post land acquisition assessment to ensure that the overall land acquisition process meet IFC PS5 requirements.

MMHL will need to conduct regular land disturbance survey caused by underground mining activity, and project the areas to be disturbed based on underground mining map plan. Land compensation should be proposed ahead of time in the areas to be disturbed. In addition, an involuntary resettlement assessment will be conducted by the expert to assess the future potential impacts to the affected residents caused by the coal extraction right beneath the villages.

Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources

Impacts upon the environment and biodiversity will be significant given the size of the area to be disturbed by the surface subsidence during the underground mining, including forest areas and rivers. The project EIA reports conducted a general document review on flora and fauna without site specific baseline study and measures to avoid, reduce and compensate the impacts to biodiversity and living natural resources, which is not fully compliant with Performance Standard 6. According to the EIA reports, the project operations may disturb natural forest areas, as well as some protected birds, and mammals. A map showing flora and fauna survey for this project was not provided to SRK for review.

The main impact on the surrounding ecological environment is due to disturbance and contamination caused by surface subsidence of underground mining, waste rock and coal refuse/slime storage, dust emission, processing waste water, transportation and associated buildings that are erected. If effective measures are not taken to manage and rehabilitate the disturbed areas, the surrounding land can become polluted and the biodiversity condition will be changed, causing an increase in land degradation, water loss and soil erosion.


– 337 –

MMHL will need to reach an external expert to develop a Biodiversity Conservation Plan in accordance with IFC’s PS6, and the plan should cover all disturbed areas including mining license areas, as well as haulways to the Barito River, the Barito River with its tributaries for barging, and the river terminals. This plan is expected to: (i) include Key Performance Indicators for monitoring effectiveness of implementation, (ii) be developed in consultation with local stakeholders, community members, and the specialists involved in the design and implementation of the Biodiversity Offsets Strategy and (iii) have a design consistent with the objectives of the Biodiversity Offsets Strategy.

Performance Standard 7: Indigenous Peoples

Performance Standard 7 is partially complied with since only generic documents review regarding local tribes and indigenous people groups in Sungai Pinang District was included in the EIA reports. MMHL has stated that the population of the surrounding area is mainly Banjarese (80%) with some Dayak communities in the mountains, however no direct communications were conducted between the local residents and MMHL. SRK was not provided with any documented issues between the local residents and the project operations. MMHL will need to seek inputs from competent professionals to ascertain whether a particular group is considered as Indigenous Peoples in the affected communities within the project boundaries, avoid any adverse impacts to them, and respect and preserve the culture, knowledge, and practices of Indigenous Peoples.

Performance Standard 8: Cultural Heritage

As part of the original approval for the Project, an EIA was undertaken, which did not take into consideration of cultural heritage. MMHL personnel reported the closest cultural site, a Hot Spring, is located approximately 50 km to north of the project site. SRK was not provided with any documents identifying cultural significance areas to the project operation. However, MMHL will need to conduct a baseline cultural heritage survey within the surrounding areas, and to consider potential project impacts to cultural heritage and protection of cultural heritage. Therefore this project is not compliance with Performance Standard 8. MMHL will contact external experts to conduct a baseline study of cultural heritage. Pending on the baseline study, the expert will propose to anticipate and avoid adverse impacts of projects on cultural heritage, or when avoidance is not possible, to minimize and/or compensate for such impacts.


– 338 –

18.4 Proposed Environmental and Social Action Plan

As part of this IESR, SRK has developed a Proposed ESAP for the Project. This is presented in this section. This ESAP provides the proposed management measures and suggested timelines for resolution, for the key technical EP/IFC non-conformances identified within this IESR. SRK notes that MMHL will need to agree to this proposed ESAP, then adopt and finalise this EPAP as an internal action plan (i.e. allocate dedicated resources and set internal timelines).

Table 18-1: Environmental and Social Action Plan (“ESAP”) for Rantau Nangka Coal Project

No. Action Plan Item Action Description Timetable for Action to be completed 1 Indonesia Project SRK notes that recent changes to Contact the local regulator immediately approval and project mine design and some compliance facility locations and layouts correction plan may require some re-assessment of impacts and potential re-submission of an updated AMDAL and amendments to the Forest Area Borrow and Use Licence.

RKL/RPL Regularly Reporting — there is currently no formal registry system in place for managing and tracking the preparation and submission of these reports every six month, which is required by the official approvals


– 339 –

No. Action Plan Item Action Description Timetable for Action to be completed 2 Project Environmental MMHL will reach an external expert MMHL to process ESIA preparation and Social Impact to modify the ESIA in accordance incompliance with IFC requirements Assessment with IFC requirements, and Immediately and obtain the required (“ESIA”) update/finalise key IESC confirmation. management plans for operational related areas:

• Water management — treatment, monitoring and reporting; • Waste rock management — practices, monitoring and reporting; • Hazardous materials management; • Air quality management; • Noise and vibration management; • Biodiversity conservation; • Mine closure planning (including a process for closure cost estimation/ financial provisions) • Traffic management; • Public consultation; • Cultural heritage conservation; • Other management plans (as per ESMS requirements). 3 Acid Rock Drainage MMHL will reach an external expert Prior to full production operation. (“ARD”) to conduct a comprehensive Assessment Plan geochemical characterization to determine the potential for acid generation and/or dissolution of contained metals, which may pollute the soil and water bodies. Pending on the results of geochemical characterization, measures to mitigate the ARD impacts will be proposed.


– 340 –

No. Action Plan Item Action Description Timetable for Action to be completed 4 Wastewater All mine water and surface Prior to full production operation Treatment Plan run-off should be collected and diverted into standard sedimentation ponds with multiple cells of flocculation/sediment treatment. In addition, MMHL will build a comprehensive domestic wastewater treatment plant including anaerobic treatment unit, sediment unit, send filter, and disinfection, etc. 5 Operational phase MMHL will reach an external MMHL to prepare OESMP Immediately Environmental and expert to prepare the OESMPs and obtain the required IESC confirmation Social Management in accordance with IFC’s PS prior to full production operation. Plans (“OESMP”) requirements. The IESC will confirm to MMHL when it is satisfied that the OESMPs are consistent in all material respects with IFC’s PSs.

The OESMPs will include the following management systems:

• Air Quality Management (including Greenhouse Gas Emission Management); • Noise & Vibration Management; • Surface Subsidence Management; • Biodiversity conservation Management; • Water Resources Management; • Industrial Wastewater and Domestic Wastewater Management; • Waste Management; • Waste Rock Management; • Transport Management; • Hazardous Materials Management; • Emergency Response Plan; • Occupational Health and Safety; • Cultural Heritage Management; • Stakeholder Engagement and Grievance Mechanism; • Resettlement Action (when applicable); • Labour Management; • Community Health, Safety & Security Management; and • Mine Closure Management.


– 341 –

No. Action Plan Item Action Description Timetable for Action to be completed 6 Independent safety PT Merge will contact a 3rd party Prior to the full production operation. working condition to inspect all safety operation inspection report related equipment are installed in compliance with IFC’s requirements. These equipment include but not limit to, gas/dust monitors, underground coal dust depression system, mine water pumping system, underground monitoring and supervision, underground personnel positioning, underground emergency accommodation, underground self-rescue using compression air, underground self-rescue using fresh water, and underground signal communication 7 Labour management MMHL will develop a labour Prior to the full production operation. plan management plan to demonstrate open and equitable employment procedures, as well as generally state the intended position regarding issues such as working conditions, non-discrimination, protected workers, etc. 8 Public Consultation Submittal of PCDP to the satisfaction Frequency of reporting to be determined and Disclosure Plan of the Lender, and the PCDP by the Lender (“PCDP”) should contain proposed actions with affected community engagement and grievance mechanism.

Provide the Lender with logs indicating effectiveness of the PCDP, and the contents of consultation logs should be determined by the Lender.


– 342 –

No. Action Plan Item Action Description Timetable for Action to be completed 9 Post land acquisition MMHL will reach an external Prior to the full production operation assessment and expert to conduct a post land involuntary acquisition assessment to ensure resettlement that the overall land acquisition assessment process meet IFC PS5 requirements. In addition, an involuntary resettlement assessment will be conducted by the expert to assess the future potential impacts to the affected residents caused by the coal extraction right beneath the villages. 10 Land compensation MMHL will conduct regular land Prior to the full production operation plan disturbance survey caused by underground mining activity, and project the areas to be disturbed based on underground mining map plan. Land compensation should be proposed ahead of time in the areas to be disturbed. 11 Biodiversity MMHL will reach an external Prior to the full production operation conservation plan expert to develop a Biodiversity Conservation Plan in accordance with IFC’s PS6. This plan is expected to: (i) conduct a baseline survey of local biological system, (i) include Key Performance Indicators for monitoring effectiveness of implementation, (ii) be developed in consultation with local stakeholders, community members, and the specialists involved in the design and implementation of the Biodiversity Offsets Strategy and (iii) have a design consistent with the objectives of the Biodiversity Offsets Strategy.


– 343 –

No. Action Plan Item Action Description Timetable for Action to be completed 12 Mine closure plan MMHL will deliver to the IESC Prior to the full production operation a Mine Closure Plan prepared in accordance with IFC’s Performance Standards. The IESC will confirm to MMHL when it is satisfied that Mine Closure Plan is consistent in all material respects with IFC’s Performance Standards. The Mine Closure plan shall include areas to be disturbed by surface subsidence. 13 Indigenous peoples MMHL will contact external Prior to the full production operation and cultural experts to conduct a baseline heritage study and study of indigenous peoples conservation plan and cultural heritage. Pending on the baseline study, the expert will propose to anticipate and avoid adverse impacts of projects on communities of Indigenous Peoples and/or cultural heritage, or when avoidance is not possible, to minimize and/or compensate for such impacts.


– 344 –

No. Action Plan Item Action Description Timetable for Action to be completed 14 Independent MMHL will develop an Independent Frequency to be determined by the Lender Environmental and Environmental and Social Social Monitoring Monitoring Program, and submit Program a Terms of Reference to be approved by the Lender.

The Lender will confirm that they are satisfied that the Independent Environmental and Social and Monitoring Program is consistent in all material respects with IFC’s PSs.

It is expected that the Terms of Reference will require the IESC to conduct regular monitoring visits at the cost of MMHL and prepare monitoring reports for public disclosure (after review and comment by the Lender and MMHL). Such monitoring will include the implementation of the OESMPs and ESAP. 15 Environmental and MMHL will prepare and submit to Annually Social Reports the Lender annual Environmental and Social Reports in an agreed form to include a report on the implementation of the OESMPs and ESAP.


– 345 –

18.5 Evaluation of Environmental and Social Risks

The development of the Rantau Nangka Coal Project will need to address the following significant potential environmental / social management risks and liabilities that relate to the development and subsequent operation of the project:

• Wastewater discharge including ARD leaching;

• Waste rock stockpiling/waste rock dump management;

• Dust emission;

• Hazardous waste impact;

• Impact to biodiversity;

• Land disturbance;

• Mine closure plan; and

• Social aspects (i.e., stakeholder engagement, public consultation and community development).

Based on the document reviews and the site visit observations, it is SRK’s opinion that the above environmental risks can be managed if the proper environmental protection measures are implemented by the Company. However, SRK notes that to fully conform to EP/IFC guidelines and practices, the relevant designs and operational procedures/programs need to be developed and implemented, and incorporated into the overall project operations.

19 PROJECT RISK ASSESSMENT

19.1 Introduction

Mining is a relatively high risk industry. Mining operations are subject to a number of operational risks, some of which are beyond an operator’s control. These risks and uncertainties generally include risks from the geological setting and its uncertainties; the risks directly associated with the mining conditions, mining method, mine design, mining equipment and mining operation; risks associated with mineral processing, handling and transport; risks resulting from environmental and social impacts; risks with regard to the project costs, the price and marketing of the product; as well as other risks such as inclement weather conditions, natural disasters, fires and floods, the interruptions of utility supplies and other technical or operational problems.


– 346 –

These risks may cause incidents such as mine roof collapses, instability of mine workings and structures, flooding, explosions from methane gas or coal dust, ground collapses, and fires, and may result in personal injury to employees as well as damage to or destruction of properties, mining structures, or production facilities. These risks may also cause environmental damage, business interruptions, legal liability, increasing costs, and the reduction of resource and reserve originally estimated, and other damages, and must be considered when making project and investment decisions.

SRK’s assessment of the main risk items and the specific risks is described and summarized as follows:

• CommodityPrice

The results of future operations of the mine are highly dependent on coal prices, which tend to be highly cyclical and subject to significant fluctuations. The world coal markets are sensitive to changes in coal mining capacity and output levels, patterns of demand and consumption of coal from the steel industry and other industries for which coal is the principal raw material and changes in the world economy. The impact of movements in the prices of coal can be readily assessed in the various sensitivity tables included in the CVR.

• ResourceandReserveEstimates

The Resource and Reserve quantities of the Project are only calculated estimates and may differ materially from our actual mining results. Fluctuations in factors including variation in recovery rates or unforeseen geological or geotechnical perils may make it necessary to revise the Reserve estimates. If such a revision results in a substantial reduction in recoverable Reserves, results of operations, financial condition and growth prospects may be materially and adversely affected.

• Geological

The accuracy of the geological model is based on the existing exploration results and good knowledge of the geology. A relatively wide spacing of boreholes holds some risk for undetected structural disturbances such as smaller fault systems which may still result in the risk that less coal than originally estimated is available. Unexpected local hydrological conditions could require changes to mine planning and operation, and could cause higher costs. Gas burst at deeper level could never be fully excluded. The good knowledge of the geology acquired through the exploration programs should limit the geological risk to a Medium rating.

• MineConstructionandDevelopment

Mine construction and development has reached a stage which will allow for the start of coal production in 2016. For the further development underground, some risk of delay and cost overrun caused by structural disturbance and through equipment delivery delay might still exist but could now be considered as Low to Medium rated risk only. The completion of structures at the surface should now be limited to the risk of time delay and cost overruns for such structures but should not have a serious impact to the overall schedule of coal production anymore.


– 347 –

• MiningandGeotechnical

Mines are subject to an operational risk. If incidents occur at a mine, operation may have to shut down or could be temporarily suspended. Incidents could result in personal injury, damage to machinery, and financial losses. Proper training and instructions may be one way to limit this operational risk.

The risk for substantial loss of coal reserve due to changing mining factors and deviations from the assumptions made for mine planning is considered as possible. The risk is rated as Medium. The experience made during the development phase and experience which will be made after production commences should confirm, contain, and decrease this risk over LOM.

The risk associated to the mining conditions in Rantau Nangka including geotechnical conditions, mine gas, mine water, coal combustion and fire, is considered as manageable and rated as Low to Medium.

Subsidence might be an unavoidable fact with underground longwall mining. The risks emanating from subsidence may be the sterilizing and loss of coal in upper coal seams. Surface structures could be damaged. This risk may be limited or neutralized through proper mining sequence. Further risk from subsidence is the danger of landslides and the disturbance of the flow of rivers and streams at the surface. Water ingress into the mine through cracks caused by subsidence cannot be excluded. Mining operation could be disturbed. Proper mine planning and production sequence, as well as the provision of coal pillars should help to contain the risk and avoid damage. Severe subsidence is possible with a three seam operation. Mine planning should have the means and experience to limit the extent. The generally rural and agricultural land expected to be affected should on the other hand accept a certain degree of subsidence and damage if contoured or if the owners are compensated. The risk is rated as Medium.

Mine planning, mining method and equipment selection was provided by experienced design institutes. The risk of inadequate design and equipment provided for the mine is rated as Low to Medium and should decrease.

Risk for operation and coal production is associated to the lack and skills of labourers and management. In Rantau Nangka, a high number of foreign workers (mainly from China) is expected for the initial years of operation. The need for local workers to supplement and replace foreigners should not be neglected. The risk of facing shortage of skilled labour at a stage is possible and rated as Medium. Timely recruitment, training, and assurance of work permits for foreigners may limit that risk.


– 348 –

• CoalHandlingandCoalPreparation

The coal handling equipment and system used in Rantau Nangka are generally simple. The risk of equipment failure with influence on the overall mine operations is rated as Low. Replacement of equipment should be a short term remedial possibility.

The need and use of a CPP is not yet decided. A plant as proposed is simple and its operation should hold a Low risk.

Coal transport to the river terminals and barging to FOB transhipment point is depending on subcontractors. The equipment and facilities in the area are well up to standard. Two or more established alternative routes and contractors are considered available. The risk for a longer term interruption is rated as Low.

