Mandala Final Report

Final

Linc Energy Limited

Qualified Persons' Report

Project No. 04237

Independent Qualified Persons' Report on the Mineral Assets of New Emerald Coal Pty Ltd

October 2013

Office Locations

Perth 87 Colin St, West Perth WA 6005 AUSTRALIA

PO Box 77, West Perth WA 6872 AUSTRALIA

Tel: +61 8 9213 9213 Fax: +61 8 9322 2576 ABN: 99 085 319 562 [email protected]

Brisbane 2 Burke Street, Woolloongabba QLD 4102 AUSTRALIA

PO Box 2207, Brisbane QLD 4001 AUSTRALIA

Tel: +61 7 3249 0800 Fax: +61 7 3868 6515 ABN: 99 085 319 562 [email protected]

Johannesburg Technology House ,Greenacres Office Park, Cnr. Victory and Rustenburg Roads, Victory Park JOHANNESBURG 2195 SOUTH AFRICA

PO Box 2613, Parklands 2121 SOUTH AFRICA

Tel: +27 11 782 2379 Fax: +27 11 782 2396 Reg No. 1998/023556/07 [email protected]

Vancouver Suite 550, 1090 West Pender St, VANCOUVER BC V6E 2N7 CANADA

Tel: +1 604 683 7645 Fax: +1 604 683 7929 Reg No. 557150 [email protected]

Calgary Suite 850, 550 11th Avenue SW CALGARY, ALBERTA T2R 1M7

Tel +1 403 452 5559 Fax +1 403 452 5988 [email protected]

Belo Horizonte Afonso Pena 2770, CJ 201 A 205 Funcionários, 30.130-007, BELO HORIZONTE MG BRASIL

Tel: +55 (31) 3222-6286 Fax: +55 (31) 3222-6286 [email protected]

London 1 Kingdom Street, Paddington Central, LONDON W2 6BD UK

Tel: +44 (20) 3402 3022 [email protected]

Website www.snowdengroup.com

This report has been prepared as an Independent Qualified Persons’

Report, in accordance with Practice Note 6.3 of the Singapore Exchange,

for Linc Energy Limited by Snowden Mining Industry Consultants Pty Ltd.

The quality of information, conclusions, and estimates contained herein is

consistent with the level of effort involved in Snowden’s services, based

on: i) information available at the time of preparation, ii) data supplied by

outside sources, and iii) the assumptions, conditions, and qualifications

set forth in this report. This report is intended to be used by Linc Energy

Limited, subject to the terms and conditions of its contract with Snowden.

That contract permits Linc Energy Limited to file this report as a Qualified

Persons’ Report with the Singapore Exchange. Except for the purposes

legislated under related securities law, any other use of this report by any

third party is at that party’s sole risk.

Prepared By Grant van Heerden, Pr.Sci.Nat. Principal Consultant BSc (Geology, Chemistry), BSc Hons (Chemistry), GDE (Mining Engineering) Ross Broadley Principal Consultant BAppSc (Geology), MAusIMM

Adriaan Benson Associate Consultant BEng Hons (Mining), MBL

Reviewed By David Lawrence General Manager BE Mining, Masters Applied Finance, MAusIMM

Qualified Person Craig Morley Global Director Growth & Strategy BSc (Hons), MBA, F(AusIMM), CP Geologist (AusIMM), MGSA

Issued by: Brisbane Office

Doc Ref: 131129_Final_04237_Linc_QPR_Report_Rev5.docx

Last Edited: 29 November 2013

Number of copies

Snowden: 2

Linc Energy Limited: 2

mailto:[email protected]







http://www.snowdengroup.com/

Linc Energy Limited: Qualified Persons' Report


.Final October 2013 3 of 126

1 Executive Summary ............................................................................................................. 10

1.1 Summary of NEC Projects ........................................................................................ 10

1.2 Summary of Mineral Resources and Ore Reserves ................................................. 10

1.3 Summary of the Mineral Asset Valuation .................................................................. 12

2 Introduction ........................................................................................................................... 13

2.1 Qualified Persons’ Statement of Independence ....................................................... 13

2.2 Aim of the Report ...................................................................................................... 13

2.3 Scope of the Report .................................................................................................. 14

2.3.1 Statement on the Use of the report .......................................................... 14

2.4 Basis of the Report ................................................................................................... 15

2.4.1 Data Sources ............................................................................................ 15

2.4.2 Data Validation ......................................................................................... 15

2.4.3 Reliance on Other Experts and Specialists .............................................. 15

2.5 Standard Used .......................................................................................................... 16

3 Property Description and location ........................................................................................ 18

3.1 Tenement Overview .................................................................................................. 18

3.2 Coal Tenure Types in Queensland ........................................................................... 18

3.2.1 Exploration Permit for Coal ....................................................................... 18

3.2.2 Mineral Development License .................................................................. 21

3.2.3 Mining Lease ............................................................................................ 21

3.3 Overlapping Tenements ........................................................................................... 21

3.3.1 Coal Tenement Overlaps .......................................................................... 21

3.3.2 Petroleum Tenement Overlaps ................................................................. 22

3.3.3 Other Tenement Overlaps ........................................................................ 22

4 Blair Athol Mine .................................................................................................................... 23

4.1 Property Description and Location ............................................................................ 23

4.1.1 Tenement Location ................................................................................... 23

4.1.2 Cultural Heritage ....................................................................................... 23

4.1.3 Environmental Liabilities and Economic Responsibilities Associated with Holding the Tenements .................................................. 26

4.1.4 Current Consents and Consent Applications ............................................ 26

4.1.5 Environmental, Rehabilitation and Abandonment Responsibilities .......... 27

4.1.6 Closure Estimate ...................................................................................... 30

4.2 Tenement History ..................................................................................................... 33

4.2.1 Historical Tenements ................................................................................ 33

4.2.2 Prior Ownership and Ownership Changes to the Current Tenement ................................................................................................. 33

4.2.3 Historical Mineral Resource and Ore Reserve Estimates......................... 36

4.2.4 Reliability of the Historical Estimates ........................................................ 36

4.2.5 Production History .................................................................................... 36

4.3 Geological Setting, Deposit Characteristics, and Target Coal Seams ...................... 37




4.4 Exploration Data ....................................................................................................... 43

4.4.1 Historical Drilling ....................................................................................... 43

4.4.2 Current and Proposed Drilling .................................................................. 43

4.4.3 Sample Preparation, Analyses, and Security ........................................... 43

4.4.4 Data Verification ....................................................................................... 44

4.4.5 Qualified Person’s Opinion on the Adequacy of the Data for the Purposes Used in the Technical Report ................................................... 44

4.5 Coal Resources ........................................................................................................ 44

4.5.1 Resource Overview for Blair Athol ............................................................ 44

4.5.2 Resource Disclosure ................................................................................ 45

4.5.3 Summary of the Geological Modelling ...................................................... 48

4.5.4 Qualified Person’s Opinion on Geological Modelling ................................ 50

4.5.5 Summary of the Resource Estimation Process ........................................ 51

4.5.6 Qualified Person’s Opinion on the Resource Estimation Process ............ 52

4.6 Mineral Processing and Metallurgical Testing .......................................................... 52

4.6.1 Overview ................................................................................................... 52

4.6.2 Data Sources ............................................................................................ 52

4.6.3 Design Parameters ................................................................................... 53

4.6.4 Process Descriptions ................................................................................ 54

4.6.5 Operating Costs ........................................................................................ 55

4.6.6 Capital Costs ............................................................................................ 55

4.7 Run of Mine Coal ...................................................................................................... 55

4.7.1 Pit Optimisation and Margin Ranking ....................................................... 56

4.7.2 Mine Design .............................................................................................. 57

4.7.3 Coal Reserve Constraints ......................................................................... 70

4.7.4 Coal Mining ............................................................................................... 71

4.7.5 Opencut Mine Schedule ........................................................................... 75

4.7.6 ROM Coal Reserve Statement ................................................................. 77

4.8 Marketable Coal Reserves ....................................................................................... 79

4.8.1 Open Cut Marketable Reserves for Blair Athol Mine ................................ 79

4.8.2 Reserve Disclosure .................................................................................. 79

4.8.3 Product Marketability ................................................................................ 79

4.9 Summary and Conclusions ....................................................................................... 81

5 Teresa Project ...................................................................................................................... 83