• EnvironmentalandSocial

The risk of industrial disputes in this generally rural mine area where mining is seen as a source of employment and income for the local population should rather be low. If disputes arise, mediation and settlement should be possible with the help of local agencies. The risk of disputes between ethnic groups of workers should on the other hand not be excluded. Overall, this risk should be rated as Medium.

Land disturbance, the need for land rehabilitation after site closure, the risk associated with waste rock and its disposal, and the risk with mine water are described in the Section Environmental Assessment and are ranked Low to Medium. Such risk could be limited and contained by accompanying protective and remedial action as required by environmental protection standards.

• CapitalandOperatingCosts

The project has reached an advanced development stage and capital investment for this stage has been secured and partly sunk. Actual mining operating expenses have not yet been accrued and experienced to prove the costs estimated. The risk for capital cost overrun and for obtaining funds for the further development for the 6 Mtpa production stage, and the risk of operation cost overrun at a magnitude as to influence the overall coal cost could be rated as Medium and should be decreasing with further development progress.

With regard to coal price and market, it might be assumed that a cyclical low of commodity prices including coal has been reached or should be reached in the foreseeable future. With the coal price approaching the coal overall cost of producing mines, the further downward potential should be limited. A further downward risk for price and for demand could also be seen as limited provided that coal will remain the main primary energy resource for the foreseeable future. The specific risk rating applied is Low.


– 349 –

A risk exists for market restrictions for coal through limits for CO2 and other harmful emissions. However, the high quality of the Rantau Nangka coal should allow to rate this risk as Low.

• CurrencyRisk

The cost estimates taken from the CPR are in US$. Some of the costs incurred will be in IDR, resulting in an exchange rate risk-SRK rate this risk as Low

• ForecastPrices

The valuation of this project relies on coal price forecasts from several sources. Actual prices achieved in the future may vary from these forecasts resulting in a different financial outcome. SRK rate this risk as Low.

• OtherRisks

Natural risks with the potential to cause damage to the mine facilities and to interrupt production do exist in Rantau Nangka. However, the risk of flooding by surface water should be controllable with the necessary surface drainage.

Long-term interruption of electricity supply may not be expected with the number of gen-sets already installed at site. Replacement gen-sets should be available at short notice with regional dealers if needed. The risk for a shortfall of utilities is ranked as Low.

Land acquisition and land rights, and issues with land compensation may hold a certain risk for interruption of mine operation and for increased compensation costs. The availability of sufficient funds and the involvement of suitable mediators and agents in case of conflict may allow to solve problems in this direction. The risk associated is rated as Medium.

The risk for a mining project typically decreases from exploration, development, through to the production stage.

SRK’s risk assessment is based on Quantitative Risk Assessment Method and uses the Australian Standards AS/NZ 3931:1998, AS/NZ 4360:1999, and HB 203:2004 for guidance.

19.2 Qualitative Project Risk Assessment

SRK’s risk assessment for the Rantau Nangka Project is provided in Table 19-1 below. The risk items listed are considered to be typical for coal mining and are identified as specific risk items for the Project.

For details see risk assessment table below.


– 350 –

Table 19-1: Project Risk Assessment

Hazard/Risk Issue Likelihood Consequence Risk RatingGeologicalSignificant Unexpected Structural Disturbances Unlikely Major MediumResource Risk (Estimation; Lack/Loss of Significant Resource) Possible Major MediumSevere Hydogeological Conditions and Unexpected Groundwater Ingress Unlikely Catastrophic MediumSeam Gas Outbursts/Coal Gas Explosion Unlikely Catastrophic MediumMine Construction and DevelopmentDelay of Construction of the Permanent Underground Workings Possible Moderate MediumDelay of Ongoing Underground Development Unlikely Moderate LowDelay of Construction of Surface Mine Facilities and Plant Unlikely Minor LowDelay of Mine Equipment and Plant (procurement and installation) Possible Moderate MediumMining & GeotechnicalLoss of Significant Reserve (reserve risk by ‘mining factors’) Possible Major MediumUnexpected Adverse Micro-Geological Conditions Unlikely Major Medium (faults and disturbances)Geotechnicial Risks Unlikely Major Medium (rock strength; roof; floor; structural; stability; stress)Unexpected High CBM Levels/Drainage Requirement Unlikely Moderate LowSevere Subsidence - Sterilizing Coal Reserve Possible Major MediumUnexpected Surface Water Ingress Unlikely Major Medium and Inadequacy of Dewatering SystemSpontaneous Combustion Unlikely Moderate LowAppropriateness of the Mining Method Unlikely Major MediumInadequate Mine Planning and Design Unlikely Moderate LowInadequacy of Equipment and its Capacity Possible Moderate MediumLack of Skilled Labour and Operation Management Possible Moderate MediumCoal Handling and Coal Preparation (Coal Washing)Inadequate Coal Handling System/Preparation/Silos/Stockpiles Unlikely Moderate LowLow Plant Reliability (design and engineering) Unlikely Moderate LowInterruption of Coal Transport and Barging/Logistics Unlikely Moderate LowEnvironmental and SocialWastewater Discharge including ARD Leaching Possible Moderate MediumWaste Rock Stockpile and Dumping Possible Moderate MediumDust Emission Possible Moderate MediumHazardous Waste Impact Possible Moderate MediumImpact to Biodiversity Possible Moderate MediumLand Disturbance and Mine Closure Possible Moderate MediumSocial, Stakeholder, Public, Community Engagement Possible Moderate MediumCapital and Operating Costs, Price and Market(Additional) Construction and Development Time Delay Possible Moderate MediumConstruction and Development Cost Overrun Possible Moderate MediumCapital Cost Increases Possible Moderate MediumOperating Costs Increases (Mining/Processing) Possible Moderate MediumShortage of Funds by Poor Project Financial Planning and Management Unlikely Major MediumFuture Coal Use and CO2 Restrictions Possible Minor LowMarket and Coal Price Uncertainties (Commodity Price Risk) Unlikely Moderate LowOther RisksNatural Risks in the Mining Area (Flooding, Earthquake, Storm etc.) Unlikely Major LowInterruption of Utility Supplies (power, water, fuel) Unlikely Moderate LowSignificant Land Acquisition, Compensation, and Regulatory Issues Likely Moderate MediumExploration and Production Licenses Possible Major MediumOther Licenses and Permits Possible Moderate Medium


– 351 –

The risk assessment indicates no “high risk” rating for the various risk areas reviewed. For the project a “medium risk” level could be considered overall. However, “possible” and “likely” ratings are considered for several items, which should draw some attention.

19.3 Risk Analysis Matrix

The qualitative risk analysis uses the following matrix for risk rating.

Table 19-2: Risk Analysis Matrix

Likelihood Consequences Insignificant Minor Moderate Major Catastrophic Certain Low Risk Medium Risk Medium Risk High Risk Likely Low Risk Medium Risk Medium Risk High Risk High Risk Possible Negligible Risk Low Risk Medium Risk Medium Risk High Risk Unlikely Negligible Risk Low Risk Low Risk Medium Risk Medium Risk Rarely Negligible Risk Negligible Risk Negligible Risk Low Risk Medium Risk

The definitions for likelihood and consequence are:

• Likelihood:

— Certain: The event is expected to occur in most circumstances.

— Likely: The event probably will occur in most circumstances (or on a regular basis such as weekly or monthly).

— Possible: The event may occur at some time (i.e., occasionally).

— Unlikely: The event could occur at some time.

— Rarely: The event may occur only in exceptional circumstances.

• Consequence:

— Catastrophic: Disaster with potential to lead to business failure.

— Major: Critical event/impact which, if uncorrected, will have a material effect on the project cash flow and performance and could lead to a project failure; but with proper remedial management, will be endured.


– 352 –

— Moderate: Significant event/impact which, if uncorrected, will have a significant effect on the project cash flow and performance, but may be managed under normal procedures.

— Minor: Consequences/impacts that may be readily absorbed and will have little or no effect on the project cash flow and performance, but some remedial management effort is still required.

— Insignificant: No additional/remedial management required.

For appraising and rating the “Consequence”, SRK also considers the availability of remedial or alternative action to limit the “Consequence”.

The subsequent Risk Ratings are defined as:

• Extreme/high risks — unacceptable risks to the project, which if uncorrected, may result in business failure or critical impacts to business.

• Medium risks — tolerable risks to the project, which require the application of specific risk management measures so as to not develop into high risks.

• Low/negligible risks — acceptable risks to the project, which generally comprise low probability/low impact events that do not require additional specific risk management measures.

20 REFERENCES

Audley-Charles, M.G., Indonesian and Philippine Archipelagos. In Moullade, M., Nirn, A.E.M. (Eds.), The Phanerozoic Geology of the World II: The Mesozoic, Elsevier, Amsterdam, pp. 165 to 207, 1978.

Hall, R., Hydrocarbon basins in SE Asia: Understanding why they are there. Petroleum Geoscience, Volume 15, (2), p. 131-146, 2009.

Hall, R., Cenozoic geological and plate tectonic evolution of SE Asia and the SW Pacific: computer-based reconstruction, model and animations. Journal of Asian Earth Sciences, 20, p. 353-431, 2002.

Hall, R., and Smyth, H.R.: Cenozoic arc processes in Indonesia: Identification of the key influences on the stratigraphic record in active volcanic arcs. In: Draut, A.E., Clift, P.D., and Scholl, D.W., eds., Formation and Applications of the Sedimentary Record in Arc Collision Zones: Geological Society of America Special Paper 436, p. 27-54, 2008.


– 353 –

Hamilton, W.: Tectonics of the Indonesian Region. USGS Professional Paper,1078, 345 p., 1979.

Hutchinson, C.: South-East Asian Oil, Gas, Coal and Mineral Deposits. Clarendon Press, Oxford, 1998.

Hutchinson, C.: Geological Evolution of South-East Asia. Clarendon Press, Oxford, 1989.

Lawrence, K.T., L.C. Sloan, and J.O. Sewall.: Terrestrial climatic response to precessional orbital forcing in the Eocene. In Wing, S.L., Gingerich, P.D., Schmitz, B and Thomas, E. ed., GSA Special Paper 369: Causes and Consequences of Globally Warm Climates in the Early Paleogene 65-77, 2003.

Lumadyo, E., McCabe R., Harder, S. and Lee, T.: Borneo: a stable portion of the Eurasian margin since the Eocene. Journal of Southeast Asian Earth Sciences Volume 8, Issues 1-4, p. 225-231, 1993.

Michaelsen, P. and Henderson, R.A.: Facies relationships and cyclicity of high-latitude, Late Permian coal measures, Bowen Basin, Australia. International Journal of Coal Geology, vol. 44 (1), p. 19-48, 2000.

Michaelsen, P.: Mass extinction of peat-forming plants and the effect on fluvial styles across the Permo-Triassic boundary, Bowen Basin, Australia. Palaeogeography, Palaeoclimatology, Palaeoecology, vol. 179, p. 173-188, 2002.

Moss, S.J. and Chambers, J.L.C.: Tertiary facies architecture in the Kutai Basin, Kalimantan, Indonesia. Journal of Asian Earth Sciences, Volume 17, Issues 1-2, February-April 1999, p. 157-181, 1999.

Nota Kesepahaman Antara Perusahaan Daerah Baramarta Dengan PT Merge Energy Resource Development, 19th August, 2009

PT Merge Energy Sources Development: PT Merge Continental Mining Report of Geological Exploration. 2008.

PT Mitra Borneo Masyatama: EIA study (ANDAL report in Indonesian) for PT Merge Mining Industri, mine tenement (No. 147/2010 — K.W.01.071 P.BJR 2008), June 2010.

PT Mitra Borneo Masyatama: EIA study (ANDAL report in Indonesian) for PT Merge Continental Mining, mine tenement (No. 148/2010 — K.W.01.075 P.BJR 2008), June 2010.

PT Mitra Borneo Masyatama: RKL document (Environmental Management Plan) for PT Merge Mining Industri, mine tenement (No. 147/2010 — K.W.01.071 P.BJR 2008), June 2010.


– 354 –

PT Mitra Borneo Masyatama: RPL document (Environmental Monitoring Plan) for PT Merge Mining Industri, mine tenement (No. 147/2010 — K.W.01.071 P.BJR 2008), June 2010.

PT Mitra Borneo Masyatama: RKL document (Environmental Management Plan) for PT Merge Continental Mining, mine tenement (No. 148/2010 — K.W.01.075 P.BJR 2008), June 2010.

PT Mitra Borneo Masyatama: RPL document (Environmental Monitoring Plan) for PT Merge Continental Mining, mine tenement (No. 148/2010 — K.W.01.075 P.BJR 2008), June 2010.

Rupert, L.F. and Moore, T.A.: Differentiation of volcanic ash-fall and water-borne detrital layers in the Eocene Senakin coal bed, Tanjung Formation, Indonesia. Organic Geochemistry, 20 (2), 233-247, 1993.

Satyana, A.H., Nugroho, D. and Surantoko, I.: Tectonic controls on the hydrocarbon of the Barito, Kutei and Tarakan Basins, Eastern Kalimantan, Indonesia: major dissimilarities in adjoining basins. Journal of Asian Earth Sciences, 17, 99-122, 1999.

TekMIRA: Coal Drilling Exploration Programme at Sungai Pinang Banjar County South Kalimantan, Final Report, August 2009.

Williams, P.R., Johnston, C.R., Almond, R.A., Simamora W.H., Late Cretaceous to Early Tertiary Structural Elements of West Kalimantan, Tectonophysics 148, 279 to 297, 1988

Zoucheng Huajian Design Institute: The Exploitation Outline and Economic Appraisal Study for Merge Coal Mine Project, September 2008.

Zoucheng Huajian Design Institute: Preliminary Mine Design of PT. Merge Coal Mine, Indonesia, February 2010.

Thomas, L.: Coal Geology, Wiley and Sons, 2002.

CostMine/InfoMine, USA: Coal Cost Guide, Mining Cost Service 2014

SRK: Conceptual Case Studies for Underground Coal Mines in China; 2011-2015

Fenwei Energy Consulting / Platts: 2013-2030 China Thermal Coal Cost Analysis and Forecast.


– 355 –

Appendices


– 356 –

Appendix 1: Mining Licences / IUPs


– 357 –

Operation IUP 469


– 358 –


– 359 –


– 360 –


– 361 –


– 362 –


– 363 –


– 364 –

Operation IUP 470


– 365 –


– 366 –


– 367 –


– 368 –


– 369 –


– 370 –

Exploration IUP 471


– 371 –


– 372 –


– 373 –


– 374 –


– 375 –


– 376 –

Appendix 2: Indonesian Environmental Legislative Background


– 377 –

Applicable Law of the Republic of Indonesia Number 23/1997 concerning Environment Management and Regulation of Indonesian Government Number 27/1999 concerning Environmental Impacts Analysis (AMDAL), Regulation of the Minister of Environment Number 11/2006 concerning Types of Enterprise and/or Activity subject to AMDAL, oblige MMI to perform AMDAL for its gold mine project. AMDAL documents shall consist of Environmental Impacts Analysis Reference Framework (KA-ANDAL), Environmental Impacts Analysis (ANDAL), Environment Management Plan (RKL), and Environment Monitoring Plan (RPL).

KA-ANDAL document will be the first document to prepare and use as the reference for ANDAL study. RKL and RPL documents will be prepared based on the results of the evaluation over ANDAL study. The drafting systematic of KA-ANDAL, ANDAL, RKL, and RPL documents refer to the Regulation of the State Minister for Environment number 08/2006 concerning the Procedures to Prepare Environmental Impacts Analysis Documents. The Decree of the State Minister for Environment Number 40/2000 provides that AMDAL document will be reviewed by the AMDAL Review Team of Banyuwangi Regency.

National Laws

• Article 33 of the constitution of the Republic of Indonesia of 1945; Law No. 11/1967 on Basic Provisions of Mining, GR No. 32/1969, GR No. 79/1992 and GR No. 75/2001; and minister of energy and mineral resources Decree No. 1614/2004) (collectively referred to as the Mining Law).

• GR No. 45/2003 on Tariffs of Non-Tax State Revenues Effective Within the Ministry of Energy & Mineral Resources (GR No. 45/2003).

• Law No. 32 and 33/2004 on regional government.