5.1 Property Description and Location ............................................................................ 83

5.1.1 Tenement Location ................................................................................... 83

5.1.2 Cultural Heritage ....................................................................................... 83

5.1.3 Environmental Liabilities and Economic Responsibilities ......................... 83

5.1.4 Current Consents and Consent Applications ............................................ 86

5.1.5 Environmental, Rehabilitation and Abandonment Responsibilities .......... 86

5.2 Tenement History ..................................................................................................... 86

5.2.1 Historical Ownership and Exploration ....................................................... 86

5.2.2 Historical Coal Resource and Coal Reserve Estimates............................ 90




5.2.3 Production history ..................................................................................... 90

5.3 Geological Setting, Deposit Characteristics, and Target Coal Seams ...................... 90

5.4 Exploration Data ....................................................................................................... 94

5.4.1 Historical Exploration ................................................................................ 94

5.4.2 Recent Exploration ................................................................................... 94

5.4.3 Sample Preparation, Analyses, and Security ........................................... 94

5.4.4 Qualified Person’s Opinion on the Adequacy of Sample Preparation, Security, and Analytical Procedures .................................... 95

5.4.5 Data Verification ....................................................................................... 95

5.4.6 Qualified Person’s Opinion on the Adequacy of the Data for the Purposes used in the Technical Report .................................................... 95

5.5 Mineral Processing and Metallurgical Testing .......................................................... 95

5.6 Resources and Reserves for the Teresa Project ...................................................... 95

5.6.1 Resource and Reserve Overview for the Teresa Project ......................... 95

5.6.2 Resource Disclosure ................................................................................ 95

5.6.3 Summary of the Geological Modelling ...................................................... 96

5.6.4 Qualified Person’s Opinion on the Geological Modelling .......................... 96

5.6.5 Summary of the Resource Estimation Process ........................................ 96

5.6.6 Qualified Person’s Opinion on the Resource Estimation Process ............ 96

5.7 Extraction of the Minerals from the Deposit .............................................................. 97

5.7.1 Geotechnical Engineering ........................................................................ 98

5.7.2 Geological Structures ............................................................................... 98

5.7.3 Hydrological Influences ............................................................................ 98

5.8 Summary and Conclusions ....................................................................................... 99

6 Valuation of the Mineral Deposits ....................................................................................... 100

6.1 Valuation Methods .................................................................................................. 100

6.1.1 Introduction ............................................................................................. 100

6.1.2 Mineral Resources and Ore Reserves ................................................... 100

6.2 Previous Valuations ................................................................................................ 101

6.3 Snowden Methodology and Compliance with the VALMIN Code (2005 Edition) .................................................................................................................... 101

6.3.1 Site Inspections ...................................................................................... 102

6.3.2 Tenement Details ................................................................................... 102

6.3.3 Resource and Reserves ......................................................................... 102

6.3.4 Mining and Ore Processing .................................................................... 102

6.3.5 Capital and Operating Costs .................................................................. 102

6.3.6 Revenue Assumptions ............................................................................ 103

6.3.7 Finance and Market Considerations ....................................................... 103

6.3.8 Risk ......................................................................................................... 103

6.3.9 Disclosures ............................................................................................. 103

6.4 Valuation of Blair Athol Coal Mine .......................................................................... 103

6.4.1 Introduction ............................................................................................. 103

6.4.2 Production .............................................................................................. 104

Quality 104




6.4.3 Inflation and Escalation .......................................................................... 105

6.5 Revenue and Deductions ....................................................................................... 105

6.6 Operating Costs ...................................................................................................... 105

6.6.1 Direct Operating Costs ........................................................................... 105

6.7 Off Mine and Indirect Operating Costs ................................................................... 105

6.8 Total Operating Costs and Margin .......................................................................... 106

6.8.1 Foreign Currency Component ................................................................ 106

6.8.2 Transport and Logistics .......................................................................... 106

6.8.3 Other ....................................................................................................... 106

6.8.4 Environment and Closure ....................................................................... 106

6.9 Capital Costs .......................................................................................................... 106

6.9.1 Project Capital ........................................................................................ 107

6.9.2 Stay in Business (SIB) / Sustaining CAPEX ........................................... 107

6.9.3 Working Capital ...................................................................................... 107

6.10 Tax and Royalties ................................................................................................... 107

6.10.1 Income Tax ............................................................................................. 107

6.10.2 Royalties, Carbon Tax, and MRRT ......................................................... 107

6.11 Cashflow Model ...................................................................................................... 108

6.12 Model Results ......................................................................................................... 108

6.12.1 Financial Metrics ..................................................................................... 108

6.12.2 Sensitivity Analyses ................................................................................ 109

6.12.3 DCF Valuation conclusion ...................................................................... 110

6.13 Comparative transaction valuation of the Blair Athol Project .................................. 110

6.14 Valuation of the Blair Athol Project conclusion ....................................................... 111

6.15 Valuation of the Teresa Project .............................................................................. 111

6.15.1 Introduction ............................................................................................. 111

6.16 Production ............................................................................................................... 111

6.17 Quality ..................................................................................................................... 111

6.18 Inflation and Escalation ........................................................................................... 112

6.19 Revenue and Deductions ....................................................................................... 112

6.20 Operating Costs ...................................................................................................... 112

6.20.1 Direct Operating Costs ........................................................................... 112

6.20.2 Off mine and Indirect Operating Costs ................................................... 112

6.20.3 Total Operating Costs and Margin .......................................................... 112

6.20.4 Foreign Currency Component ................................................................ 113

6.20.5 Transport and Logistics .......................................................................... 113

6.20.6 Environment and Closure ....................................................................... 113

6.20.7 Contingency and Allowances ................................................................. 113

6.21 Capital Costs .......................................................................................................... 113

6.21.1 Project Capital ........................................................................................ 113

6.21.2 Stay in Business (SIB) / Sustaining CAPEX ........................................... 113

6.21.3 Working Capital ...................................................................................... 113

6.22 Tax and Royalties ................................................................................................... 113

6.22.1 Income Tax ............................................................................................. 113




6.22.2 Royalties, Carbon Tax, and MRRT ......................................................... 114

6.23 Cashflow Model ...................................................................................................... 114

6.24 Model results .......................................................................................................... 114

6.24.1 Financial metrics ..................................................................................... 114

6.24.2 Sensitivity analyses ................................................................................ 115

6.24.3 DCF Valuation conclusion ...................................................................... 116

6.25 Comparative transaction valuation of the Teresa Project ....................................... 116

6.26 Valuation of the Teresa Project Conclusion ............................................................ 117

6.27 Summary of Valuation ............................................................................................ 118

7 Glossary, Abbreviations and Units ..................................................................................... 119

8 References ......................................................................................................................... 125

Tables

Table 1.1 NEC Projects ............................................................................................ 10

Table 1.2 Summary of Coal Resources and Coal Reserves for NEC Projects ..................................................................................................... 11

Table 1.3 Mineral Asset Valuation for NEC Projects ................................................ 12

Table 2.1 Responsibilities of each Qualified Person ................................................ 14

Table 2.2 Other Experts and Specialists .................................................................. 16

Table 2.3 Summary of Reporting Codes used in this QPR ...................................... 17

Table 3.1 Summary of Tenure – Current Leases and Applications .......................... 20

Table 4.1 Key Closure Items .................................................................................... 28

Table 4.2 Significant Historical tenements that overlap the current Blair Athol ML 1804 .......................................................................................... 33

Table 4.3 Tenements relevant to the Blair Athol Mine .............................................. 34

Table 4.4 Summary of Production Statistics from the Blair Athol Mine (source: DNRM) ........................................................................................ 36

Table 4.5 Generalised Local Stratigraphy ................................................................ 38

Table 4.6 Coal Resource Summary for Blair Athol Mine .......................................... 45