• Agrarian Law Number 5/1960 as the reference for the use of land as mining project

• Mining Law Number 11/1967, the main reference for the general mining activity implementation

• Occupational Safety and Health Law Number 1/1970 as the reference in the implementation of the Occupational Safety and Health initiative

• Natural Resources and Ecosystem Conservation Law Number 5/1990 as the reference for the management of natural resources and their ecosystems

• Workers’ Social Security Law Number 3/1992, concerning employment

• Health Law Number 23/1992 concerning workers and environment sanitation

• Environment Management and Protection Law Number 32/2009 as the general reference in the making of AMDAL


– 378 –

• Forestry Law Number 41/1999 (amended as 19/2004) as the reference for mining activity within forest area

• Tax and Retribution Law Number 34/2000 as the reference in the compliance with tax and retribution obligations

• Water Resources Law Number 7/2004 as the reference on the use of water for coalmining project and coalmining-related water pollution

• Regional Government Law Number 32/2004 as the reference regarding regional government’s authority within the framework of an autonomous region

• Master Plan Law Number 26/2007 as the reference for coalmining master planning

Government Regulation

• Government Regulation Number 27/1980 on Mineral Classification as the reference in classifying coal as mineral

• Government Regulation Number 27/1991 on Marsh regarding the presence of marsh area around the project site

• Government Regulation Number 35/1991 on Rivers regarding the presence of rivers around the project site

• Executive Procedures to Government Regulation Number 79/1992 concerning Amendments to Government Regulation Number 32/1969 concerning Implementation of Mining Law Number 11/1967 as the reference in general mining activity

• Government Regulation Number 13/1999 on Mining Export Tax and Royalty as the reference in the compliance with export tax and royalty payment

• Government Regulation Number 27/1999 on Environmental Impacts Analysis as the general reference in making AMDAL

• Government Regulation Number 41/1999 on Air Pollution Control as the quality standards for ambient air

• Government Regulation Number 85/1999 on Amendment to Government Regulation Number 18/1999 on Hazardous and Toxic Waste Management

• Government Regulation Number 75/2001 in Second Amendment to Government Regulation Number 32/1969 on Implementation of Mining Law Number 11/1967 as the general reference for the coalmining activity


– 379 –

• Government Regulation Number 82/2001 on Water Quality Management and Water Pollution Control as the national quality standards for river water

• Government Regulation Number 16/2004 on Land Use as the reference for the use of land as mining project.

Presidential Decrees

• Presidential Instruction Number 1/1967 on Synchronization of Forestry, Mining, Transmigration, and Public Work Functions as the reference when land use requires coordination with different government agencies

• Presidential Decree Number 32/1990 on Conservation Forest Management, as the reference in the management and monitoring of environment

Ministerial Decrees/Regulations

• Joint Decrees of the Minister of Mining Energy and Minister of Forestry Number 969/K/05/M.PE/1989 and 429/KPTS-II/1989 on Mining and Energy Projects within Forest Area as the reference on the use of land for mining projects requiring coordination with forestry sector

• Joint Decree of the Minister of Home Affairs and State Minister for Demography and Environment Number 23/1979 on Regional Agency in charge of Natural Resources and Environment Management as the reference in the implementation of the environment management and monitoring

• Joint Decrees of the Minister of Mining and Energy, Minister of Forestry, and Minister of Home Affairs Number 1385 K/03/M.PE/1988, 504/KPTS-II/1988 and 47/1988 on the Use of Mining and Energy and Forestry Facilities as the reference on the use of land as mining projects requiring coordination with forestry sector

• Decree of the Minister of Home Affairs Number 86/1990 on Disposal and Monitoring of Used Grease, as the reference for the management of used grease

• Regulation of the Minister of Health Number 416/Menkes/Per/IX/1990 on Water Quality Standards and Monitoring, as the reference for the quality of clean water

• Decree of the Minister of Mining and Energy Number 103.K/008/M. PE/1994, on the Supervision over Environment Management and Environment Monitoring Plans in Mining and Energy Sector as the reference for the implementation of RKL and RPL

• Decree of the Minister of Mining and Energy Number 555.K/26/M.PE/1995, on Occupational Safety and Health in General Mining Sector, as the reference for K3 implementation


– 380 –

• Decree of the State Minister for Environment Number: KEP-48/MENLH/10/1996 on Noise Level Standards, as the standards for noise level management

• Decree of the State Minister for Environment Number: KEP-49/MENLH/10/1996 on Vibration Level Standards, as the standards for vibration level management

• Decree of the State Minister for Environment Number: KEP-50/MENLH/10/1996 on Odor Standards as the standards for odor management

• Decree of the State Minister for Environment NumberKep-299/11/1996 on Technical Benchmark for Social Aspects Study in AMDAL Making, as the reference for the review of public health issue

• Decree of the Minister of Mining and Energy Number 1211.K/008/ MPE/1996, on Prevention and Management of Environmental Degradation and Pollution from General Mining Activities as the reference for RKL and RPL implementation

• Decree of the Minister of Mining and Energy Number 1517.K/20/M.PE/ 1999 Self Declaration on Environmental Performance for Companies in Mining and Energy Sector, as the reference for AMDAL implementation.

• Decree of the Minister of Forestry and Estates Number 146/Kpts-11/1999 on the Procedures for ex Mine Reclamation within Forest Area, as the reference in implementing reclamation program

• Decree of the Minister of Energy and Mineral Resources Number 1453.K/29/M.EM/2000, on the Technical Procedures for the Implementation of Government’s Functions in General Mining Sector, as the technical reference in coalmining project

• Decree of the State Minister for Environment Number 111/2003 on the Requirements and Procedures to Obtain Permit and Review for Wastewater Disposal to Water or Water Body as the reference in the disposal of coalmining wastewater

• Decree of the State Minister for Environment Number 113/2003 on Coalmining Business or Project Wastewater Standards, as the standards for coalmining wastewater

• Regulation of the State Minister for Environment Number 08/2006 on the Procedures for Environmental Impacts Analysis, as the reference in the making of AMDAL document

• Regulation of the State Minister for Environment Number 11/2006 on Activity/Business Subject to AMDAL as the reference in understanding which activity/project is subject to AMDAL


– 381 –

Decision of Head of Environmental Impact Control Agency

• Decision of Head of Environmental Impact Control Agency (BAPEDAL) Number Kep.056/1994 on Significant Impacts Standards, as the reference to determine the significance level of an impact

• Decision of Head of Environmental Impact Control Agency (BAPEDAL) Number Kep.01/Bapedal/09/1995, on the Procedures and Technical Requirements for Hazardous, Toxic, and Dangerous Waste Storage and Collection, as the reference in the management of Hazardous, Toxic, and Dangerous Waste

• Decision of Head of Environmental Impact Control Agency (BAPEDAL) Number No.124/12/1995 on the Guidelines to Public Health Aspect Review in AMDAL Making, as the reference for reviewing community health aspect

• Decision of Head of Environmental Impact Control Agency (BAPEDAL) Number No 255/Bapedal/1996 on the Procedures and Requirements for Used Grease Storage and Collection, as the reference in the storage and collection of used grease

• Decision of Head of Environmental Impact Control Agency (BAPEDAL) Number KEP-299/11/1996 on the Guidelines to Social Aspect Review in AMDAL Making, as the reference for reviewing social aspects

• Decision of Head of Environmental Impact Control Agency (BAPEDAL) Number 105/1997 on the Guidelines for RKL/RPL Implementation Report, as the reference for reporting RKL and RPL implementation

• Decision of Head of Environmental Impact Control Agency (BAPEDAL) Number 08/2000 on Community Participation and Information Openness in the Environmental Impact Analysis Process as the reference for public involvement in AMDAL process

Decision of the Director General of General Mining

• Decision of the Director General of General Mining Number: 01.K/2013/DDJP/1991 on Exploitation Mining Concession Holders’ Obligations, as the reference in the compliance with obligations

• Decision of the Director General of General Mining Number: 336.K/271/DDJP/1996 on Reclamation Guaranty, as the reference in reclamation process

• Decision of the Director General of General Mining Number: 693 K/008/DJP/1996 on Management of Erosion caused by General Mining Project, as the reference in controlling erosions from coalmining activities


– 382 –

Local Regulation and Decision of East Kalimantan Governor

• Regulation of South Kalimantan Province Number 5/1994 on Environment Management as the reference in the implementation of environment management in East Kalimantan Province

• Regulation of South Kalimantan Province Number 4/2000 on Road Management, as the reference for coal haul road management

• Regulation of South Kalimantan Province Number 7/2000 on Basic Development Pattern of the Province as the reference for the attempt to synchronize coalmining project with development program in South Kalimantan Province

• Regulation of South Kalimantan Province Number 9/2000 on Revision to the Master Plan of the Province as the reference for master planning issue related to the use of land as coalmining project

• Decision of South Kalimantan Province Governor Number 28/1994 on the Management and Quality Standards for Wastewater in South Kalimantan as the reference to determine the quality standards for waste in the area of study

• Regulation of South Kalimantan Province Number 10/2003 on Cargo Car Road Traffic Control as the reference for coal hauling activities involving use of roads

• Regulation of South Kalimantan Province Number 2/2006 on Water Quality Management and Pollution Control as the reference in the management of water quality and prevention of surface water pollution by coalmining activities

• Regulation of South Kalimantan Province Number 15/2006 on the Medium Term Development Plan of South Kalimantan Province 2006-2010 as the reference in the attempt to synchronize the coalmining project with medium term development plan of South Kalimantan Province

• Decision of South Kalimantan Province Governor Number 04/2007 on Quality Standards for Water as the reference to decide the quality standards of surface water in the area of study

• Decision of South Kalimantan Province Governor Number 05/2007 on water classification and designation as the reference to determine the designation of surface water in the area of study


– 383 –

Appendix 3: Equator Principles and Internationally Recognised Environmental Management Practices


– 384 –

In seeking to obtain project financing or to list on a stock exchange, these institutions require the proponent to comply with such documents as the Equator Principles (July 2013) and the International Finance Corporation (IFC, January 2012) Performance Standards and Guidelines. This is exemplified by the following preamble from the Equator Principles:

Large infrastructure and industrial Projects can have adverse impacts on people and on the environment. As financiers and advisors, we work in partnership with our clients to identify, assess and manage environmental and social risks and impacts in a structured way, on an ongoing basis. Such collaboration promotes sustainable environmental and social performance and can lead to improved financial, environmental and social outcomes.

We, the Equator Principles Financial Institutions (EPFIs), have adopted the Equator Principles in order to ensure that the Projects we finance and advise on are developed in a manner that is socially responsible and reflects sound environmental management practices. We recognise the importance of climate change, biodiversity, and human rights, and believe negative impacts on project-affected ecosystems, communities, and the climate should be avoided where possible. If these impacts are unavoidable they should be minimised, mitigated, and/or offset.

We believe that adoption of and adherence to the Equator Principles offers significant benefits to us, our clients, and local stakeholders through our clients’ engagement with locally Affected Communities. We therefore recognise that our role as financiers affords us opportunities to promote responsible environmental stewardship and socially responsible development, including fulfilling our responsibility to respect human rights by undertaking due diligence1 in accordance with the Equator Principles.

The following Tables provide a brief summary of the Equator Principles and the IFC Performance Standards respectively. These documents are used by the EPFI’s and stock exchanges in their review of the social and environmental performance of proponent companies.


– 385 –

Table A3-1: Equator Principles


– 386 –

Table A3-2: IFC Performance Standards


– 387 –

Summary Background Information on Some Key Internationally Recognised Environmental Management Practices.

The following provides background information on some key internationally recognised environmental management practices:

• Land disturbance — The main impact on the surrounding ecological environment is due to disturbance and contamination caused by surface stripping, waste rock and tailings storage, processing plant drainage, processing waste water, explosions, transportation and associated buildings that are erected. If effective measures are not taken to manage and rehabilitate the disturbed areas, the surrounding land can become polluted and the land utilization function will be changed, causing an increase in land degradation, water loss and soil erosion.

• Flora and fauna — Land disturbance from the development of mining and mineral processing projects may also result in impacts to or loss of flora and fauna habitat. The project development EIA should determine the extent and significance of any potential impacts to flora and fauna habitat. Where these potential impacts to flora and fauna habitat are determined to be significant, the EIA should also propose effective measures to reduce and manage these potential impacts.

• Contaminated Sites Assessment — The assessment, recording and management of contaminated sites within mining or mineral processing operations, is a recognised international industry practice (i.e. forms part of the IFC Guidelines) and in some cases a National regulatory requirement (e.g. an Australian environmental regulatory requirement). The purpose of this process is to minimise the level of site contamination that may be generated throughout a project’s operation while also minimising the level and extent of site contamination that will need to be addressed at site closure.

— A contaminated site or area can be defined as; ‘An area that has substances present at above background concentrations that presents or has the potential to present a risk of harm to human health, the environment or any environmental value’.

— Contamination may be present in soil, surface water or groundwater and also may affect air quality through releases of vapours or dust. Examples of typical contaminated areas within a mining/mineral processing project are spillages to soil/water of hydrocarbons and chemicals, and uncontained storage and spillages to soil/water of ores and concentrates. The process to assess and record the level of contamination basically involves a combination of visual (i.e. suspected contamination observed from spillages/releases) and soil/water/air sampling and testing (i.e. to confirm contaminant levels). Once the level of contamination is defined, the area’s location and contamination details are then recorded within a site register.


– 388 –

— Remediation/clean up of contamination areas involves the collection and removal of the contaminated materials for treatment and appropriate disposal, or in some cases the in-situ treatment of the contaminated (e.g. use of bioremediation absorbents on hydrocarbon spillage). The other key component to the management of contaminated areas is to also remove or remedy the source of the contamination (e.g. place hydrocarbon storage and handling within secondary containment).

• Environmental Protection and Management Plan — The purpose of an operational Environmental Protection and Management Plan (EPMP) is to direct and coordinate the management of the project’s environmental risks. The EPMP documents the establishment, resourcing and implementation of the project’s environmental management programs. The site environmental performance is monitored and feedback from this monitoring is then utilised to revise and streamline the implementation of the EPMP.

• Emergency Response Plan — The IFC describes an emergency as ‘an unplanned event when a project operation loses control, or could lose control, of a situation that may result in risks to human health, property, or the environment, either within the facility or in the local community’. Emergencies are of a scale that have operational wide impacts, and do not include small scale localised incidents that are covered under operational area specific management measures. Examples of an emergency for a mining/mineral processing project are events such as pit wall collapse, underground mine explosion, the failure of a TSF or a large scale spillage/discharge of hydrocarbons or chemicals. The recognised international industry practice for managing emergencies is for a project to develop and implement an Emergency Response Plan (ERP). The general elements of an ERP are:

— Administration — policy, purpose, distribution, definitions of potential site emergencies and organisational resources (including setting of roles and responsibilities).

— Emergency response areas — command centres, medical stations, muster and evacuation points.

— Communication systems — both internal and external communications.

— Emergency response procedures — work area specific procedures (including area specific training).

— Checking and updating — prepare checklists (role and action list and equipment checklist) and undertake regular reviews of the plan.

— Business continuity and contingency — options and processes for business recovery from an emergency.


– 389 –

• Site Closure Planning and Rehabilitation — The recognised international Industry practice for managing site closure is to develop and implement an operational site closure planning process and document this through an operational Closure Plan. This operational closure planning process should include the following components:

— Identify all site closure stakeholders (e.g. government, employees, community etc.).

— Undertake stakeholder consultation to develop agreed site closure criteria and post operational land use.

— Maintain records of stakeholder consultation.

— Establish a site rehabilitation objective in line with the agreed post operational land use.

— Describe/define the site closure liabilities (i.e. determined against agreed closure criteria).

— Establish site closure management strategies and cost estimates (i.e. to address/reduce site closure liabilities).

— Establish a cost estimate and financial accrual process for site closure.

— Describe the post site closure monitoring activities/program (i.e. to demonstrate compliance with the rehabilitation objective/closure criteria).