Table 4.7 Margin Ranking Parameters: Mining, Processing and Royalties .............. 56

Table 4.8 Platts Newcastle Thermal Coal Sales Price Forecast (23/7/2013) ........... 57

Table 4.9 Base Assumptions for the Open-pit Design .............................................. 57

Table 4.10 PBE Design Parameters (Xenith) ............................................................. 62

Table 4.11 Loss and Dilution assumptions (PBE) ...................................................... 63

Table 4.12 Equipment List .......................................................................................... 68

Table 4.13 Key Equipment Productivity Ranges ........................................................ 69

Table 4.14 Annual Equipment Hours .......................................................................... 69

Table 4.15 Cumulative Equipment Hours ................................................................... 70

Table 4.16 Loss and Dilution assumptions (Opencut) ................................................ 71

Table 4.17 Blair Athol Opencut Coal Reserve Estimates ........................................... 77

Table 4.18 Blair Athol Open-cut Mine Schedule Physicals 12.5% Ash Bypass ...................................................................................................... 78

Table 4.19 Blair Athol open Cut Marketable Coal Reserve Estimate ......................... 79




Table 5.1 Coal Resource and Coal Reserve Summary for the Teresa Project ...................................................................................................... 97

Table 6.1 Snowden Methodologies for the Valuation of the NEC Projects ............ 101

Table 6.2 Life of Mine Coal Reserve Summary ...................................................... 104

Table 6.3 Operating Costs ...................................................................................... 106

Table 6.4 Capital Costs .......................................................................................... 107

Table 6.5 Low, High and Preferred Values of the Blair Athol Project ..................... 110

Table 6.6 Recent Comparative Transactions (WoodMac) ...................................... 110

Table 6.7 Low, High and Preferred Values of the Blair Athol Project ..................... 111

Table 6.8 Capital Development Distribution ........................................................... 114

Table 6.9 Low, High and Preferred Values of the Teresa Project .......................... 116

Table 6.10 Wood Mackenzie Comparative Valuation Transactions (WoodMac) ............................................................................................. 117

Table 6.11 Low, High and Preferred Values of the Teresa Project .......................... 117

Table 6.12 A compilation of the Low, High and Preferred Values for Each Project .................................................................................................... 118

Table 7.1 Glossary of Technical Terms .................................................................. 119

Table 7.2 List of Acronyms ..................................................................................... 123

Table 7.3 Units of Measure .................................................................................... 124

Figures

Figure 3.1 Regional Locality of the NEC Project Tenements .................................... 19

Figure 4.1 Relative locality and extent of the Blair Athol ML, also showing the Queensland Coal Pty Ltd MLs ............................................................ 24

Figure 4.2 Blair Athol Mine showing proposed realligned boundaries for ML 1804 and ML 1881 .............................................................................. 25

Figure 4.3 Historical Tenements associated with the Blair Athol Mine (ML 1804) ........................................................................................................ 35

Figure 4.4 Regional Stratigraphy of the Bowen Basin ............................................... 37

Figure 4.5 Locality and Relative Extent of the Basement High .................................. 39

Figure 4.6 Modelled Outcrop Lines of the Primary Blair Athol Coal Measures .......... 40

Figure 4.7 Identified Faults within the Blair Athol Mining Operations......................... 42

Figure 4.8 Seam 4 Upper Coal Resource Classification ........................................... 46

Figure 4.9 Seam 4 Lower Coal Resource Classification ........................................... 47

Figure 4.10 Stratigraphic column of Blair Athol Mine (Seam 4 Group ply thicknesses from the Xenith geological model) ........................................ 49

Figure 4.11 Minescape Model Schema showing seam splitting and modelled plies and ply compounds .......................................................................... 50

Figure 4.12 Theoretical Yield-Ash Correlation at a CPP cut-point of 1.60RD.............. 53

Figure 4.13 CPP Yield (Xenith) .................................................................................... 54

Figure 4.14 Margin Ranking Results showing Economic Opencut Area ..................... 58

Figure 4.15 Opencut Pit Design (Xenith) ..................................................................... 59

Figure 4.16 Schematic of the PBE Design Panel Layout (Xenith) ............................... 61

Figure 4.17 Mining Recovery as a function of Seam Thickness (Xenith) .................... 61

Figure 4.18 PBE Target Area ...................................................................................... 64

Figure 4.19 PBE Trench Layout within Recoverable PBE Coal Area .......................... 65




Figure 4.20 Trench Design (Xenith) ............................................................................. 66

Figure 4.21 A Schematic of the Dragline Trench Dig Sequence (Xenith) .................... 67

Figure 4.22 Hard Burden Thickness (m) requiring blasting ......................................... 72

Figure 4.23 Working Section where intra-seam parting is greater than 30 cm thick (Xenith) ............................................................................................. 73

Figure 4.24 Working Section where intra-seam parting is less than 30 cm thick (Xenith) ............................................................................................. 73

Figure 4.25 Indicative Specifications for a 12.5% Ash Product (Xenith) ...................... 74

Figure 4.26 Opencut Annual Production Schedule (Xenith) ........................................ 75

Figure 4.27 Opencut Schedule Sequence (Xenith) ..................................................... 76

Figure 4.28 Import Demand for Low Energy Thermal Coal (2013-2030) .................... 80

Figure 4.29 Blair Athol Coal Quality compared with Newcastle Benchmark and Global Thermal Exports (modified after WoodMac) .......................... 80

Figure 4.30 Expected price range for Blair Athol coal sold into the seaborne thermal market (2013 real US$/t) (WoodMac) .......................................... 81

Figure 5.1 Regional Locality of the Teresa Project (relative to other NEC tenements) ................................................................................................ 84

Figure 5.2 Existing Infrastructure Proximal to the Teresa Project.............................. 85

Figure 5.3 Historical Tenements EPC592 and EPC389 relative to the current Teresa Project Tenements ........................................................... 88

Figure 5.4 Historical Tenement EPC753 relative to the current Teresa Project Tenements ................................................................................... 89

Figure 5.5 Regional Fault Structure (western edge) of the Teresa Project................ 92

Figure 5.6 Generalised Stratigraphy of the Teresa Project ....................................... 93

Figure 6.1 Discounted Cash Flow for Blair Athol over Planned Mine Life ............... 108

Figure 6.2 Blair Athol NPV Sensitivity Analysis ....................................................... 109

Figure 6.3 Discounted Cumulative Cashflow – Project Teresa ............................... 114

Figure 6.4 Sensitivity analysis for Project Teresa .................................................... 115




1 Executive Summary

Snowden Mining Industry Consultants Pty Ltd (“Snowden”) has prepared this Independent Qualified Persons’ Report (“QPR”) on behalf of Linc Energy Limited (“Linc”) in partial fulfilment of the requirements of Linc’s intended listing on the Singapore Exchange (“SGX”).

New Emerald Coal Pty Ltd (“NEC”) is a wholly owned subsidiary of Linc and the material mineral assets held by NEC, and managed by NEC on behalf of Linc, are the subject of this QPR.

NEC is a mineral exploration, development, and production company that will operate in the State of Queensland, Australia.

This QPR has been compiled in accordance with the relevant SGX Mainboard Rules and requirements, in particular Practice Note 6.3 Disclosure Requirements for Mineral, Oil and Gas Companies

1.

This QPR describes the tenements and tenement applications, inclusive of Coal Resource and Coal Reserve statements, as appropriate and relevant Mineral Asset Valuations, of NEC.

Snowden confirms that this QPR has been compiled in accordance with the ‘Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports, The VALMIN Code, 2005 Edition’ (the “VALMIN Code”), and conforms to this code throughout the report.

1.1 Summary of NEC Projects

A summary of NEC’s projects and their current status is presented in Table 1.1.

Table 1.1 NEC Projects

Project Location Status

Blair Athol

Clermont, Queensland

Mine on care and maintenance. Defined resource and reserve under JORC 2012

Teresa Emerald, Queensland

Greenfields project. Defined resource and reserve under JORC 2004

1.2 Summary of Mineral Resources and Ore Reserves

A summary of Coal Resources and Coal Reserves, by project, is presented in Table 1.2

1 http://rulebook.sgx.com/

http://rulebook.sgx.com/




Table 1.2 Summary of Coal Resources and Coal Reserves for NEC Projects

Category Mineral

Type

Gross Attribute to Licence

Net Attribute

Remarks

to Issuer

Tonnes (millions)

Grade Tonnes

(millions) Grade

Change from

previous update

(%)

Blair Athol

Reserves

Proved Coal 8.7 Thermal 8.7 Thermal N/A

Probable Coal 2.6 Thermal 2.6 Thermal N/A

Total Coal 11.3 Thermal 11.3 Thermal N/A

Resources*

Measured Coal 12.6 Thermal 12.6 Thermal N/A

Indicated Coal 8.5 Thermal 8.5 Thermal N/A

Inferred Coal 25 Thermal 25 Thermal N/A

Total Coal 46 Thermal 46 Thermal N/A

Teresa

Reserves

Proved



Resources*

Measured

Indicated Coal 82 Thermal 82 Thermal N/A



ALL PROJECTS

Reserves

Proved Coal 8.7 Thermal 8.7 Thermal N/A



Resources*

Measured Coal 12.6 Thermal 12.6 Thermal N/A

Indicated Coal 90.5 Thermal 90.5 Thermal N/A


Grand Total Coal 348 Thermal 348 Thermal N/A

* Resources are reported INCLUSIVE of Reserves




1.3 Summary of the Mineral Asset Valuation

A summary of the Mineral Asset Valuation for NEC projects valued as part of this QPR is presented in Table 1.3.

Table 1.3 Mineral Asset Valuation for NEC Projects

Project Low

(AUD$ Million) High

(AUD$ Million) Preferred

(AUD$ Million)

Blair Athol 121.0 238.0 181.0

Teresa 59.0 479.0 259.0

Totals 180.0 717.0 440.0




2 Introduction

The Qualified Person (“QP”) with overall responsibility for this report is Mr Craig Morley. Mr Morley is a director and full time employee of Snowden. He is a Fellow of the Australasian Institute of Mining and Metallurgy (“AusIMM”) and is recognised as a Chartered Professional Geologist with that organisation. He is also a Competent Person under the requirements of the VALMIN Code and a member of the Geological Society of Australia.

Snowden’s registered address is:

87 Colin Street West Perth WA Australia 6005

While Mr Morley takes overall responsibility for this report he has relied upon the work of several other independent QPs that have contributed to certain sections of this QPR. These QP’s are named in Table 2.1 along with their respective areas of responsibility.

2.1 Qualified Persons’ Statement of Independence

Neither Snowden nor its employees and associates whom have actively contributed to this QPR in terms of the technical evaluation and economic valuation have any material interest, current or contingent, in the outcome of this report, or in Linc and/or NEC itself.

Snowden is not aware of any factors or reasons that may be regarded as being capable of affecting its independence in the preparation of this document.

Snowden will be paid a consulting fee based on its standard professional fee structure and the payment of the fee is not contingent on any outcomes of this report.

2.2 Aim of the Report

NEC requested that Snowden prepare an Independent QPR incorporating an independent Mineral Asset Valuation of NEC’s assets located in Queensland as at September 2013. Snowden understands that this QPR is to be used by Linc for the purpose of listing on the mainboard of the SGX. Snowden has therefore developed this QPR in compliance with the disclosure requirements for mineral, oil and gas companies listing on the mainboard of the SGX.

Unless otherwise stated, information and data contained in this report or used in its preparation has been provided to Snowden by NEC.

The aim of the report is to provide an independent assessment of the Coal Resource and Coal Reserve estimates presented to NEC by other independent consultants, and to provide an independent valuation of the material mineral assets held, either wholly or jointly, by NEC.




Table 2.1 Responsibilities of each Qualified Person

Qualified Person Affiliation /

Qualification Company/Organisation Responsibilities

Craig Morley FAusIMM, CP (Geo)

Snowden Mining Industry Consultants

Overall QP, Valuations

David Lawrence MAusIMM Snowden Mining Industry Consultants

Coal Reserves and Valuation

Ross Broadley MAusIMM Snowden Mining Industry Consultants

Coal Reserves and Valuation

Adriaan Benson MAusIMM Alpha Mine Planning Coal Reserves and Valuation

Glen Guy MAusIMM Snowden Mining Industry Consultants

Geotechnical and Geohydrology

Grant Van Heerden SACNASP

2,

Pr.Sci.Nat. Snowden Mining Industry Consultants

Geology and Coal Resources, Tenement History

Terry Wex MAusIMM QCC Resources Mineral Processing and Design

Michael Vincent EIANZ3 MTV Environmental

Environmental and Social Responsibilities

2.3 Scope of the Report

The scope of this QPR has been to:

Assemble the current documentation and data available for NEC’s projects

Provide NEC with an independent assessment of material matters pertaining to the mineral assets within their projects

Provide NEC with an independent economic valuation of the two projects for which Coal Reserves have been estimated.

This QPR, which forms part of the documentation required to list on the SGX Mainboard, has been completed in compliance with the requirements for ‘Mineral, Oil and Gas Companies’ as stipulated in Practice Note 6.3 in terms of Rule 624 of Chapter 6 of the SGX Mainboard Rules.

2.3.1 Statement on the Use of the report

Snowden understands that this Independent QPR, inclusive of Mineral Asset Valuations, is to be included as part of a prospectus to be issued by Linc as part of a listing on the mainboard of the Singapore Exchange.

2 South African Council for Natural Scientific Professions

3 Environment Institute of Australia and New Zealand




2.4 Basis of the Report

2.4.1 Data Sources

The data sources utilised in the completion of the QPR include:

A Tenement Report prepared by Environmental & Licensing Professionals Pty Ltd, dated 21 March 2013. This report is a summary of the tenements held and tenement applications, with additional details on the environmental responsibilities, statutory year by year tenement proposed expenditure and cultural heritage responsibilities.

An electronic data room set up by NEC. The data room incorporated information such as: borehole data (geophysical logs, LAS files, field logs, laboratory analysis certificates, etc.), historical tenement reports, annual statutory reports for the status of each project and budget expenditure on the projects.

Relevant Independent Geological Reports, including Due Diligence Reports and Coal Resource and Coal Reserve Statements, compiled by Xenith Consulting Pty Ltd.

Relevant Independent Concept and Prefeasibility Study progress reports, compiled by MineCraft Consulting Pty Ltd.

Marketing Assessment Reports prepared by Wood Mackenzie Coal Consulting Pty Ltd.

2.4.2 Data Validation

Snowden completed a technical review of the reports and data provided in the data room and made reasonable enquiries or used its professional judgment to determine the validity of the information. Where possible, Snowden performed random validation and comparative checks on borehole lithology data, coal quality data and laboratory analytical reports, Coal Resource and Coal Reserve estimates, and tenure status and ownership.

The tenement and tenement application data validation involved a cross-check against the information available from the Interactive Resource and Tenure Maps (“IRTM”)

4

available online through the Queensland Government Department of Natural Resources and Mines (“DNRM”)

5. In some instances the tenement application data as received was

updated to reflect the current tenement status reflected by the DNRM.

Snowden found no reason to doubt the accuracy or reliability of the information in the reports or data. All observations made in preparing this QPR are noted within the relevant sections of this document.

2.4.3 Reliance on Other Experts and Specialists

Snowden has relied upon existing unpublished reports prepared by various Independent Experts

6 and Specialists

7 relating to tenure and licensing aspects, Coal Resources, Coal

Reserves, and Marketing Assessments.

4 DNRM’s IRTM website (https://webgis.dme.qld.gov.au/webgis/webqmin/viewer.htm)

5 DNRM website (http://mines.industry.gov.au)

6 Independent Expert as defined in the VALMIN Code, 2005 Edition

7 Specialist as defined in the VALMIN Code, 2005 Edition

https://webgis.dme.qld.gov.au/webgis/webqmin/viewer.htm

http://mines.industry.gov.au/




Snowden has relied on the information and data contained in the reports prepared by the other experts and specialists and made reasonable enquiries or used its professional judgment as to the validity of the information, including, where possible, validating the data against publically available sources. Other experts and specialists are summarised in Table 2.2.