– 390 –

Appendix4:LabCertificatesandGraphs


– 391 –

TekMIRA Laboratory Accreditation


– 392 –

P.T Geo-services Laboratory, Banjar Baru Accreditation


– 393 –

China Meteorology Accreditation (CMA) of the Shandong Laboratory


– 394 –

China National Accreditation Service for Conformity Assessment of the Shandong Laboratory

Semivariogram of Seam D thickness


– 395 –

NW SE

"

Approximate Seam Cross-Section of Section Line 2


– 396 –

"

Geological Domains for Resource Estimation


– 397 –

Res

ourc

e M

ap o

f Sea

m B


– 398 –

Res

ourc

e M

ap o

f Sea

m C


– 399 –

Res

ourc

e M

ap o

f Sea

m D


– 400 –

"

Panel Plan of Coal Seam B


– 401 –

Panel Plan of Coal Seam C


– 402 –

"

Panel Plan of Coal Seam D


– 403 –

Coal Seam

Correlation


– 404 –

Appendix 5: CVs of Competent Person and Evaluator


– 405 –

Bruno StrasserPrincipal Consultant (Mining)

Profession Consultant Mining Engineer

Education Diplom-Ingenieur (Master’s Degree) in Mining and Geosciences from the Technical University Berlin, Germany

Registrations/ Member of the Australasian Institute of Mining and Affiliations Metallurgy (AusIMM) Reg. No. 308480

Specialisation • Coal Mining Assessment / Technical Due Diligence• Mining Engineering• Project Management• Mining System & Equipment

Expertise Over 30 years of experience as a mining engineer, project and construction manager for mining and processing plants, equipment sales manager, and as consultant in the field of open pit and underground coal mining. Other fields of experience are the aggregates and industrial minerals industries, quarrying, and mining equipment application. The expertise as consultant covers mining studies for coal and other mining projects and independent technical reviews as requi red for project financing and public reporting under international standard (JORC Code).

Employment

2011 — Present SRK Consulting China Ltd., Beijing, China

Principal Mining Consultant; leader of “Coal Group”; responsible for mining studies, technical due diligence, economic- technical reviews; Competent Person’s Reports for the coal mining industry.


– 406 –

2001 — 2011 Self Employed Business Consultant, Hong Kong and Austria

Market studies for mining equipment, mining chemicals and water treatment technology; sales support activities for mining, crushing and screening equipment in SE Asia; quality control for equipment project management for explosives storage.

1992 — 2001 Nordberg China (Metso) Ltd., Hong Kong

Manager Projects & Technical Services for crushing and screening equipment, and turnkey plants for the aggregates and mining industry in Hong Kong, China, and Taiwan. Project manager for the construction of aggregates plants at Shek O, Chek Lap Kok Airport, and Anderson Road in Hong Kong; copper and iron ore crushing plants in China; delivery of rock crushing equipment for Three Gorges Dam Project, China.

1986 — 1991 Self Employed Technical Services Consultant and Commercial Agent, Hong Kong

Mining equipment; landfill projects; railway maintenance projects; technical review of mining projects in the Philippines (coal) and Indonesia (gold).

1983 — 1986 VOEST-Alpine AG, Linz, Austria

Project Construction Manager for the Semirara Coal Project, Semirara Island, Philippines; Head of “Mining Systems Engineering Group” of VOEST-Alpine AG, Engineering Division in Linz, Austria; Project Manager for the Palana Lignite Project in Rajasthan, India, Feasibility and Engineering Study.

1981 — 1982 RWE Rheinbraun Consulting GmbH, Cologne, Germany

Project Engineer for the Bukit Asam Coal Mine Project, Sumatra, Indonesia, in the project office in Jakarta, Indonesia.

1979 — 1981 RWE Rheinische Braunkohlenwerke AG (Rheinbraun), Cologne, Germany

Mining Engineer in the opencast Lignite Mine Fortuna Bergheim, Germany

Languages German — read, write, speakEnglish — read, write, speak


– 407 –

Key Experience: Coal Mining, Studies and Mine Design, Reviews

Specific experience was acquired with the following coal projects/clients:

• Muara Enim, Sumatra, Indonesia (undisclosed); Technical Review of an open pit coal mine and exploration project; 2015; Competent Person.

• Guizhou (undisclosed), China: Technical Review of 5 underground coal mines; 2014/15; Competent Person

• Panjiang Coal Company, Guizhou, China: Technical Review of 4 underground coal mines; 2014

• PT Injatama Coal, Sumatra, Indonesia; Mining Review and Competent Person’s Report; 2013/14

• SABIC, Saudi Arabia, Coal Supply Study for a petrochemical plant project in China, 2014; Project Leader

• Yidong Coal Company, Inner Mongolia, China; Independent Technical Review of 12 underground coal mines in the Ordos Region; 2012/13; Project Manager; Competent Person

• Chonghou Energy Co. (Hong Kong), Independent Technical Review of 2 underground and 2 open pit coal mines in the Ordos Region, China, 2012;

• Xinjiang Huahong Co., Xinjiang, China; Independent Technical Review of 4 open pit coal mines; 2011/12.

• Total Petrochemical Ltd., Hong Kong/China; Conceptual Mining Study for an underground coal mine in Inner Mongolia, China; 2011; Competent Person (Reserve reporting)

• Coal Mining Authority, Palana, Rajasthan, India: Feasibility Study and Engineering Design Study for the Palana Coal Project; 1985; Project Manager.

• Semirara Coal Corporation, Manila, Philippines: Semirara Coal Open Pit Project; mine development; initial operation management; 1983/84; Mine Construction Manager.

• PT Bukit Asam, Sumatra, Indonesia; Feasibility Study, Detailed Mine Design and Mine Development Management Project for the Bukit Asam Coal Mine; project sponsored by the World Bank; 1981/82; Project Engineer

• RWE Rheinbraun AG, Cologne, Germany: Mining Engineer; Fortuna Opencast Lignite Mine; 1979/80; Mining Engineer.

• Ruhrkohle AG, Dortmund, Germany; trainee and worker in a longwall underground coal mine; 1975


– 408 –

Key Experience: Estimation of Coal Reserves

• South Sumatra Open Pit, Indonesia: Review of historical exploration data and re-estimate of coal reserve; lignite; multi seam deposit.

• Guizhou, China: review of infill drilling data and re-estimate of coal reserve; coking coal; multi seam deposit.

• Injatama Coal, Indonesia: Infill drilling program and initial estimate of coal reserves; thermal coal, multi seam deposit.

• Yidong Coal, Inner Mongolia: Infill drilling program and re-estimate of coal reserves of 7 coal mines; thermal coal, multi seam deposit.

• Xinjiang Huahong Project, China: Infill drilling program and re-estimate of coal reserves; thermal coal, single seam deposit.

• Palana Coal Project, India: Review of drilling cores and data; review of reserve estimate with Minroh Consultants, Aachen, Germany; subbituminous thermal coal, single seam deposit.

• Semirara Coal Project, Indonesia: Review and re-estimate of coal reserve with RWE Rheinbraun Consulting, Germany; subbituminous thermal coal, multiple seam deposit.

• Bukit Asam Coal Project, Indonesia: Exploration infill drilling and assay lab contracts; operating procedures; drilling plan and planning of QAQC activities; thermal coal, multiple coal seams deposit.

• Fortuna Mine, Germany: Mining engineer; member of team responsible for reporting of annual and 5-year coal “block reserve” survey update and estimate; lignite, single seam operation.

Key Experience: Project Management/Plant Construction

Clients and projects:

• KWP (K.Wah / Pioneer) Joint Venture, Hong Kong; Anderson Road Quarry upgrading project; turnkey delivery and erection of a 1200 t/h aggregates plant. Project Manager with responsibility for tendering, plant engineering and plant erection.

• Nishimatsu Corporation, Japan / Wai Kee Ltd., Hong Kong; Chek Lap Kok Airport Project; turnkey delivery and erection of a 1000 t/a aggregates plant. Project Manager with responsibility for tendering, plant engineering and plant erection.


– 409 –

• Pioneer Concrete, Hong Kong, Shek O Quarry upgrading project; turnkey delivery and erection of a 800 t/h aggregates plant. Project Manager with responsibility for tendering and plant engineering.

• Dragagues et Traveaux (HK) Ltd.; Route 3 Highway Construction Project; turnkey delivery of a 2000 t/a mobile crushing and conveying system for rock excavation. Project Manager responsible for system engineering, installation and commissioning.

• Semirara Coal Mining Company, Manila, Philippines, Unong Project. Turnkey development of the Unong Coal Mine including mine design, engineering, pit development, procurement of equipment and plant erection. Project Construction Manager responsible for review of mine planning by Austromineral Consultants, Austria, equipment installation and plant erection at site, commissioning, trial operation and performance tests.

Key Experience: Mining Systems Engineering

Experience was acquired with the following equipment manufacturers and their clients:

• Nordberg China (Metso) Ltd., Hong Kong: Plant proposals for miscellaneous clients for crushing and screening systems and plants in Hong Kong, Macao, China, and Taiwan for application in aggregates, rock crushing, steel industry, iron ore preparation, cement industry, copper mining, and open pit overburden handling.

• VOEST-Alpine AG, Austria. Application studies and proposals for miscellaneous clients for continuous coal mining systems, coal handling, and ship loading in India, Indonesia, China and Thailand.


– 410 –

Anthony StepcichPrincipal Consultant (Project Evaluations)

Profession Mining Engineer

Education Diploma in Technical Analysis, Australian Technical Analysts Association / Securities Institute of Australia, 2002

Graduate Diploma in Finance and Investment, Securities Institute of Australia, 2002

MSc (Mineral Economics), Curtin University, 1997

BEng (Mining), Ballarat University, 1992

Registrations/ Fellow & Chartered Professional AusIMM; Member Affiliations Number: 110954

Australasian Institute of Mining and Metallurgy

Specialisation Project evaluation; IPCC studies, pit design and scheduling; pit dewatering; dragline operations, drill and blast, pit optimisation, financial analysis; mine costing and commodity analysis

Expertise Anthony Stepcich is a Mining Engineer with 22 years’ experience in the mining industry, having gained both underground and open-pit metalliferous experience, and open-pit coal experience. Anthony has postgraduate qualifications in finance and economics. He specialises in open-pit design and scheduling and project evaluations. Anthony is a Competent Person for the reporting of Ore Reserves in accordance with JORC Code (2012). Anthony is also an Expert in accordance with the VALMIN Code (2005) for the public reporting of valuations across multiple commodities. Anthony has experience working in Australia and Indonesia.

Employment

May 2010 to SRK Consulting (Australasia) Pty Ltd present Principal Consultant (Project Evaluations), Sydney

2009 — 2010 PT Leighton Contractors (Indonesia)Planning Superintendent, Wahana Coal Mine, Satui, South Kalimantan, Indonesia


– 411 –

2008 — 2009 AMC ConsultantsPrincipal Mining Engineer (Coal & Energy), Brisbane

2007 — 2008 Aegis Equities ResearchMining Analyst, Sydney

2005 — 2007 AME Mineral EconomicsMining Analyst, Sydney

2003 — 2005 BHP BillitonMedium-term Scheduling Engineer, Saraji Coal Mine, Queensland

2001 — 2003 BHP BillitonDragline Engineer, Saraji Coal Mine, Queensland

1999 — 2000 Roche Eltin Joint Venture (Century Zinc Mine)Open Pit Engineer, Queensland

1998 Outokumpu Ltd (Forrestania Nickel Mines)Underground Contract Mining Engineer, Western Australia

1996 — 1997 Plutonic Gold Ltd (Plutonic Gold Mines)Underground Production Engineer, Western Australia

1994 — 1996 PosGold Ltd (Big Bell Mines)Underground Miner, Western Australia

1993 — 1994 Peko Gold Ltd (Kanowna Belle Gold Mines)Open Pit Mining Engineer, Kalgoorlie, Western Australia

Languages English — read, write, speak

Software • Minescape• XACT• Vulcan• Surpac2000• Modular Mining Dispatch• XPAC• XERAS• Talpac• Whittle


– 412 –

Key Experience: Mining Engineering Consulting

Anthony has several years of experience in consulting both at SRK Consultants (SRK) and Australian Mining Consultants (AMC). Anthony’s consulting experience includes pre-feasibility studies, technical due diligence across multiple commodities, project evaluation, and expansion studies. Anthony’s broad spread of experience allows him to find innovative solutions to various mining problems.

Recent project experience includes:

• Pre-Feasibility Expansion Study for Nickel Mining Company (NMC) New Caledonia

• Technical Due Diligence on an NSW underground longwall mine, Confidential Client

• Technical Due Diligence on CoalWorks Pty Ltd, Confidential Client

• Technical Due Diligence on a WA DSO iron ore project, Confidential Client

• Technical Due Diligence a Magnetite Mine, Confidential Client

• Technical Due Diligence on a Canadian Coking Coal Mine, Confidential Client

• Technical Due Diligence on the New Saraji coal Deposit, Confidential Client

• Technical Due Diligence on the Middlemount Coal Deposit, Confidential Client

• Independent Experts report on a WA Gold Mine, Confidential Client

• Valuation for Taxation purposes on a WA iron ore mine, Confidential Client

• In Pit Crushing and Conveying study on an iron ore mine in Africa

• SkillsInclude:

— Corporate due diligence

— Project valuation

— Scoping, pre-feasibility and feasibility studies

— Conceptual mine design

— IPCC Studies


– 413 –

— Pit design & scheduling

— Numerous consulting assignments

— Mentoring junior engineers

Key Experience: Mining Analysis

Anthony worked in Sydney as a Mining Analyst for three years, two years with AME (Mineral Economics) and one year with Aegis as an equity analyst. During his time with AME Anthony completed a number of global cost studies into the copper, gold and lead-zinc industries. During his time at Aegis Equities Anthony was involved in DCF valuation, sum of parts valuation, buy, sell and hold recommendations on stocks covered, forecasting of profit / loss statements, cash-flow statements and balance sheets, flash-notes and event notes on market sensitive announcements, client liasion and initiating coverage on mining equities


• Client, 2005: Copper mine supply cost study

• Client, 2005: Gold mine supply cost study

• Client, 2005: Lead-zinc mine supply cost study

• Maintenance of world copper, gold, zinc supply database

• Research on copper, gold and zinc mines and markets

• Copper, gold and zinc supply forecasts

• Monitoring activities of copper, gold and zinc mining companies

• Various clients: Consultancy services as required

Key Experience: Underground Mining

Anthony has limited underground mining experience gained in the goldfields of Western Australia. Anthony spent 18 months employed as a underground miner at PosGold’s Big Bell mine. During this time Anthony was exposed to all facets of underground mining and sub-level caving. Anthony also spent time as an underground engineer at the Plutonic gold mine and the Forrestainia Nickel mine.


– 414 –


• Outokumpu Ltd, Forrestania Nickel Mines, place: Underground stope (ring) design, underground production charge-up design, cablebolt ring design, short-term scheduling and project work as required

• Plutonic Gold Ltd, Western Australia: Underground mine design, underground stope (ring) design, underground production charge-up design, liaison with contractor’s representatives, short-term scheduling and project work as required

• PosGold Ltd, Big Bells Mine, Western Australia: Development drilling and secondary blasting on an Atlas Copco 128 Jumbo, longhole production drilling on an Atlas Copco 357 Simba, installation of ground support on an Atlas Copco Boltec, longhole production charge-up, development charge-up, development and production bogging on an Elphinstone R2800, cable bolt installation, operating an Elphinstone 773B truck, service crew

Key Experience: Open Pit Mining

Anthony has extensive operational and engineering experience in open-pit mining, having worked in open-pit gold, zinc and coal mines. Skills include pit design and scheduling, pit optimisation, design of dewatering systems, drill and blast, and dragline operations. He has experience working for both the client and the contractor. Anthony’s extensive open pit experience allows him to efficiently solve clients problems.


• PT Leighton Contractors (Indonesia), Wahana Coal Mine: Planning Superintendent responsible for scheduling of 24 excavators and 124 trucks, weekly mining plan, 3-month mining plan, weekly and 3-month dump designs, annual mining plan, mine dewatering plan, supervision of five local engineers and client liaison

• BHP Billiton, Saraji Coal Mine, Queensland:

— Dragline Engineer: Strip mining highwall & Low-wall Design, spoil balance for DRE & Prestrip, calculation of mining volumes and Coal Reserves, dragline sections, design of haulroad and access ramp, reconciliation of production figures, interaction with foremen and operators to ensure safe and efficient mining operation, short-term scheduling of draglines and project work as required

— Medium Term Scheduling Engineer: Annual budget schedule and quantities, capital expenditure proposals, input to 30-year mine plan, monthly budget reforecast using XPac, 3-month mine plan, 30-month rolling mine plan, forecast coal exposure — 12 weeks and 2 years, mentoring junior engineers, equipment selection, contribution to safe work environment and project work as required


– 415 –

• Roche Eltin Joint Venture, Century Zinc Mine, Queensland: Preparation of monthly haulage bill, systems administrator for Modular Mining, responsibility for Modular Mining development and reporting, preparation of weekly and monthly mining plan, monthly waste dump development plan, design of pit dewatering system, project work as required, relief Drill and Blast Engineer, development of engineering and data analysis to assist in operational optimisation and participation in operational efficiency improvements and cost control

• Peko Gold Ltd, Kanowna Belle Gold Mines, Kalgoorlie, Western Australia: Drill and blast design, blast monitoring, collation of drill and blast data; development of a short and long term dewatering strategy, pump selection and design of mine dewatering system, hydrogeological measurement of bore flows and pump performance, relief Senior Mining Engineer and Senior Pit Supervisor


– 416 –

Appendix 6: JORC Code 2012 — Checklist of Assessment and Reporting Criteria


– 417 –

Table 1 is a checklist or reference for use by those preparing Public Reports on Exploration Results, Mineral Resources and Ore Reserves.