Table 2.2 Other Experts and Specialists

Expert / Specialist Company Contribution Relied Upon by Snowden

Environmental & Licensing Professionals Pty Ltd Tenement Status (including environmental and heritage status)

Gordon Geotechniques Pty Ltd Mining Geotechnical Assessment

M Resources Pty Ltd Coal Quality Assessment

MineCraft Consulting Pty Ltd Mining Feasibility and Coal Reserves

Wood Mackenzie Coal Consulting Pty Ltd Market Demand Assessments and Revenue Forecast

Xenith Consulting Pty Ltd Geological Assessments, Coal Resources and Coal Reserves

2.5 Standard Used

This QPR has been compiled in accordance with Practice Note 6.3 in terms of Rule 624 of Chapter 6 of the Mainboard Rules of the SGX.

The reporting standard used for Mineral Asset Valuations reported in this QPR is the VALMIN Code.

The reporting standard used for reporting of exploration results, Coal Resources, and Coal Reserves is both the 2004 and the 2012 editions of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (the “JORC Code”).

The relevant codes these are summarised in Table 2.3.




Table 2.3 Summary of Reporting Codes used in this QPR

Company Project Key Deliverable Applicable Reporting Code Date

Xenith Consulting Pty Ltd Blair Athol Geology and Coal Resources The JORC Code, 2012 Edition Aug-13

Xenith Consulting Pty Ltd Blair Athol Coal Reserves The JORC Code, 2012 Edition Sep-13

Xenith Consulting Pty Ltd Teresa Geology and Coal Resources The JORC Code, 2004 Edition Aug-13

MineCraft Consulting Pty Ltd Teresa Coal Reserves The JORC Code, 2004 Edition Aug-13




3 Property Description and location

The properties detailed in this QPR consist of seven (7) coal tenements and tenement applications located within the state of Queensland, Australia. The coal tenements and tenement applications have been issued by the Queensland Government’s Department of Natural Resources and Mines. The tenements are summarised in Table 3.1 and can be seen in Figure 3.1.

3.1 Tenement Overview

The seven (7) coal tenements and tenement applications have been grouped into two (2) geographic project groups:

Blair Athol – one (1) tenement

Teresa Project – four (4) tenements and two (2) tenement applications.

3.2 Coal Tenure Types in Queensland

The DNRM administers the right to explore for minerals in the state of Queensland, Australia. There are three (3) types of mineral tenure relevant to coal in Queensland, Australia

8. The mineral tenure types are:

Exploration Permit for Coal

Mineral Development License

Mining Lease.

The three (3) coal tenure types in Queensland are described briefly hereunder.

3.2.1 Exploration Permit for Coal

Under Queensland mineral legislation, an Exploration Permit for Coal (“EPC”):

allows the holder to take action to determine the existence, quality and quantity of minerals on, in or under land by methods which include prospecting, geophysical surveys, drilling, and sampling and testing of materials to determine mineral bearing capacity or properties of mineralisation

may eventually lead to an application for a mineral development licence or mining lease

can be granted for a period of up to five years; and

can be renewed.

8 DNRM website (www.mines.industry.qld.gov.au)

http://www.mines.industry.qld.gov.au/




Figure 3.1 Regional Locality of the NEC Project Tenements




Table 3.1 Summary of Tenure – Current Leases and Applications

Asset Name / Country / Lease Type

of Mineral

Status Sub-status Issuer's Interest

Lease Expiry Date

Development Status Planar

Area (Ha) Remarks

Blair Athol Mine / Australia / ML 1804 Coal Granted - 100 30-Nov-14 Production (Care and

Maintenance) 2,361

Return to Production expected in 2014

Teresa Project / Australia / EPC 980 Coal Granted - 100 03-Nov-15 Exploration with Resources &

Reserves Estimated ca.

11,600

Teresa Project / Australia / EPC 1226 Coal Granted Renewal Lodged

100 13-Jul-13 Exploration with Resources &

Reserves Estimated ca.

18,300 Renewal lodged - pending approval

Teresa Project / Australia / EPC 1267 Coal Granted Renewal Lodged

100 04-Dec-13 Exploration with Resources &

Reserves Estimated ca. 3,100

Renewal lodged - pending approval

Teresa Project / Australia / EPC 2841 Coal Granted - 100 27-Sep-17 Exploration only - no Resources ca. 1,200

Teresa Project / Australia / MLA 70405 Coal Application COA

9

Issued 100 -

Exploration with Resources and Reserves Estimated

6,878 Application pending

approval

Teresa Project / Australia / MLA 70442 Coal Application COA

Issued 100 -

Exploration with Resources Estimated

3,040 Application pending

approval

9 Certificate of Application




3.2.2 Mineral Development License

Under Queensland mineral legislation, a Mineral Development Licence (“MDL”):

allows the holder to undertake geo-scientific programs (e.g. drilling, seismic surveys), mining feasibility studies, metallurgical testing and marketing, environmental, engineering and design studies to evaluate the development potential of the defined resource

can be granted to the holder of an exploration permit for a period of up to five years where there is a significant mineral occurrence of possible economic potential; and

can be renewed.

3.2.3 Mining Lease

Under Queensland mineral legislation, a Mining Lease (“ML”) is granted for mining operations and:

entitles the holder to machine-mine specified minerals and carry out activities associated with mining or promoting the activity of mining

is not restricted to a maximum term-this is determined in accordance with the amount of reserves identified and the projected mine life; and

can be granted for those minerals specified in either the prospecting permit, exploration permit or mineral development licence held prior to the grant of the lease.

3.3 Overlapping Tenements

3.3.1 Coal Tenement Overlaps

Overlapping tenements of different tenure types are not typically problematic under Queensland legislation and the tenement approval system

10. EPC’s are granted on a

block and sub block basis. In instances where an EPC overlaps a current MDL or ML, the current MDL or ML excludes the EPC holder from coal exploration in the overlap area. Similarly, a competing interests ML will not be granted over another non-related entity’s MDL. MDL’s and ML’s are granted in consideration of the practical implications related to the mining of the coal resource.

10

The relevant local legislation is the Mineral Resources Act 1989




3.3.2 Petroleum Tenement Overlaps

Overlapping petroleum tenements are of particular importance to holders of coal tenements in Queensland. Certain restrictions on exploration activities can be imposed on either party. Legal council should be consulted where this occurs. The DNRM provides the following information on the seven (7) petroleum tenure types in Queensland:

1. Exploration Permit for Petroleum (“EPP”) – also referred to as a petroleum Authority to Prospect (“ATP”), required for the purpose of petroleum and gas (inclusive of CSG) exploration.

2. Potential Commercial Areas (“PCA”) – an upgrade of the EPP to account for additional detailed data collection or proposed infrastructure i.e. oil or gas pipelines, being built within a distance of the deposit potentially rendering the deposit economic.

3. Petroleum Lease (“PL”) – required for the purpose of petroleum and gas (inclusive of CSG) extraction.

4. Petroleum Pipeline License (“PPL”) – required for the purpose of the construction and operation of a pipeline.

5. Petroleum Survey License (“PSL”) – required for the purpose of entering lands in order to survey the proposed route of pipeline or the suitability of land for a petroleum facility licence.

6. Data Acquisition Authority (“DAA”) – required for the purpose of conducting geophysical surveys for petroleum.

7. Petroleum Facility License (“PFL”) – required for the purpose to construct and operate a petroleum facility.

3.3.3 Other Tenement Overlaps

In certain instances, as summarised in Table 3.1, some NEC tenements overlap not only with petroleum tenements, but in some instances with mineral tenements

11. The following

mineral tenements can also overlap with EPC’s, MDL’s and ML’s:

Exploration Permits for Minerals (“EPM”) – issued for minerals other than coal, with the same conditions as an EPC.

Exploration Permits for Greenhouse Gas (“EPQ”) – storage of greenhouse gas.

Mining claim (“MC”) – issued for minerals, excluding coal, for small scale mining operations.

11

Mineral Tenements refer to tenements related to minerals other than coal




4 Blair Athol Mine

4.1 Property Description and Location

The Blair Athol Mine (tenement ML 1804) has been acquired in September 2013 by NEC from the Blair Athol joint venture. As a result of this acquisition NEC is in the process of assuming ownership and the transfer of appropriate licences, tenements, and infrastructure with the intention of restoring the mine to operation.

4.1.1 Tenement Location

The Blair Athol Basin hosts the Blair Athol Mine. Figure 4.1 shows the relative locality of the Mining Lease boundary associated with Blair Athol Mine. Tenement ML 1804 is owned by NEC. Prior to the placement of Blair Athol into care and maintenance, the mine infrastructure on ML 1881 (owned by Queensland Coal Pty Ltd

12) was utilised by the mine

operators to support both the Blair Athol and the nearby Clermont Mine coal mining operations. Snowden understands that, at the time of writing, the infrastructure on ML 1881 is still utilised to support mining operations at Clermont Mine

13. Infrastructure

located on ML 1881 includes an overland conveyor-belt system that carries coal from Clermont Mine the coal product stockpile on ML 1881, and a coal load-out facility linked to the Wontonga Blair Athol Mine Branch of the regional railway network. Snowden further understands that the infrastructure is owned by Queensland Coal Pty Ltd.

The future mining operations contemplated at Blair Athol are dependent on the infrastructure associated with ML 1881. The Blair Athol tenement contains the majority of the current exposed open pit that constitutes Blair Athol Mine, the coal preparation plant (“CPP”), the tailings dam for the CPP and various other water discharge and storage dams. The coal load-out facility, the current fuel store, explosives magazine, electricity supply sub-station, water treatment plant, workshop, and site office are located on ML 1881. These assets will be carved out of ML 1881 and appended to ML 1804 through a lease boundary realignment application to be submitted to the DNMR as shown in Figure 4.2.

4.1.2 Cultural Heritage

The Blair Athol tenement was granted on the 16th of November 1978. Following a review of the documents provided to Snowden is was evident that there were no native title, or indigenous cultural heritage, issues associated with the Blair Athol Mine. The Blair Athol tenement does however contain a cemetery within the southern limit of the defined Seam 4 outcrop (Figure 4.2) and it is probable that this feature overlies potentially economic coal. If the cemetery is to be relocated, it will require engagement with the local community and relevant technical specialists, and will require careful planning and compliance with the relevant legislation.

12

DNRM’s IRTM website (https://webgis.dme.qld.gov.au/webgis/webqmin/viewer.htm) 13

Queensland Coal Pty Ltd is a wholly-owned subsidiary of Rio Tinto Coal Australia Pty Ltd, which manages Clermont Mine of behalf of a joint venture partnership (http://www.riotintocoalaustralia.com.au)

https://webgis.dme.qld.gov.au/webgis/webqmin/viewer.htm

http://www.riotintocoalaustralia.com.au/




Figure 4.1 Relative locality and extent of the Blair Athol ML, also showing the Queensland Coal Pty Ltd MLs




Figure 4.2 Blair Athol Mine showing proposed realligned boundaries for ML 1804 and ML 1881




4.1.3 Environmental Liabilities and Economic Responsibilities Associated with Holding the Tenements

The current mine site is regulated under local Queensland legislation, the Environmental Protection Act 1994 (“EP Act”). The site operates under a Level 1 non-code compliant Environmental Authority (“EA”) – MIN100930009. The EA is the primary legal instrument that sets out environmental conditions for mining activities on ML 1804 and ML 1881.

A Plan of Operations (“POPS”) for the period January 2013 to December 2013 has been submitted to the Department of Environment and Heritage (“DEHP”). The POPS details how the operations will comply with the EA conditions. It also includes a land disturbance and rehabilitation breakdown, which has been used to calculate the financial assurance that the mine is required to hold (~AUD$93M). The current POPS states that the mine is in care and maintenance, with coal mining and production having ceased on 23 November 2012.

Four water licenses are held for the creek diversions that exist, these being the Northern Boundary Drain, the Eastern Diversion Realignment, the Eastern Diversion, and the South Eastern Diversion. These licenses set out monitoring and rehabilitation requirements for the diversions.

The existing mine operated from 06 April 1984 until 23 November 2012. Environmental liabilities are therefore well understood and considerable closure planning work has been completed by various parties.

4.1.4 Current Consents and Consent Applications

The following key approvals are required for continued operations at Blair Athol:

Transfer of EA (from current owners to NEC)

Transfer of water licenses (from current owners to NEC)

Revised Plan of Operations

EA amendment / Update of Final Void Investigation and Spoil Characterisation

License amendment / new licenses for realignment of creek diversions.

The details of the approvals process that relates to the relinquishment of the Mining Leases and surrender of the EA, will likely occur at a minimum eight (8) years into the future on the completion of mining activities. The relinquishment approvals are not detailed here as the overall coal extraction effects on the final landform are not yet known. They are instead considered in terms of an order of magnitude relative to existing open cut operations with a similar level of surfaces disturbance.

Individual summaries of the key approvals are supplied in the sub-sections below.

Transfer of EA

In Snowden’s opinion, the EA held by the current owners for the existing mine site will generally be relevant for NEC’s Project. The EA will need to be transferred to NEC and this is a relatively straight-forward process. Snowden does not expect this process to negatively impact on the future of the Blair Athol operations.




Revised Plan of Operations

A current Plan of Operations exists for ML 1804 and ML 1881. Upon transfer of the existing EA, a revised POPS will need to be submitted to the regulator (DEHP). The POPS will need to set out the planned activities and disturbances for the period and demonstrate how the Project will comply with each condition of the EA. A revised Land Disturbance Model will need to be developed in order to calculate the financial assurance in accordance with the recently released Financial Assurance under the Environmental Protection Act 1994.

Amendment of EA

It is likely the DEHP will amend the existing EA conditions to require an update to the Final Void Investigation and Spoil Characterisation work to reflect the changes in the mine plan for the Project. These amendments will be administrative and should not pose any delay risks. This will provide an opportunity for the Proponent to amend the EA for any other conditions required for the Project.

The DEHP, in accordance with the Environmental Protection (Greentape Reduction) and Other Legislation Amendment Act 2012, has updated the guideline, ‘Triggers for environmental impact statements under the Environmental Protection Act 1994 for mining, petroleum and gas activities’. The new guideline and Acts are much more flexible for existing Brownfield Projects that are not going to have a significant increase in environmental harm. It will therefore be imperative for the EA amendment application to clearly demonstrate how the Project will not be resulting in an increase in environmental harm as a result of the proposed future mining activities. This application should be made early so as to minimise the impact of any delays due to environmental approvals.

Transfer of Water Licenses

The four water licenses will need to be transferred to reflect the change in ownership of the underlying land and / or tenements. The Water Act 2000 sets out requirements for amendment of the water licenses. The current creek diversions require remedial work and further diversion to allow access to the remaining coal resources. Functional designs (concept) have been developed for the proposed final alignments of the creeks. It is likely that the existing licenses will need to be amended or renewed to allow these changes.

The Water Act 2000 is very specific in that an amendment can only be granted if the “interfering with flow in a water course” is decreased as a result of the changes. If this clause cannot be met, new licenses are likely to be required.

4.1.5 Environmental, Rehabilitation and Abandonment Responsibilities

Environmental Risks and Considerations

The following environmental risk issues have been identified for Blair Athol based upon existing mine planning and environmental information that was made available or which was publically available. Where information gaps exist, issues have been identified if they are likely to occur or if they have the potential for significant consequences. A significant amount of planning has already been completed for the final rehabilitation and closure of the existing operations. Table 4.1 lists the key closure items that have been identified for the Project.