In the context of complying with the Principles of the Code, comment on the relevant sections of Table 1 should be provided on an ‘if not, why not’ basis within the Competent Person’s documentation and must be provided where required according to the specific requirements of Clauses 19, 27 and 35 for significant projects in the Public Report. This is to ensure that it is clear to the investor whether items have been considered and deemed of low consequence or have yet to be addressed or resolved.

As always, relevance and materiality are overriding principles that determine what information should be publicly reported and the Competent Person must provide sufficient comment on all matters that might materially affect a reader’s understanding or interpretation of the results or estimates being reported. This is particularly important where inadequate or uncertain data affect the reliability of, or confidence in, a statement of Exploration Results or an estimate of Mineral Resources or Ore Reserves.

The order and grouping of criteria in Table 1 reflects the normal systematic approach to exploration and evaluation. Criteria in section 1 ‘Sampling Techniques and Data’ apply to all succeeding sections. In the remainder of the table, criteria listed in preceding sections would often also apply and should be considered when estimating and reporting.

It is the responsibility of the Competent Person to consider all the criteria listed below and any additional criteria that should apply to the study of a particular project or operation. The relative importance of the criteria will vary with the particular project and the legal and economic conditions pertaining at the time of determination.

In some cases it will be appropriate for a Public Report to exclude some commercially sensitive information. A decision to exclude commercially sensitive information would be a decision for the company issuing the Public Report, and such a decision should be made in accordance with any relevant corporations regulations in that jurisdiction. For example, in Australia decisions to exclude commercially sensitive information need to be made in accordance with the Corporations Act 2001 and the ASX listing rules and guidance notes.

In cases where commercially sensitive information is excluded from a Public Report, the report should provide summary information (for example the methodology used to determine economic assumptions where the numerical value of those assumptions is commercially sensitive) and context for the purpose of informing investors or potential investors and their advisers.


– 418 –

Section 1a: Sampling Techniques and Data (Criteria in this section apply to all succeeding sections.)

Commentary• The deposit was sampled using

vertical boreholes in 2008 — 2009 (79 coal samples and 18 geotechnical samples). From the highwall of adjacent open pits where the same coal seams are exposed, 11 coal samples were taken in 2010. In 2015 SRK took together with the Company 5 coal samples (channel samples) underground in the newly opened roadways along the first and second coal panel All boreholes were geophysically surveyed.

• All the coal seams were sampled, thus representative coal samples are ensured; the calibration of borehole samples and measurements taken is considered to be according to standard and appropriate See Chapter 7.2.2.

• Not applicable to coal deposit.

First non-in situ coal samples taken by the Company from the coal stockpile from coal extracted during development work in 2015 confirm the lab results of in-situ coal (from boreholes and SRK channel samples).

CriteriaSampling techniques

Explanation• Nature and quality of sampling

(e.g. cut channels, random chips, or specific specialised industry standard measurement tools appropriate to the minerals under investigation, such as downhole gamma sondes, or handheld XRF instruments, etc.). These examples should not be taken as limiting the broad meaning of sampling.

• Include reference to measures taken to ensure sample representivity and the appropriate calibration of any measurement tools or systems used.

• Aspects of the determination of mineralisation that are Material to the Public Report.

In cases where ‘industry standard’ work has been done this would be relatively simple (e.g. ‘reverse circulation drilling was used to obtain 1 m samples from which 3 kg was pulverised to produce a 30 g charge for fire assay’). In other cases more explanation may be required, such as where there is coarse gold that has inherent sampling problems. Unusual commodities or mineralisation types (e.g. submarine nodules) may warrant disclosure of detailed information.


– 419 –

CriteriaDrilling

techniques

Drill sample recovery

Logging

Explanation• Drill type (e.g. core, reverse

circulation, open-hole hammer, rotary air blast, auger, Bangka, sonic, etc.) and details (e.g. core diameter, triple or standard tube, depth of diamond tails, face-sampling bit or other type, whether core is oriented and if so, by what method, etc.).

• Method of recording and assessing core and chip sample recoveries and results assessed.

• Measures taken to maximise sample recovery and ensure representative nature of the samples.

• Whether a relationship exists between sample recovery and grade and whether sample bias may have occurred due to preferential loss/gain of fine/coarse material.

• Whether core and chip samples have been geologically and geotechnically logged to a level of detail to support appropriate Mineral Resource estimation, mining studies and metallurgical studies.

• Whether logging is qualitative or quantitative in nature. Core (or costean, channel, etc.) photography.

• The total length and percentage of the relevant intersections logged.

Commentary• HQ-size double core barrels

and triple tube core barrels with inner split tubes were used. Details can be seen in Section 7 of this report.

• The cores recovered were logged and recorded in the exploration database; the recovery rate of the coal cores is generally greater than 95%.

• Decreased footage per round in fractured strata; also triple tube was used to ensure that the core recovery rate is satisfactory

• Not applicable to coal deposit

• All the borehole and cores are geologically and geotechnically logged to the level to support the Resource estimate.

• The geophysical logging consisted of calliper, electric resistance, natural gamma, and gamma-gamma methods. Both the methodology and records meet international standards.

• Logging is quantitative in nature; core photos are properly taken, saved and filed

• The total length and percentage of the relevant intersections logged.


– 420 –

CriteriaSub-sampling

techniques and sample preparation

Explanation• If core, whether cut or sawn and

whether quarter, half or all core taken.

• If non-core, whether riffled, tube sampled, rotary split, etc. and whether sampled wet or dry.

• For all sample types, the nature, quality and appropriateness of the sample preparation technique.

• Quality control procedures adopted for all sub-sampling stages to maximize representivity of samples.

• Measures taken to ensure that the sampling is representative of the in situ material collected, including for instance results for field duplicate/second-half sampling.

• Whether sample sizes are appropriate to the grain size of the material being sampled.

Commentary• All cores were taken for samples

• The samples were stored in plastic bags with double layers, and well-sealed before being sent to the laboratory.

• The sample sizes taken are considered appropriate as was the grain size of the sample coal.


– 421 –

Section 1b: Sampling Techniques and Data (Criteria in this section apply to all succeeding sections.)

CriteriaQuality of

assay data and laboratory tests

Verificationofsampling and

assaying

Explanation• The nature, quality and

appropriateness of the assaying and laboratory procedures used and whether the technique is considered partial or total.

• For geophysical tools, spectrometers, handheld XRF instruments, etc., the parameters used in determining the analysis including instrument make and model, reading times, calibrations factors applied and their derivation, etc.

• Nature of quality control procedures adopted (e.g. standards, blanks, duplicates, external laboratory checks) and whether acceptable levels of accuracy (i.e. lack of bias) and precision have been established.

• The verification of significant intersections by either independent or alternative company personnel.

• The use of twinned holes.

• Documentation of primary data, data entry procedures, data verification, data storage (physical and electronic) protocols.

• Discuss any adjustment to assay data.

Commentary• The assaying and laboratory

procedures used in the lab follows ASTM D2013-04 standard and is considered of good quality and appropriate.

• External laboratory checks were adopted as quality control procedure, and the accuracy and precision which were achieved are considered to be satisfactory.

• The labs in the area are serving a well-established exploration and coal mining industry in South Kalimantan and are considered to be of international standards.

• SRK took channel samples in 2010 and 2015 to verify the previously acquainted data.

• No twinned holes were done.

• The data from laboratory and other documents were properly saved electronically.

• No adjustments need to be discussed.


– 422 –

CriteriaLocation of data

points

Explanation• Accuracy and quality of surveys

used to locate drill holes (collar and down-hole surveys), trenches, mine workings and other locations used in Mineral Resource estimation.

• Specification of the grid system used.

• Quality and adequacy of topographic control.

Commentary• A network of benchmarks

have been installed across the project area using survey grade differential Global Positioning System (“GPS”) methods and all surveys of drill collars are done sing total station equipment referenced to these benchmarks.

• Each drillhole coordinate was surveyed using Universal Transverse Mercator (“UTM”) coordinate system.

• The coordinates were consistent with or transferable to the coordinates specified in the mining license (IUP-OP).

• The accuracy and quality of surveys used to locate drill holes (collar and downhole surveys), trenches, mine workings and other locations used is sufficient for Mineral Resource estimation.

• Downhole survey has been generally performed every 100 m by the drilling team using micro-camera “Proshot”.


– 423 –

CriteriaData spacing and

distribution

Orientation of data in relation

to geological structure

Sample security

Explanation• Data spacing for reporting of

Exploration Results.

• Whether the data spacing and distribution is sufficient to establish the degree of geological and grade continuity appropriate for the Mineral Resource and Ore Reserve estimation procedure(s) and classifications applied.

• Whether sample compositing has been applied.

• Whether the orientation of sampling achieves unbiased sampling of possible structures and the extent to which this is known, considering the deposit type.

• If the relationship between the drilling orientation and the orientation of key mineralised structures is considered to have introduced a sampling bias, this should be assessed and reported if material.

• The measures taken to ensure sample security.

Commentary• With the present knowledge

on the deposit and information from additional boreholes of 3rd parties in the adjacent areas which was available to SRK but was not used for modelling and estimate, SRK allowed extended spacing of boreholes towards the western limit of the planned mining area to confirm Measured and Indicated Resource in this area.

• Sample compositing adopting thickness weighing has been applied.

• All the boreholes were drilled vertically and achieved unbiased sampling.

• The samples were wrapped in plastic bags, and sealed in steel tubes before sending to the laboratory.


– 424 –

CriteriaAudits or reviews

Explanation• The results of any audits or

reviews of sampling techniques and data.

Commentary• A audit by a 3rd party was not

carried out.

• SRK reviewed this project and exploration work first in 2010. A team of experienced geologists with qualifications for Competent Person according to JORC was at site. The sampling techniques and results/data were reviewed and found to be acceptable and of satisfactory standard.

Section 2a: Reporting of Exploration Results (Criteria listed in the preceding section also apply to this section.)

CriteriaMineral tenement and land tenure

status

Explanation• Type, reference name/number,

location and ownership including agreements or material issues with third parties such as joint ventures, partnerships, overriding royalties, native title interests, historical sites, wilderness or national park and environmental settings.

• The security of the tenure held at the time of reporting along with any known impediments to obtaining a licence to operate in the area.

Commentary• All area of the mine is either

covered by valid Production IUP license or Exploration IUP license.

• Conversion of the Exploration IUP to Production IUP are necessary in less than 8 years (based on the present production schedule) to have valid production mining rights in time.

• “Protected forest” areas could cause some obstacles for gathering the final Production IUP for exploration license but common practice in the area would suggest that such areas do “erode” over time. Influence by deep underground mining in these areas might have very little impact on the surface.


– 425 –

CriteriaExploration done by other parties

Geology

Drill hole Information

Explanation• Acknowledgment and appraisal

of exploration by other parties.

• Deposit type, geological setting and style of mineralisation.

• A summary of all information material to the understanding of the exploration results including a tabulation of the following information for all Material drill holes:

• easting and northing of the drill hole collar

• elevation or RL (Reduced Level — elevation above sea level in metres) of the drill hole collar

• dip and azimuth of the hole

• down hole length and interception depth

• Hole length.

Commentary• Exploration results from the

2000 — 2003 drilling program were not considered as fully qualified for resource estimate but can be used to support the general geological knowledge of the area;

• The results of the 2008-2009 drilling under the supervision of SRK geologist are of good quality and fully acceptable.

• Multi seam coal deposit with relatively simple geological conditions; with one major fault, and but faulted along the license limits.

• See Section Exploration of the Report.


– 426 –

Criteria

Data aggregation methods

Relationship between

mineralisation widths and

intercept lengths

Explanation• If the exclusion of this

information is justified on the basis that the information is not Material and this exclusion does not detract from the understanding of the report, the Competent Person should clearly explain why this is the case.

• In reporting Exploration Results, weighting averaging techniques, maximum and/or minimum grade truncations (e.g. cutting of high grades) and cut-off grades are usually Material and should be stated.

• Where aggregate intercepts incorporate short lengths of high grade results and longer lengths of low grade results, the procedure used for such aggregation should be stated and some typical examples of such aggregations should be shown in detail.

• The assumptions used for any reporting of metal equivalent values should be clearly stated.

• These relationships are particularly important in the reporting of Exploration Results.

• If the geometry of the mineralisation with respect to the drillhole angle is known, its nature should be reported.

Commentary

• The sample data derived from drilling was compiled into an integrated database with information of collars, down-hole surveys and sample assays.

• Quality evaluation was performed according to the basic analysis of composite samples.

• No metal-equivalence approaches were applied.

• SRK is not aware of apparent relationship between mineralisation widths and intercept lengths for coal deposit


– 427 –

Criteria Explanation• If it is not known and only the

down hole lengths are reported, there should be a clear statement to this effect (e.g. ‘down hole length, true width not known’).

Commentary

Section 2b: Reporting of Exploration Results (Criteria listed in the preceding section also apply to this section.)

CriteriaDiagrams

Balanced reporting

Other substantive exploration data

Explanation• Appropriate maps and sections

(with scales) and tabulations of intercepts should be included for any significant discovery being reported. These should include, but not be limited to a plan view of drill hole collar locations and appropriate sectional views.

• Where comprehensive reporting of all Exploration Results is not practicable, representative reporting of both low and high grades and/or widths should be practiced to avoid misleading reporting of Exploration Results.

• Other exploration data, if meaningful and material, should be reported including (but not limited to): geological observations; geophysical survey results; geochemical survey results; bulk samples — size and method of treatment; metallurgical test results; bulk density, groundwater, geotechnical and rock characteristics; potential deleterious or contaminating substances.

Commentary• See Section 6: Geology and

Section 7: Exploration of this Report.

• For the properties of this project, Exploration Results regarding Mineral Resource/reserve estimates are reported; other Exploration Results are not presented in this report.

• SRK is not aware of any other material or substantive exploration data that has not been reported.


– 428 –

CriteriaFurther work

Explanation• The nature and scale of planned

further work (e.g. tests for lateral extensions or depth extensions or large-scale step-out drilling).

• Diagrams clearly highlighting the areas of possible extensions, including the main geological interpretations and future drilling areas, provided this information is not commercially sensitive.

Commentary• SRK recommended additional

drillholes to support further resource and upgrade existing resource tenements in the western part of the license area

• See resource map /drillhole map Figure 9-2 in this Report

Section 3a: Estimation and Reporting of Mineral Resources (Criteria listed in section 1, and where relevant in section 2, also apply to this section.)

CriteriaDatabase integrity

Site visits

Explanation• Measures taken to ensure that

data has not been corrupted by, for example, transcription or keying errors, between its initial collection and its use for Mineral Resource estimation purposes.

• Data validation procedures used.

• Comment on any site visits undertaken by the Competent Person and the outcome of those visits.

• If no site visits have been undertaken indicate why this is the case.

Commentary• SRK data base management

• Data have been verified and validated by SRK

• The site was visited several times by experienced SRK geologists in 2009 to 2011.

• A Senior Geologist of SRK visited the mine site in 2015 and participated in the underground inspection, sample taking and discussions with the Company’s geologists.

• SRK Principal Mining Consultant visited site twice in 2015.


– 429 –

Criteria

Geological interpretation

Dimensions

Estimation and modelling

techniques

Explanation

• Confidence in (or conversely, the uncertainty of the geological interpretation of the mineral deposit.

• Nature of the data used and of any assumptions made.

• The effect, if any, of alternative interpretations on Mineral Resource estimation.

• The use of geology in guiding and controlling Mineral Resource estimation.

• The factors affecting continuity both of grade and geology.

• The extent and variability of the Mineral Resource expressed as length (along strike or otherwise), plan width, and depth below surface to the upper and lower limits of the Mineral Resource.