Table 4.1 Key Closure Items

Item Amount

Disturbed Land 863 ha

Cost to rehabilitate AUD$57,590/h

Tails Dam AUD$10 million (2 + 8)

Diversions AUD$10 million

Demolition AUD$8.8 million

Maintenance and mitigation/repair works AUD$5 million (1+1+1+2)

Based upon work completed by the current mine operators, designs for the final rehabilitation of the existing tailings dam (detailed design) and the final alignments and remediation of the various creek diversions and clean water diversions (concept designs) have been completed and costed.

The following is a list of key environmental risk issues that have the potential to trigger approval delays for the Project, or which have the potential to add to the closure estimate already allowed for.

Transfer of EA

Chapter 5, Part 9, of the EP Act sets out requirements for transfer of an EA from the holder to another entity. This process is relatively straightforward and should take no longer than 15 business days. An application to transfer an EA can only be refused if the entity the EA is being transferred to is not a registered suitable operator

14.

There are several conditions within the existing EA that have the potential to result in additional costs or inefficiencies for the Project. The conditions include:

F10 – Coal washery wastes and spoil with an exchangeable sodium percentage (ESP) of >30% must be covered with a minimum of 1 m of benign material i.e. with <15%, prior to rehabilitation commencing.

F11 – An overburden monitoring and assessment program must be developed and implemented in order to determine the need for implementation of the provisions of condition F10

Complete an investigation into residual voids and submit as part of the Mine Closure Plan report to the administering authority proposing acceptance criteria to meet the outcomes in condition F13 by 1 December 2006. The investigation will be ongoing during the life of the mine, will include detailed research and modelling and must at a minimum include the following:

A void hydrology study, addressing the long-term water balance in the voids, connections to groundwater resources and water quality parameters in the long term

A study of void capability to support native flora and fauna and

A proposal/s for end-of-mine void rehabilitation success criteria and final void areas and volumes.

It should be assumed that the Project will need to revise and continue the studies referred to above and comply with these prescriptive conditions.

14

See Chapter 5A, Part 4, of the EP Act




Creek Diversions

Four existing creek diversions have been in place for some time. Considerable work has gone into planning for the final alignment of the creek diversions so as to maximise resource recovery, but also to ensure the creeks can function in a stable and non-polluting manner into the future. There are two risk issues relating to the diversions:

DEHP do not approve the new designs. This not likely given the functional design work has been developed by a leading, reputable water engineering firm.

The realigned creek diversions do not stabilise as expected and ongoing remedial works are required, posing a future risk to relinquishment.

The engagement of a reputable engineering firm such as Alluvium (who completed the functional designs) for the detailed design of the creek diversions will help mitigate both of the above risk issues.

Final Voids

The current plan for final voids post-mining is to make them safe and secure. There are no plans to regrade them. Whilst this approach is not uncommon across the industry, there is a risk that this will become unacceptable into the future. Lease relinquishment and EA surrender could prove difficult. To mitigate this risk, revision and extension of the final void investigation for the current mine should be completed for the Project during detailed design. A scope for this investigation can be extracted from EA condition F15.

Contaminated Land

A contaminated land register has been maintained by the current mine. The register identifies various potentially contaminated land areas including asbestos, landfills and tyres buried in spoil. Most of these areas are considered to be low risk due to them being well-buried away from groundwater and surface waters. The register has also highlighted known contaminated land issues associated with bulk storages areas at the mine industrial area. Phase 1 and Phase 2 investigations have been completed for these areas and estimate that approximately 30,000 m

3 – 50,000 m

3 of contaminated soil will require

remediation or removal. There are two key risk issues that could result in problems for the Project:

The contamination from the bulk diesel tank area has migrated into groundwater aquifers.

The volume of contaminated material is greater than expected.

To mitigate these risks it is recommended an appropriate budget (with contingency) is allowed for remediation of contaminated land and water.

Rehabilitation of In-pit Tailings Dam

The storage and long-term rehabilitation of tailings dams within mined out pits is generally a better solution when compared to above-ground tailings dams. This is because incidental seepage from the storage is contained and unlikely to enter surface waters.




The existing tailings and coarse reject material that has been deposited into the Tailings Dam at the Project site is classed as Non Acid Forming (“NAF”) and Potential Acid Forming (“PAF”) respectively. The risk associated with permanent storage of PAF material in-pit is if the potentially acidic leachate has the opportunity to migrate into connected groundwater systems. The connectivity between the tailings and rejects material and any groundwater aquifers is not known (based on documentation reviewed by Snowden). A “Store and Release” capping cover has been designed by qualified engineers (Ramp 2 Tailings Storage Facility – Rehabilitation and Closure Design). This cover will minimise the infiltration of water into the rejects-based dam wall, maintain the tailings in a saturated state, and in turn reduce the likelihood of oxidation and hence acid production.

Storage of Future Tailings Material

This risk issue applies to the future storage of tailings and coarse rejects material. From the documentation reviewed it is not known where the tailings and coarse rejects material will be disposed of if mining recommences. It is recommended that groundwater interaction and closure is considered during the selection of an appropriate storage facility, as required.

4.1.6 Closure Estimate

In line with industry standards and as per EA requirements, rehabilitation efforts have focussed on achieving an agreed final landform (maximum slopes of 15%) capable of maintaining a native vegetation cover.

A disturbance model has been maintained by the site. The disturbance model splits out the different disturbance types into categories that will require rehabilitation prior to lease relinquishment. For example final void, dragline spoil, regraded areas, topsoiled areas, seeded areas, roads, buildings, tailings, water dams.

Along with additional and detailed costings for high risk items such as creek diversions, contaminated areas and tailings dams, the disturbance model has been used to calculate a closure cost estimate for the current mine. The following is a summary of the key items included in the closure cost estimate for the Project:

Rehabilitation of disturbed land (Mine Spoil)

Capping of Ramp 2 Tailings Dam

Remedial works and final alignments for creek diversions

Demolition of buildings and CHPP

Ongoing repair works.

Considerable closure planning has been completed by the existing mine. This planning ranges from concept design for the creek diversions through to detailed design for the Ramp 2 Tailings Capping. NEC have utilised much of this work and combined it with the final landform modelling that they have completed, to arrive at a Project closure estimate of AUD$88.5M.




Of the AUD$88.5M, AUD$63.5 has been allowed for rehabilitation of mine spoil and other disturbed areas (Environmental Provisions), AUD$20M has been budgeted as Capital Works (Creek Diversions and Tailings Dam Capping) and AUD$5M has been included for remedial works for miscellaneous rehabilitation. It is noted that a specific allowance has not been made for the capping of the new Ramp 3 tailings storage. However capping requirements for this facility are not expected to be as significant as those for Ramp 2 Tailings Dam, given the relatively small volume of tailings being disposed of for the Project.

When compared to other mines of similar size in the Bowen Basin, this closure estimate appears to be in the right order of magnitude. No coal mines in Queensland have successfully closed and had their mining leases relinquished.

Closure Risks

The key closure risks relating to Blair Athol that have the potential to result in increased closure costs above those currently included in the estimate are:

Creek diversions fail or require significant work

Final landform unstable

Not all closure costs allowed for

Leaving final voids becomes unacceptable.

The Project’s final landform proposes that final voids remain in situ. The rehabilitation objectives of the remaining final voids are to fence and secure them from a safety perspective. There are no plans to regrade them. Whilst it is arguable that an in situ highwall is inherently more stable than a regraded landform, there is a risk that this will not be accepted by regulators into the future. The current site’s EA includes a condition that requires a Final Void investigation. The investigation will most likely need to be updated for the Project and will address hydrological, final landform and land use aspects. Should further earthworks on final voids be required in the future, this would come at a significant cost.

Creek Diversions Fail or Require Significant Work

As previously mentioned, functional designs have been completed for the remediation and final alignments of the four creek diversions required for the Project. The estimates are based on designs that are likely to be acceptable to regulators and which are expected to remain stable. However, creek diversions in central Queensland can often require time to settle and it is not uncommon for remedial works to be required. AUD$10M has been allowed for Creek Diversions. This amount does allow a limited amount of contingency, however some of that contingency may be required for the initial construction works. Should a portion/s of the diversions fail into the future, further costs may be incurred.