• The nature and appropriateness of the estimation technique(s) applied and key assumptions, including treatment of extreme grade values, domaining, interpolation parameters and maximum distance of extrapolation from data points. If a computer assisted estimation method was chosen include a description of computer software and parameters used.

Commentary• In 2015, all development

progressed according to plan as the underground entrance was open and Seam D developed.

• Not applicable to this case• The geological interpretation

was based on lithology, assays, structure and geotechnical information.

• Drilling interceptions provided general confidence in the interpretation coal seams. Channel (trenching) sample assays enhanced the level of confidence of the interpretation of the coal seams at the surface.

• Geological continuity has been assessed in each cross section.

• See Report Section 6: Geology

• Geovia Minex software was chosen to build the model and estimate the resources. Geovia Minex is the recognised software of integrated geology and mine planning solutions for coal and other stratified deposits.


– 430 –

Criteria Explanation• The availability of check

estimates, previous estimates and/or mine production records and whether the Mineral Resource estimate takes appropriate account of such data.

• The assumptions made regarding recovery of by-products.

• Estimation of deleterious elements or other non-grade variables of economic significance (e.g. sulphur for acid mine drainage characterisation).

• In the case of block model interpolation, the block size in relation to the average sample spacing and the search employed.

• Any assumptions behind modelling of selective mining units.

• Any assumptions about correlation between variables.

• Description of how the geological interpretation was used to control the resource estimates.

• Discussion of basis for using or not using grade cutting or capping.

• The process of validation, the checking process used, the comparison of model data to drill hole data, and use of reconciliation data if available.

Commentary• Validated boreholes and

topography data were imported to create a database. The coal seams were then correlated and the stratigraphical model was created. During the modelling process, the coal seam data from borehole logging were used to build roof, floor, partings, and seam structure using General Purpose Gridding method. The coal thickness grids used for resource estimation were modelled arithmetically. The coal quality data received from lab test such as ash content, relative density, calorific value etc. were loaded and gridded to build the quality model. The quality model was also used for semi-variogram simulations to classify the resources.

• Historical estimates available and compared

• No by-products for this coal rank and coal type

• Sulphur content in coal is low; no acid drainage expected.

• No block model interpolation, only grid modelling was used

• No assumptions were used for the modelling of selective mining units.

• See Section 8: Data Verification and Validation.


– 431 –

Criteria Explanation Commentary• The outcrop, faults and

weathering zone which interpreted from geological model were used as the area limit of resource estimation. The coal thickness interpreted from geological logging and geophysical down-hole survey was used to build the thickness grid for volume estimation. In addition, the lithology, intersected coal ply depth and coal thickness were used to assist coal seam correlation, to further define the coal seam occurrence.

• No grade cutting or capping for coal.

• See Section 8: Data Verification and Validation


– 432 –

Section 3b: Estimation and Reporting of Mineral Resources (Criteria listed in section 1, and where relevant in section 2, also apply to this section.)

CriteriaMoisture

Cut-off parameters

Mining factors or assumptions

Explanation• Whether the tonnages are

estimated on a dry basis or with natural moisture, and the method of determination of the moisture content.

• The basis of the adopted cut-off grade(s) or quality parameters applied.

• Assumptions made regarding possible mining methods, minimum mining dimensions and internal (or, if applicable, external) mining dilution. It is always necessary as part of the process of determining reasonable prospects for eventual economic extraction to consider potential mining methods, but the assumptions made regarding mining methods and parameters when estimating Mineral Resources may not always be rigorous. Where this is the case, this should be reported with an explanation of the basis of the mining assumptions made.

Commentary• In-situ total moisture and

inherent moisture for comparison

• coal thickness (>=0.7m), sulphur content (<=3.0%), ash content (<=40%), and calorific value (>=4,000kcal/kg), opex USD38.9/t

• See Section 8.2 of the report


– 433 –

CriteriaMetallurgical

factors or assumptions

Environmental factors or

assumptions

Explanation• The basis for assumptions

or predictions regarding metallurgical amenability. It is always necessary as part of the process of determining reasonable prospects for eventual economic extraction to consider potential metallurgical methods, but the assumptions regarding metallurgical treatment processes and parameters made when reporting Mineral Resources may not always be rigorous. Where this is the case, this should be reported with an explanation of the basis of the metallurgical assumptions made.

• Assumptions made regarding possible waste and process residue disposal options. It is always necessary as part of the process of determining reasonable prospects for eventual economic extraction to consider the potential environmental impacts of the mining and processing operation. While at this stage the determination of potential environmental impacts, particularly for a greenfields project, may not always be well advanced, the status of early consideration of these potential environmental impacts should be reported. Where these aspects have not been considered this should be reported with an explanation of the environmental assumptions made.

Commentary• Coal preparation/washing

process recommended if required

• See full Environmental Assessment in Section 18 of Report


– 434 –

CriteriaBulk density

Explanation• Whether assumed or

determined. If assumed, the basis for the assumptions. If determined, the method used, whether wet or dry, the frequency of the measurements, the nature, size and representativeness of the samples.

• The bulk density for bulk material must have been measured by methods that adequately account for void spaces (vugs, porosity, etc.), moisture and differences between rock and alteration zones within the deposit.

• Discuss assumptions for bulk density estimates used in the evaluation process of the different materials.

Commentary• The in-situ density which

used for coal resource/reserve estimation calculated by adopting Preston & Sanders’ formula. The true relative density which used to calculate the in-situ density was tested in air dried basis for each coal sample. Refer to the code AS1038.21.1.1-2008. In-situ moisture was calculated by adopting Fletcher & Sanders’ formula.

• No bulk density determination of ‘non-in situ / stockpile coal’ by SRK


– 435 –

Explanation• The basis for the classification

of the Mineral Resources into varying confidence categories.

• Whether appropriate account has been taken of all relevant factors (i.e. relative confidence in tonnage/grade estimations, reliability of input data, confidence in continuity of geology and metal values, quality, quantity and distribution of the data).

• Whether the result appropriately reflects the Competent Person’s view of the deposit.

• The results of any audits or reviews of Mineral Resource estimates.

Section 3c: Estimation and Reporting of Mineral Resources (Criteria listed in section 1, and where relevant in section 2, also apply to this section.)

CriteriaClassification

Audits or reviews.

Commentary• The classification of Mineral

Resource reflects confidence in the estimation based on both geological continuity and geostatistical analysis. SRK considered both the nature of drilling controls (interceptions) and distance and numbers of informing samples (drillholes).

• The Competent Person considers that the result of the classifications reflects SRK’s understanding of the deposit.

• No 3rd party audits


– 436 –

CriteriaDiscussion of

relative accuracy/confidence

Explanation• Where appropriate a statement

of the relative accuracy and confidence level in the Mineral Resource estimate using an approach or procedure deemed appropriate by the Competent Person. For example, the application of statistical or geostatistical procedures to quantify the relative accuracy of the resource within stated confidence limits, or, if such an approach is not deemed appropriate, a qualitative discussion of the factors that could affect the relative accuracy and confidence of the estimate.

• The statement should specify whether it relates to global or local estimates, and, if local, state the relevant tonnages, which should be relevant to technical and economic evaluation. Documentation should include assumptions made and the procedures used.

• These statements of relative accuracy and confidence of the estimate should be compared with production data, where available.

Commentary• Geostatistical methods and

correlations have been applied with the wider spaced boreholes in the western mine area

• See Section 10: Reserve


– 437 –

Section 4a: Estimation and Reporting of Ore Reserves (Criteria listed in section 1, and where relevant in sections 2 and 3, also apply to this section.)

CriteriaMineral Resource

estimate for conversion to Ore

Reserves

Site visits

Study status

Explanation• Description of the Mineral

Resource estimate used as a basis for the conversion to an Ore Reserve.

• Clear statement as to whether the Mineral Resources are reported additional to, or inclusive of, the Ore Reserves.

• Comment on any site visits undertaken by the Competent Person and the outcome of those visits.

• If no site visits have been undertaken indicate why this is the case.

• The type and level of study undertaken to enable Mineral Resources to be converted to Ore Reserves.

• The Code requires that a study to at least Pre-Feasibility Study level has been undertaken to convert Mineral Resources to Ore Reserves. Such studies will have been carried out and will have determined a mine plan that is technically achievable and economically viable, and that material Modifying Factors have been considered.

Commentary• SRK Coal Resource estimate

using Geovia Minex V6.1.3 computer software; see item ‘Estimation and modelling techniques’ of Table Section 3a above.

• The Coal Resource in accordance with the JORC Code was reported by SRK in the CPR, inclusive of the Coal Reserves

• Two site visits; June 2015 and September 2015; mine development according to plan; good conditions underground; longwall opened

• Not applicable to this case

• The underlying project study is a Chinese “PMD” Study by Zoucheng Huajian Design Institute, Shandong, China. SRK has reviewed the PMD Study and is of the opinion that the study is at the level of a “Preliminary Feasibility Study” or higher. See CPR Section 11.1 and CPR Appendix 7.

• The PMD Study, including the preliminary mining plan and the related detailed mine designs, and cost estimates as provided by the Company in 2015, were reviewed by SRK; SRK considers that the mining concept and designs are workable and the project overall is feasible. SRK has reviewed and discussed the “Modifying Factors” as considered in the PMD Study which could influence the Coal Reserve and has considered it in the estimate.

• See CPR Section 10.5: Discussion of Modifying Factors


– 438 –

CriteriaCut-off

parameters

Mining factors or assumptions

Explanation• The basis of the cut-off grade(s)

or quality parameters applied.

• The method and assumptions used as reported in the Pre-Feasibility or Feasibility Study to convert the Mineral Resource to an Ore Reserve (i.e. either by application of appropriate factors by optimisation or by preliminary or detailed design).

• The choice, nature and appropriateness of the selected mining method(s) and other mining parameters including associated design issues such as pre-strip, access, etc.

Commentary• Minimum mineable seam

thickness: 1.6 m (equipment related);

• Limits (cut-off) re sulphur, calorific value and ash content are as per the Coal Resource estimate; see CPR Section 9.2;

• Exclusion of seam sections with seam partings in excess of 40 cm in thickness;

• A coal loss of 10 cm at the roof and 10 cm at the floor;

• An overall panel recovery rate of 95%;

• General “limits/ parameters” for the Coal Reserve estimate are specified in CPR Section 10.2.

• SRK has estimated and converted Resource and Reserve based on SRK computerized estimate model using superimposing preliminary and detailed mine designs (panel designs) of the Company for Reserve.

• SRK considers underground mining with fully mechanized longwall mining with shearer as the appropriate mining method. The mining parameters as outlined in the PMD Study and for the Coal Reserve estimate are considered suitable for the prevailing conditions.


– 439 –

Criteria Explanation• The assumptions made

regarding geotechnical parameters (e.g. pit slopes, stope sizes, etc.), grade control and pre-production drilling.

• The major assumptions made and Mineral Resource model used for pit and stope optimisation (if appropriate).

• The mining dilution factors used.

• The mining recovery factors used.

• Any minimum mining widths used.

Commentary• Limited data on geotechnical

conditions are available, but this is considered not to be an uncommon situation for a new mine; ongoing collection of data in the course of mining and development is recommended; observations in the open mine development works and the longwall entry in Seam D Panel 1 indicate stable and manageable conditions; the initial gateways which were developed have reached a prolonged period of standing open without disturbance

• Not applicable to this case.

• A small dilution from roof and floor caused by extraction method is expected and considered in the Reserve estimate. Limited dilution from appearing bands and partitions is included in the Resource and Reserve estimates.

• Mining (Reserve) recovery 95%; recovery of Resource by mining about 34.8%

• Standard panel width 200 m; smaller short panels possible as required by operation.


– 440 –

Criteria Explanation• The manner in which Inferred

Mineral Resources are utilised in mining studies and the sensitivity of the outcome to their inclusion.

• The infrastructure requirements of the selected mining methods.

• The metallurgical process proposed and the appropriateness of that process to the style of mineralisation.

• Whether the metallurgical process is well-tested technology or novel in nature.

Commentary• The PMD and Company mining

plans included area of “Inferred Coal Resource”; SRK’s Reserve estimate excludes these areas and related panels.

• There is limited potential to upgrade of “Inferred Coal Resource” in these areas infill drilling and clarification on the mining license restrictions with regard to surface would be needed to upgrade the resource.

• The mine is situated in a main coal mining area of Indonesia with a well-developed infrastructure; the options for coal transport to the river loading ports include several privately owned transport roads and trucking companies also offer coal transport services to the coal industry in the area with sufficient capacity on site.

• The electricity is generated by the Company’s diesel gen-set plant on site.

• See CPR Section 4.• Coal preparation (jig separation)

of fractions of the ROM coal is recommended; decision on coal preparation will be made later/ after production commences; see CPR Section 12.

• The recommended/ suggested jig separation process is simple and well-tested.


– 441 –

Section 4b: Estimation and Reporting of Ore Reserves (Criteria listed in section 1, and where relevant in sections 2 and 3, also apply to this section.)

CriteriaMining factors or assumptions

(Continue)

Explanation• The nature, amount and

representativeness of metallurgical test work undertaken, the nature of the metallurgical domaining applied and the corresponding metallurgical recovery factors applied.

• Any assumptions or allowances made for deleterious elements.

• The existence of any bulk sample or pilot scale test work and the degree to which such samples are considered representative of the orebody as a whole.

• For minerals that are defined by a specification, has the ore reserve estimation been based on the appropriate mineralogy to meet the specifications?

Commentary• SRK considers the quality of the

lab tests and tests done for the project coal during exploration are of industry standard; for marketing purposes after production has commenced, an appropriate system of “non in situ testing” of coal at the stockpile may have to be introduced.

• Sulphur content is well sampled; full analysis on deleterious elements was not available for review.

• From exploration borehole samples, it could be assumed that the coal quality is almost evenly distributed over the mine area and mining should be able to achieve a continuous quality. SRK has produced and reviewed “coal quality distribution maps” for review of sulphur, ash, and calorific value distribution.

• Some bulk sample tests for first coal preparation tests have been done by the Company independently of the PMD Study. Pilot-scale tests would still be required if coal washing is desired. Generally, the coal is considered as suitable for the proposed preparation process.

• The coal quality of the deposit should meet the standard for power plant specifications of thermal coal.


– 442 –

CriteriaEnvironmental

Infrastructure

Costs

Explanation• The status of studies of potential

environmental impacts of the mining and processing operation. Details of waste rock characterisation and the consideration of potential sites, status of design options considered and, where applicable, the status of approvals for process residue storage and waste dumps should be reported.

• The existence of appropriate infrastructure: availability of land for plant development, power, water, transportation (particularly for bulk commodities), labour, accommodation; or the ease with which the infrastructure can be provided, or accessed.

• The derivation of, or assumptions made, regarding projected capital costs in the study.

• The methodology used to estimate operating costs.

• Allowances made for the content of deleterious elements.

• The derivation of assumptions made of metal or commodity price(s), for the principal minerals and co-products.

• The source of exchange rates used in the study.

• Derivation of transportation charges.

Commentary• Mining will produce a very

limited amount of waste rock from roadway development only; thus depositing the waste rock will require only a limited area. The volume of possible waste rock and gangue was not established in the PMD Study or present mining plans.

• SRK is of the opinion that the infrastructure in the area is suitable to support the Company’s mining operation. Electricity is generated by a diesel gen-set station at the site

• Coal transport infrastructure and service available; see above.

• The cost model of the PMD follows the ‘prescribed’ cost breakdown of Chinese mining feasibility studies. The breakdown is basic but appropriate. The sunk and accounted for capital and operating costs of the project up to mid-2015 were available and allowed for an accurate cost review. For use in the CPR, the cost breakdown was reconciled to match HKEx Chapter 18 Listing requirements.


– 443 –

Criteria

Revenue factors

Explanation• The basis for forecasting or

source of treatment and refining charges, penalties for failure to meet specification, etc.

• The allowances made for royalties payable, both Government and private.

• The derivation of, or assumptions made regarding revenue factors including head grade, metal or commodity price(s) exchange rates, transportation and treatment charges, penalties, net smelter returns, etc.

• The derivation of assumptions made of metal or commodity price(s), for the principal metals, minerals and co-products.

Commentary• The coal price forecast for

the financial model and NPV valuation used are projected by SRK from Indonesian and Australian coal index spot and forecast prices; the coal price range was further reviewed against forecast by US Energy Information Administration for imported coal on an FOB basis.

• Fees, dues, charges and taxes as applicable in 2015 have been considered with the cost estimate

• The need for a price discount in the initial year of production; no quality and penalty problem expected in general; coal preparation costs, if any at a later stage, could commonly expected to be 3.0 USD/t; cost might be compensated by a higher achievable price.

• Not applicable to this case.


– 444 –

Section 4c: Estimation and Reporting of Ore Reserves (Criteria listed in section 1, and where relevant in sections 2 and 3, also apply to this section.)

CriteriaMarket

assessment

Economic

Explanation• The demand, supply and stock

situation for the particular commodity, consumption trends and factors likely to affect supply and demand into the future.

• A customer and competitor analysis along with the identification of likely market windows for the product.

• Price and volume forecasts and the basis for these forecasts.

• For industrial minerals the customer specification, testing and acceptance requirements prior to a supply contract.

• The inputs to the economic analysis to produce the net present value (NPV) in the study, the source and confidence of these economic inputs including estimated inflation, discount rate, etc.

• NPV ranges and sensitivity to variations in the significant assumptions and inputs.

Commentary• Overriding market assessment

was carried out by the Company in order to make a decision on acquisition of this project.

• The PMD and SRK assume stable demand for good thermal coal in the international market and market of surrounding developing economies.

• Competitor analysis: by Company; not available to SRK.

• Price forecasts — SRK projected price (average).

• The specifications for regional mining companies are known; testing and acceptance requirements are known, and procedures at the mine and shipping points need to be established.

• The CAPEX, OPEX, investment schedule, and the production schedule are from the client, reviewed by SRK as appropriate. The Inflation rate is from w______________ww.inflation.eu, and estimated by SRK for the future years; discount rate is calculated based on SRK’s experience.

• With the variation of CAPEX, OPEX and coal price by -25% to 25%, the ranges of NPV are 327M-343.2M, 607.6M-58.4M, and -31.5M-691.1M respectively. The data is shown in Figure 15-10 of the CPR.


– 445 –

CriteriaSocial

Other

Explanation• The status of agreements with

key stakeholders and matters leading to social licence to operate.

• To the extent relevant, the impact of the following on the project and/or on the estimation and classification of the Ore Reserves;

• Any identified material naturally occurring risks.

• The status of material legal agreements and marketing arrangements.

• The status of governmental agreements and approvals critical to the viability of the project, such as mineral tenement status, and government and statutory approvals. There must be reasonable grounds to expect that all necessary Government approvals will be received within the timeframes anticipated in the Pre-Feasibility or Feasibility study. Highlight and discuss the materiality of any unresolved matter that is dependent on a third party on which extraction of the reserve is contingent.

Commentary• No material matters negatively

influencing the success of the project are identified; issues are considered to be manageable.

• No high risk identified

• Generally, licenses and permits for the 1st Mining Section are obtained. For operation in the 2nd Mining Section which begins 8 years from the start of commercial production, the exploration license held for this area must be converted to operating mining license, and other necessary permits (i.e. mining in wood areas) must be obtained. Based on the information available, only a limited area (two mining panels) of 2nd Mining Section and 3rd Mining Section with a limited tonnage of coal interfere with protected wood area on the surface.

Exploration and mining licenses of the Company for the project have been converted and adjusted in the past to accommodate mining plans and to avoid or minimize influence by other land use permits and restrictions. SRK opines that there are reasonable grounds to expect that all necessary Government approvals will be received within the timeframe required by the mining plan.


– 446 –

Section 4d: Estimation and Reporting of Ore Reserves (Criteria listed in section 1, and where relevant in sections 2 and 3, also apply to this section.)

Commentary• The basis for the classification

of the Coal Reserves into varying confidence categories were the Coal Resources estimate by SRK and the latest actualized mining plans of the Company.

• The result of the Coal Resource estimate appropriately reflects the Competent Person’s view of the deposit.

• The proportion of Probable Ore Reserves that have been derived from Measured Mineral is 60.1%.

• Not available

CriteriaClassification

Audits or reviews

Explanation• The basis for the classification

of the Ore Reserves into varying confidence categories.

• Whether the result appropriately reflects the Competent Person’s view of the deposit.

• The proportion of Probable Ore Reserves that have been derived from Measured Mineral

• Resources (if any).

• The results of any audits or reviews of Ore Reserve estimates.


– 447 –

CriteriaDiscussion of

relative accuracy/confidence

Explanation• Where appropriate a statement

of the relative accuracy and confidence level in the Ore Reserve estimate using an approach or procedure deemed appropriate by the Competent Person. For example, the application of statistical or geostatistical procedures to quantify the relative accuracy of the reserve within stated confidence limits, or, if such an approach is not deemed appropriate, a qualitative discussion of the factors which could affect the relative accuracy and confidence of the estimate.

• The statement should specify whether it relates to global or local estimates, and, if local, state the relevant tonnages, which should be relevant to technical and economic evaluation. Documentation should include assumptions made and the procedures used.

• Accuracy and confidence discussions should extend to specific discussions of any applied Modifying Factors that may have a material impact on Ore Reserve viability, or for which there are remaining areas of uncertainty at the current study stage.

• It is recognised that this may not be possible or appropriate in all circumstances. These statements of relative accuracy and confidence of the estimate should be compared with production data, where available.

Commentary• The Coal Reserve estimate

is based on SRK’s Minex V6.1.3 coal seam model and Resource estimate. Data for the model has been derived from historical exploration reports and related lab tests and were validated by SRK. A number of infill boreholes were drilled under SRK’s QA/QC assistance earlier in the project. Additional channel samples from underground have been taken and analysed in 2015. The overall geology and setting of the deposit is well understood. The coal seams in the areas selected for mining are geologically relatively simple. The accuracy and the confidence level in the Coal Reserve estimate and the procedure used for the estimate are deemed appropriate by the Competent Person. Data from production which is scheduled to commence in early 2016 should be used to compare and support mining assessment and Coal Reserve estimate.

• The Coal Reserve estimate covers the project areas with valid mining and exploration licenses. The Coal Reserve for the project is reported to be 92 Mt, all Probable Reserves.

• The timely conversion of the exploration IUP to a production license for the 2nd Mining Sector (Government factors) may be a big Modifying Factor to impact Reserve estimates.


– 448 –

Appendix 7: Cover page and TOC of the PMD


– 449 –

印度尼西亞麥捷礦井初步設計

說明書

兗礦集團鄒城華建設計研究院有限公司

二零一零年二月


– 450 –

ACCREDITATION GROUP

Major Name Job Title Qualification Signature Professional Mining Wang Zhigang Executive Director Snr Engineer Mining Sun Xinrong Director, Snr Engineer Chief Engineer Electrical Cao Guangyun Deputy Chief Snr Engineer Engineer Mechanical Sun Xuguang Deputy Chief Snr Engineer Engineer Water supply and drainage, HVAC, Xu Zhongjie Vice Director Snr Engineer Environmental protection Architecture, Deputy Snr Engineer,

Master plan Wang Qinglin Chief Engineer Structural Engineer I

Economics Ma Ming Director of Snr Economist Economics Dept.

VERIFICATION GROUP

Major Name Job Title Professional Signature Qualification Mining Wu Junqi Director Snr Engineer of Mining Dept. Electrical Wang Qingzhou Director of Engineer Electrical Dept. Director of Mechanical Yu Zhenyang Mechanical Snr Engineer Dept. Water supply and Vice Director of drainage, HVAC, Zhang Quntao Comprehensive Snr Engineer Environmental Dept. Protection Deputy Chief Snr Engineer, Architecture Wang Qingling Engineer Structural Engineer I Economics Hou Lanru Economist


– 451 –

COMPILING GROUP

Major Name Professional Signature Qualification Mining Liang Jixin Snr Engineer Mining Wu Junqi Snr Engineer Mining Hao Tianlun Engineer Mining Gao Jishun Engineer Electrical Wang Snr Engineer Qingzhou Electrical Wang Hongwei Engineer Electrical Gu Chao Engineer Electrical Kang Lanwei Assistant Engineer Machine Selection Yu Zhenyang Snr Engineer Machine Selection Han Xiling Snr Engineer Machine Selection Lin Sen Snr Engineer Water supply and drainage, HVAC, Zhang Quntao Snr Engineer Environmental protection Water supply and drainage, HVAC, Li Kunpeng Engineer Environmental protection Architecture Wang Qingling Snr Engineer,Structual Engineer I Architecture Xu Qiang Enginner Master plan, Yin Hao Snr Engineer Transpotation Economics Ma Ming Snr Economist Economics Hou Lanru Economist


– 452 –

CONTENT

Preface ......................................................................................................................................... 1

Chapter One: Mine Field Overview & Geological Features................................................... 1

Section 1 Mine Field Overview ..................................................................................... 1Section 2 Geological Features ....................................................................................... 1Section 3 Degree of Exploration and Existing Problems ............................................... 1

Chapter Two: Mine Field Exploitation ..................................................................................... 1

Section 1 Mine Field Boundary & Reserves .................................................................. 1Section 2 Designed Mine Production Capacity and Service Life .................................. 1Section 3 Mine Field Development ............................................................................... 1Section 4 Shaft ............................................................................................................... 1Section 5 Pit Bottom and Underground Chamber .......................................................... 1

Chapter Three: Main Roadway Haulage and Equipment ...................................................... 1

Section 1 Transportation Modes Selection .................................................................... 1Section 2 Selections of Haulage Equipment .................................................................. 1

Chapter Four: Mining Area Layout and Equipment .............................................................. 1

Section 1 Mining Method .............................................................................................. 1Section 2 Mining Area Layout ....................................................................................... 1Section 3 Heading Advance ........................................................................................... 1

Chapter Five: Ventilation and Safety ....................................................................................... 1

Section 1 Overview ........................................................................................................ 1Section 2 Coal Mine Ventilation .................................................................................... 1Section 3 Disaster Prevention and Control of Underground Mine ................................ 1Section 4 Coal Mine Rescue Team ................................................................................ 1

Chapter Six: Equipment of Hoist, Ventilation, Water Drainage & Air Compressing .......... 1

Section 1 Main Inclined Shaft Hoist Equipment ............................................................ 1Section 2 Ventilation Equipment ................................................................................... 1Section 3 Coal Mine Water Drainage Equipment .......................................................... 1Section 4 Coal Mine Air Compressing Equipment ........................................................ 1


– 453 –

Chapter Seven: Surface Production System ............................................................................ 1

Section 1 Coal Quality and Usage ................................................................................. 1Section 2 Coal Processing .............................................................................................. 1Section 3 Production System ......................................................................................... 1Section 4 Auxiliary Facilities ........................................................................................ 1

Chapter Eight: Ground Transportation ................................................................................... 1

Section 1 Overview ........................................................................................................ 1Section 2 Off-site Road .................................................................................................. 1

Chapter Nine: General Layout, Flood Control & Drainage ................................................... 1

Section 1 Overview ........................................................................................................ 1Section 2 Horizontal Layout .......................................................................................... 1Section 3 Vertical Design and Internal Water Drainage ................................................. 1Section 4 Internal Transport ........................................................................................... 1Section 5 Flood Control and Drainage ........................................................................... 1

Chapter Ten: Electricity ............................................................................................................ 1

Section 1 Power Supply ................................................................................................. 1Section 2 Power Load .................................................................................................... 1Section 3 Power Transmission & Transformation ......................................................... 1Section 4 Ground Power Supply .................................................................................... 1Section 5 Underground Power Supply ........................................................................... 1Section 6 Monitoring and Computer Management ........................................................ 1Section 7 Communication .............................................................................................. 1

Chapter Eleven: Surface Building ............................................................................................ 1

Section 1 Original Design Data and Building Materials ................................................ 1Section 2 Industrial Buildings and Structures ................................................................ 1Section 3 Administration and Living Facilities ............................................................. 1

Chapter Twelve: Water Supply and Drainage ......................................................................... 1

Section 1 Water Supply .................................................................................................. 1Section 2 Water Drainage .............................................................................................. 1Section 3 Indoor Water Supply and Drainage ................................................................ 1Section 4 Fire Sprinkler System .................................................................................... 1


– 454 –

Chapter Thirteen: Environmental Protection and Water and Soil Conservation ................ 1

Section 1 Overview ........................................................................................................ 1Section 2 Pollution Prevention and Control Measures .................................................. 1Section 3 Surface Subsidence Control ........................................................................... 1Section 4 Structure Establishment and Special Investment ........................................... 1

Chapter Fourteen: Coal Mine Construction Period ............................................................... 1

Section 1 Coal Mine Construction Period ...................................................................... 1Section 2 Plan for Output Increasing ............................................................................. 1

Chapter Fifteen: Technical Economy ....................................................................................... 1

Section 1 Manpower Quota and Labor Productivity ...................................................... 1Section 2 Construction Project Investment Budget ....................................................... 1Section 3 Raw Coal Production Cost ............................................................................. 1Section 4 Technical Economic Analysis and Evaluation ............................................... 1Section 5 Main Technical and Economic Index of the Coal Mine ................................. 1

Annex:1. Book of Budgetary Estimates2. List of Electrical & Mechanical Equipment

Appendix:1. EntrustmentCertificateofDesign2. Mutual Agreement between (Pt. Merge Energy Sources Development (MESD) and

Balamata County-operated Entity Regarding “Blasting and Tunneling Operation” (File No. /PKS/PD.BMT//2009)

3. Measured/Indicated/Inferred Calculation Charts of Coal Seams (A,B,C,Dup and D)


– 455 –

APPENDIX VI GENERAL INFORMATION

– 456 –

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to ARL. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. SHARE CAPITAL

The authorised and issued share capital of ARL as at the Latest Practicable Date and on the relevant dates were and will be as follows:

Authorised share capital of ARL as at the Latest Practicable Date

HK$

4,500,000,000 Shares of par value of HK$0.10 each 450,000,000

500,000,000 Convertible preference shares of par value of 50,000,000 HK$0.10 each

500,000,000

Authorised share capital of ARL upon passing of the ordinary resolution approving the Cancellation and ReclassificationandRedesigantion


200,000,000 Class A Convertible Preference Shares of 20,000,000 par value of HK$0.10

200,000,000 Class B Convertible Preference Shares of 20,000,000 par value of HK$0.10

500,000,000

Issued share capital of ARL as at the Latest Practicable Date

Number of shares HK$


App1, Part B(2)

App1, Part B(22)(1)

2nd batch Q3


– 457 –

Issued share capital of ARL immediately upon First Completion (assuming no other change in the issued share capital of ARL save for the issue of the 63,265,306 Class A Convertible Preference Shares and without taking into account any exercise of the conversion rights attached to the 63,265,306 Class A Convertible Preference Shares)


1,520,925,600 Shares of par value of HK$0.10 each 152,092,560.00 63,265,306 Class A Convertible Preference Shares of par value of HK$0.10 each 6,326,530.60

158,419,090.60

Issued share capital of ARL immediately upon Second Completion (assuming no other change in the issued share capital of ARL save for the issue of the Convertible Preference Shares and without taking into account any exercise of the conversion rights attached to the Convertible Preference Shares)


1,520,925,600 Shares of par value of HK$0.10 each 152,092,560 178,724,490 Class A Convertible Preference Shares of par value of HK$0.10 each 17,872,449 178,724,490 Class B Convertible Preference Shares of par value of HK$0.10 each 17,872,449

187,837,458

Issued share capital of ARL immediately upon full conversion of the Convertible Preference Shares (assuming no other change in the issued share capital of ARL save for the issue of the Conversion Shares as a result of the exercise of the conversion rights attached to the Convertible Preference Shares in full and assuming that all such Convertible Preference Shares will then be converted into such Conversion Shares and hence cancelled)



All issued Shares rank equally in all respects, including in particular as to dividend, voting rights and return on capital. The Conversion Shares to be allotted and issued will, when issued and fully paid, rank pari passu in all respects with the existing issued Shares.

Upon full conversion of all Convertible Preference Shares to be issued at the First Completion and the Second Completion, a total number of not more than 357,448,980 Conversion Shares will be issued by ARL. The Conversion Shares are to be issued pursuant to the Specific Mandates to be

1st batch Q16AppI, Part B, 9(1)14.60(4)(a)


– 458 –

sought in the SGM. The Conversion Shares shall rank pari passu in all respects with the Shares. An application will be made to the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares.

The Shares are listed and traded on the main board of the Stock Exchange. None of the Shares is listed, or dealt in, on any other stock exchange, nor is any listing of or permission to deal in the Shares being, or proposed to be, sought on any other stock exchange.

3. DISCLOSURE OF INTERESTS

(a) Directors and chief executives of ARL

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of ARL in the shares, underlying shares and debentures of ARL and its associated corporations which were required (a) to be notified to ARL and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were deemed or taken to have under such provisions of the SFO); (b) to be and were recorded in the register required to be kept pursuant to Section 352 of the SFO; or (c) otherwise to be notified to ARL and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”), were as follows:

Long position in the Shares and underlying Shares

Number of Number of Percentage Number of Shares underlying of the Shares owned Shares Company’s Name of directly through held under issued Director/Chief beneficially controlled equity share executive owned corporation derivative Total capital

Mr. Ng Say Pek — 860,533,333 3,000,000 863,533,333 56.78% (Note 1)

Mr. Wong Man Hung, — — 10,000,000 10,000,000 0.66% Patrick (Note 2)

Mr. Ng Xinwei — — 2,750,000 2,750,000 0.18% (Note 3)

Mr. Ashok Kumar — 48,854,000 — 48,854,000 3.21% Sahoo (Note 4)

Ms. Lim Beng Kim, 45,966,667 — 1,500,000 47,466,667 3.12% Lulu (Note 5)

Mr. Shiu Shu Ming — — 2,750,000 2,750,000 0.18% (Note 6)

Mr. Chong Lee Chang — 3,760,000 — 3,760,000 0.25% (Note 7)

App1, Part B 34App1, Part B (38)(1)App1, Part B (38)(1A)


– 459 –

Notes:

(1) This represents (i) Mr. Ng Say Pek held 80% equity interest of AIPL; and (ii) 3,000,000 share options granted to Ms. Lim Chek Hwee, the spouse of Mr. Ng Say Pek. By virtue of SFO, Mr. Ng Say Pek is deemed to be interested in the Shares and underlying Shares held by AIPL and Ms. Lim Chek Hwee respectively.

(2) This represents the number of share options granted to Mr. Wong Man Hung, Patrick.

(3) This represents the number of share options granted to Mr. Ng Xinwei.

(4) This represents 48,854,000 Shares held by Mr. Ashok Kumar Sahoo through his controlled corporation Berrio Global Limited. Berrio Global Limited is wholly owned by Mr. Ashok Kumar Sahoo.

(5) This represents the number of share options granted to Ms. Lim Beng Kim, Lulu.

(6) This represents the number of share options granted to Mr. Shiu Shu Ming.

(7) This represents 3,760,000 Shares held by Mr. Chong Lee Chang through his controlled corporation Shieldman Limited. Shieldman Limited is wholly owned by Mr. Chong Lee Chang.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executives of the Company had or was deemed to have any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they were taken or deemed to have under such provisions of the SFO); or (b) which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) which were required, pursuant to the Model Code contained in the Listing Rules, to be notified to the Company and the Stock Exchange.


– 460 –

(b) Substantial Shareholders

As at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, the following persons or corporations (other than the Directors or chief executives of the Company) had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who were directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at the general meetings of any other member of the Group:

Long position in the shares/registered capital of the member of the Group

Name of Percentage of the member Name of Capacity/nature Number of the issued of the Group shareholder(s) of interest shares share capital

ARL AIPL (Note 1) Beneficial owner 860,533,333 56.58% and interest of a controlled corporation

ARL Amber Future Beneficial owner 485,360,000 31.91% Investments Limited

Note:

(1) This represents 375,173,333 Shares beneficially held by AIPL and 485,360,000 Shares held through Amber Future Investments Limited, a wholly-owned subsidiary of AIPL.

Save as disclosed above, so far as is known to any Director or chief executive of the Company, as at the Latest Practicable Date, no other person (who is not a Director or chief executive of the Company) had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to ARL under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were recorded in the register kept by ARL under section 336 of the SFO or, who were directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or held any option in respect of such capital.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors was a director or employee of a company (or its subsidiary) which has an interest or a short position in the Shares or underlying Shares which would fall to be disclosed to ARL under the provisions of Divisions 2 and 3 of Part XV of the SFO.

AppI, Part B 34

App1, Part B (34)


– 461 –

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with ARL which will not expire or is not determinable within one year without payment of compensation (other than statutory compensation).

5. DIRECTORS’ INTERESTS IN ARL AND ITS SUBSIDIARIES’ ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE ENLARGED GROUP

As at the Latest Practicable Date:

(a) none of the Directors had any direct or indirect interests in any assets which have since 31 March 2015 (being the date to which the latest published audited consolidated financial statements of ARL) been acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group; and

(b) none of the Directors was materially interested in any contracts or arrangements entered into by any member of the Enlarged Group subsisting as at the Latest Practicable Date which is significant in relation to the business of the Enlarged Group.

6. QUALIFICATIONS AND CONSENTS OF EXPERTS

The following are the qualifications of the experts who have been named in this circular and whose advice or opinion is contained in this circular:

Name Qualification

BDO Limited Certified public accountants

Mochtar Karuwin Komar Indonesian law firm

SRK Consulting (China) Limited Independent technical consultant and independent valuer

As at the Latest Practicable Date, each of the above experts did not have any shareholding in any member of the Enlarged Group or any right or option, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group.

As at the Latest Practicable Date, each of the above experts did not have direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 March 2015, being the date to which the latest published audited consolidated financial statements of ARL were made up.

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letters and references to its name or opinions, in the form and context in which they respectively appear.

14.66(7)

App 1, Part B 40(1)

App 1, Part B 40(2)

AppI, Part B 5


– 462 –

7. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, the following Directors or their respective close associates were considered having interests in the following businesses (“Excluded Businesses”), being businesses which competed or were likely to compete, either directly or indirectly, with the businesses of ARL, other than those businesses in which ARL was interested and the Director’s only interests are as directors appointed to represent the interests of the Group.

Mr. Ng Say Pek, the non-executive Director and chairman of ARL, and Ms. Lim Beng Kim, Lulu, the executive Director, are also the controlling shareholder and senior executive of Agritrade International Pte Ltd, respectively. Agritrade International Pte Ltd is engaged in commodity trading of, including but not limited to, coal and palm oil in the South East Asia and may be in competition with ARL.

Save as disclosed above, as at the Latest Practicable Date, in so far as the Directors were aware, none of the Directors or their respective close associates had any interest in a business that competed or was likely to compete with the business of ARL.

8. LITIGATION

As at the Latest Practicable Date, none of the members of the Enlarged Group was engaged in any material litigations or claims and no litigations or claims of material importance were pending or threatened against ARL or any member of the Enlarged Group.

9. MATERIAL CONTRACTS

The following material contracts (not being contracts entered into in the ordinary course of business of the Enlarged Group) have been entered into by the Enlarged Group within two years immediately preceding the Latest Practicable Date:

(i) the Acquisition and Subscription Agreement;

(ii) the Shareholders Agreement;

(iii) the Interim Loan Agreement;

(iv) the sale and purchase agreement dated 27 August 2015 entered into between AIPL and Tiger Courage Limited, a wholly-owned subsidiary of ARL, in relation to the acquisition of the 8% equity interest in PT Rimau Indonesia by Tiger Courage Limited;

(v) the subscription agreement dated 3 July 2015 entered into between ARL and Eagle Eye Group Limited in respect of the subscription and the issue of the US Dollar convertible bonds in the principal amount of US$20,000,000;

14.66(8)

AppI, Part B 33

AppI, Part B 42


– 463 –

(vi) the placing agreement dated 18 May 2015 and the related supplemental agreement dated 21 May 2015 both entered into between ARL and Qilu International Securities Limited in respect of the placing of up to 65,000,000 new shares of ARL;

(vii) the memorandum of agreement dated 12 November 2014 entered into between Rimau Shipping Pte. Limited, a wholly-owned subsidiary of ARL, and First Union Tanker Corporation in relation to an acquisition of a crude carrier grade oil tanker at a consideration of US$ 22 million; and

(viii) the agreement dated 10 January 2014 entered into between Rimau Shipping Pte. Limited, a wholly-owned subsidiary of ARL, and AIPL in respect of the acquisition of twelve sets of vessels at a consideration of US$16 million.

10. GENERAL

(a) The registered office of ARL is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

(b) The head office and principal place of business of ARL in Hong Kong is located at Room 1705, 17/F Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong.

(c) The company secretary of ARL is Mr. Ting Kin Wai, who is a member of the Hong Kong Institute of Certified Public Accountants.

(d) The Company’s branch share registrar and transfer office in Hong Kong is Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

(e) The English text of this circular prevails over its Chinese translation in the case of discrepancy.

11. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at Room 1705, 17/F, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong, during normal business hours on any weekday (except public holidays) for a period from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association and Bye-laws of the Company;

(b) the annual reports of ARL for the two years ended 31 March 2014 and 2015;

(c) the accountants’ report on the Target Group as set out in Appendix II to this circular;

(d) the accountants’ report on unaudited pro forma statement of financial position of the Enlarged Group as set out in Appendix III to this circular;

App 1, Part B 36

App 1, Part B 35

App 1, Part B 43(1)

App 1, Part B 43(5)

App 1, Part B 43 (3)



– 464 –

(e) the Competent Person Report and Valuation Report as set out in Appendix V to this circular;

(f) the written consents from the experts as referred to under the section headed “Qualifications and consents of experts” in this appendix;

(g) the material contracts referred to in the paragraph headed “Material contracts” in this appendix;

(h) the circular of ARL dated 30 September 2015 in relation to a discloseable and connected transaction relating to the acquisition of 8% equity interest in PT Rimau Indonesia; and

(i) this circular.

12. FORWARD-LOOKING STATEMENTS

This circular contains forward-looking statements. In some cases, forward-looking statements may be identified by the use of words such as “might”, “may”, “could”, “would”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “plan”, “seek”, “continue”, “illustration”, “projection” or similar expressions and the negative thereof. Forward-looking statements in this circular include, without limitation, statements in respect of the business strategies, market position, competition, financial prospects, performance, liquidity and capital resources of the Group, the Target Group and/or the Enlarged Group (as the case may be), as well as statements regarding trends in the relevant industries and markets, technological advances, financial and economic developments, legal and regulatory changes and their interpretation and enforcement. The forward-looking statements in this circular are based on the present expectations of the management of ARL about future events. The present expectations of the management of ARL reflect numerous assumptions regarding the Group, the Target Group and/or the Enlarged Group’s strategy, operations, industry, developments in the credit and other financial markets and trading environment. By their nature, they are subject to known and unknown risks and uncertainties, which could cause actual results and future events to differ materially from those implied or expressed by forward-looking statements. Should one or more of these risks or uncertainties materialise, or should any assumptions underlying forward-looking statements prove to be incorrect, the Group, the Target Group and/or the Enlarged Group’s actual results could differ materially from those expressed or implied by forward-looking statements. Additional risks not known to the Group or that the Group does not currently consider material could also cause the events and trends discussed in this circular not to occur, and the estimates, illustrations and projections of financial performance not to be realised. Prospective investors are cautioned that forward-looking statements speak only as at Latest Practicable Date. Except as required by the applicable laws, the Group does not undertake, and expressly disclaims, any duty to revise any forward-looking statement in this circular, be it as a result of new information, future events or otherwise.


App 1, Part B 43 (2)(b)


NOTICE OF SGM

– SGM-1 –


NOTICE IS HEREBY GIVEN that the special general meeting (the “Meeting”) of Agritrade Resources Limited (“ARL”) will be held at Room 1705, 17/F, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong on Friday, 18 December 2015 at 12:00 noon for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions as ordinary resolutions of the Company. Unless otherwise indicated, capitalised terms used in this notice and the following ordinary resolutions shall have the same meanings as those defined in the circular of ARL dated 30 November 2015 (the “Circular”).

ORDINARY RESOLUTIONS

To consider and, if thought fit, pass the following resolutions as ordinary resolutions of the Company:

1. “THAT

(a) the Acquisition and Subscription Agreement and the Shareholders Agreement (as both the same may be amended and/or supplemented by the parties from time to time) and the transactions contemplated thereunder, including but not limited to the set up of a joint venture, the Equalisation Option and the conversion of any Convertible Preference Shares by SIL in accordance with the terms of the Acquisition and Subscription Agreement and/or the Shareholders Agreement, details of which are more particularly set out in the Circular, be and are hereby approved, confirmed and ratified; and

(b) the Directors be and are hereby authorised to do all such further acts and things, negotiate, approve, agree, sign, initial, ratify and/or execute such further documents and take all steps which may be in their opinion necessary, desirable or expedient to implement and/or give effect to the terms of each of the Acquisition and Subscription Agreement and the Shareholders Agreement, and the transactions contemplated thereunder (including but not limited to the set up of a joint venture, the Equalisation Option and the conversion of any Convertible Preference Shares by SIL in accordance with the terms of the Acquisition and Subscription Agreement).”

NOTICE OF SGM

– SGM-2 –

2. “THAT conditional upon the passing of the ordinary resolution numbered 1 set out in the notice convening the Meeting,

(a) the Directors be and are hereby granted the Specific Mandates to exercise the power of the Company to allot and issue the Convertible Preference Shares to SIL pursuant to the terms and conditions of the Acquisition and Subscription Agreement and subject to and conditional upon the granting by the Listing Committee of the Stock Exchange of the listing of and permission to deal in the Conversion Shares to allot and issue such relevant Conversion Shares upon the exercise of the conversion rights attached to the Convertible Preference Shares, in accordance with the terms of the Acquisition and Subscription Agreement; and

(b) the Directors be and are hereby authorised to exercise all powers of the Company and take all steps as might in his opinion be desirable, necessary or expedient in connection with the issuance and allotment of the Convertible Preference Shares and the Conversion Shares upon the exercise of the conversion rights attached to the Convertible Preference Shares.”

3. “THAT conditional upon the passing of the ordinary resolution numbered 1 set out in the notice convening the Meeting,

(a) the 500,000,000 authorised but unissued convertible preference shares of par value of HK$0.10 each in the share capital of the Company be and are hereby cancelled, and the then authorised share capital of the Company be and is hereby reclassified and redesignated from HK$500,000,000 comprising 5,000,000,000 ordinary shares of a single class of par value of HK$0.10 each into HK$500,000,000 comprising (i) 4,600,000,000 Shares of par value of HK$ 0.10 each, (ii) 200,000,000 Class A Convertible Preference Shares of par value of HK$0.10 each with a notional value of HK$2.45 each and (iii) 200,000,000 Class B Convertible Preference Shares of par value of HK$0.10 each with a notional value of HK$2.45 each with the rights, privileges and restrictions of each of the Class A Convertible Preference Shares and Class B Convertible Preference Shares set out in the Acquisition and Subscription Agreement;

(b) the terms and rights of the Convertible Preference Shares as set out in the Acquisition and Subscription Agreement be and are hereby approved; and

NOTICE OF SGM

– SGM-3 –

(c) the Directors be and are hereby authorised to do all other acts, matters and things and execute all documents as they consider necessary, desirable or appropriate for the implementation of and giving effect to the transactions contemplated under this resolution.”

By order of the Board Agritrade Resources Limited Ting Kin Wai Company Secretary

Hong Kong, 30 November 2015

Notes:

(1) A member entitled to attend and vote at the Meeting may appoint a proxy to attend and, on a poll, vote on his behalf and such proxy need not be a member of ARL. A form of proxy for use at the Meeting is enclosed.

(2) In order to be valid, the form of proxy, together with any power of attorney or authority under which it is signed or a notarially certified copy of that power of attorney or authority, must be deposited with ARL’s branch share registrar in Hong Kong, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.

(3) Completion and return of the form of proxy will not preclude a shareholder of ARL from attending and voting in person at the Meeting convened or any adjournment thereof and in such event, the authority of the proxy shall be deemed to be revoked.

(4) All proposed ordinary resolutions set out in this notice will be voted by shareholders of ARL and by way of a poll.

(5) The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.

(6) In the case of joint holders of a share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she/it were solely entitled thereto. If more than one of such joint holders are present at the Meeting, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be determined by the order in which the names stand in the register of members of ARL in respect of the joint holding.

As at the date of this circular, the Board comprises Mr. Ng Say Pek as the non-executive Chairman; Mr. Wong Man Hung, Patrick as vice-Chairman; Mr. Ng Xinwei, Ms. Lim Beng Kim, Lulu and Mr. Ashok Kumar Sahoo as executive Directors; Mr. Shiu Shu Ming as non-executive Director and Mr. Chong Lee Chang, Mr. Siu Kin Wai and Mr. Terence Chang Xiang Wen as independent non-executive Directors.