Final Landform Unstable

The cost to rehabilitate mine spoil areas has been calculated at a rate of AUD$57,590/ha, assuming a maximum slope of 15% for final landforms. This rate is commensurate with actual costs experienced at similar mines in Central Queensland. It is not uncommon for rehabilitated mine spoil in Central Queensland to experience significant instability and erosion. Quite often erosive or sodic spoil needs to be covered with a sufficient cover of more stable material. It is not clear from the documentation reviewed how much of an issue sodicity is at the Project site. However, condition F10 of the current EA suggests that there is potential for such material to be present within the Project area. Should significant volumes of mine spoil have an ESP of >30%, additional costs above the AUD$57,590/ha may be required.

Demolition of Buildings and CHPP

An allowance of AUD$8.8M has been allowed for demolition of buildings including the CHPP. This estimate again appears in the right order of magnitude based upon similar exercises in the Central Queensland region. Should contaminated land additional to that estimated (30,000-50,000 m

3) be encountered during this activity, there is potential for

costs to escalate.

Ongoing Repair Works

A budget of AUD$5M has been allowed for ongoing mitigation and remedial works during the last four years of operation. This may include remedial works to rehabilitated mine spoil, creek diversions and any other rehabilitated areas. Whilst this is a significant allowance, it is assumed that this will be for minor repair works only and would not be sufficient for major re-work to creek diversions or significant failure of final landforms.

It is also noted that the Project has not allowed for any post-mining expenditure for closure, with the assumption that the lease/s can be relinquished shortly after the cessation of operations. This assumption is yet to be tested in Queensland and poses a risk of unplanned expenditure for ongoing management of the land and environmental management costs.

Closure Costs Not Considered

Following a review of available documentation and discussions with the Project HSEC Manager, the closure estimate does not appear to have allowed for closure cost estimates not associated with rehabilitation. Significant costs can be incurred for activities such as redundancies and termination of contracts (Equipment or Utilities). It is not known how relevant these closure costs are for the Project. Similarly, significant ongoing costs post-mining for indirect and owner’s costs can be considerable and should be allowed for as appropriate.

Closure Estimate Summary

In Snowden’s opinion, the closure estimate for Blair Athol is in the order of magnitude of other estimates for similar sized mines in the area. However, it is recommended that allowances are made for a contingency for some of the key environmental issues including creek diversions and final landform. It is also recommended that consideration be given to allowing for ongoing owner’s and indirect costs, which will be required post-mining and pre-relinquishment.




4.2 Tenement History

The following section describes the ownership history of the currently held tenements and the production history (if any) within and in close proximity to the current tenements.

4.2.1 Historical Tenements

The State of Queensland has significant history of tenements over which exploration has been conducted for minerals, petroleum (and gas) and coal. Coal was discovered in 1864 in the area now referred to as the Blair Athol Mine. The coal occurs in an isolated sub-basin to the west of the main Bowen Basin. Coal was first mined in the Blair Athol Basin in 1890.

Underground coal mining methods targeted the coal seams 1, 2 and 3 from 1920 to 1945. The opencut operations mined the thick Seam 3 from 1981 and reached a maximum capacity of approximately 12 Mtpa until the depletion of the thick Seam 3. From 2005 mining dominantly targeted the Seam 4 until the mine was placed into care and maintenance in 2012. The Seam 4 opencut mining process accessed the shallower Seam 4 coal seam through the spoil of the previous Seam 3 opencut mining. The historical tenements that are considered to have the most significant overlap onto the Blair Athol Mine are listed in Table 4.2.

Table 4.2 Significant Historical tenements that overlap the current Blair Athol ML 1804

Time Active (Year to Year)

Tenement ID Last Principal

Tenement Holder Program Program Results

1969 - 1972 EPC 59 Blair Athol Coal

Pty Ltd Exploration drilling

No economic deposits located

1993 - 1999 EPC 524 Rio Tinto

Exploration Pty Ltd

15

Gravity Survey Exploration drilling

Did not drill in current ML area

4.2.2 Prior Ownership and Ownership Changes to the Current Tenement

The Blair Athol Mine tenement ML 1804 has been acquired by NEC from the Blair Athol joint venture, the current owners of Blair Athol Mine. The Blair Athol joint venture consists of:

57.2% to Queensland Coal Pty. Ltd. (“QLD Coal”)

31.4% to Leichhardt Coal Pty. Ltd

8.0% to J-Power Australia Pty. Ltd

3.4% to J.C.D. Australia Pty. Ltd.

QLD Coal is a wholly owned subsidiary of Rio Tinto Coal Australia, the assigned operator of the mine. The Blair Athol tenements (ML 1804 and ML 1881) were previously owned by Pacific Coal Pty. Ltd. (“Pacific Coal”) prior to QLD Coal ownership of the asset. A summary of the current tenements that are relevant to Blair Athol is provided in Table 4.3 and shown in Figure 4.3.

15

EPC 524 was granted to Pacific Coal Pty Ltd in 1993 before being transferred to CRA Exploration Pty Ltd, now Rio Tinto Exploration Pty Ltd




Table 4.3 Tenements relevant to the Blair Athol Mine T

en

em

en

t

Date

Gra

nte

d

Pri

nc

ipa

l H

old

er

Dev

elo

pm

en

t

Sta

tus

Lic

en

se E

xp

iry

Date

Lic

en

se A

rea

-

Pla

n V

iew

(Hec

tare

s)

Ty

pe

of

min

era

l,

oil

or

ga

s

de

po

sit

Rem

ark

s

ML 1881

8/4/ 1982

Queensland Coal Pty.

Ltd.

Production (Care and

Maintenance)

30/11/ 2014

645.7 Coal

Abuts tenement ML1804 on the eastern and northern

margins – it contains various infrastructure that the mine

will utilise (refer to section 4.1.1)

EPC 1056

28/9/ 2007

Fairway Coal Pty. Ltd.

No Exploration occurs on the

tenement overlap with

ML 1804

27/9/ 2017

67,500 Coal Overlaps on the Eastern

Margin of ML1804




Figure 4.3 Historical Tenements associated with the Blair Athol Mine (ML 1804)




4.2.3 Historical Mineral Resource and Ore Reserve Estimates

The 2012 Rio Tinto Annual Report16

stated the following Measured and Indicated Coal Resources for Blair Athol

17:

Measured Resources – 10.0 Mt

Indicated Resources – 0.2 Mt

No inferred Resources were stated.

No Coal Reserves were reported.

4.2.4 Reliability of the Historical Estimates

Snowden has not independently verified the estimates presented by Rio Tinto although it can be reasonably assumed that the estimates have been estimated in line with leading practice. No Reserves were reported for Blair Athol Mine.

4.2.5 Production History

The Blair Athol Mine tenements (ML 1804 and ML 1881) operated for nearly three decades producing close to 250 million tonnes of thermal coal from multiple coal seams, the bulk of the coal produced was from Seam 3. During the peak production of coal product from the Blair Athol Mine, it was the largest thermal coal exporter in Australia

18. It

is noted that across the Blair Athol deposit Seam 3 is considered mined out, although there are minor remnant areas remaining as a function of existing pit and ramp geometry. The future target coal resource for coal production will be Seam 4. The publically available production statistics of thermal coal exported from Blair Athol Mine were sourced from the DNRM and are presented in Table 4.4.

Table 4.4 Summary of Production Statistics from the Blair Athol Mine (source: DNRM

19)

Financial Year Exported Coal (Mt)

2007-2008 7.84

2008-2009 10.58

2009-2010 10.48

2010-2011 4.42

2011-2012 2.57

2012-2013 Presently Not Available

The production statistics do not indicate what seams were mined, although it is well documented that Seam 3 was the primary target during the peak of production. The mining operations of the Blair Athol Coal period over this time were open pit mining methods.

16

Rio Tinto (www.riotinto.com) 17

Reported under the JORC Code, 2004 Edition 18

Rio Tinto (www.riotinto.com) 19

http://mines.industry.qld.gov.au/assets/coal-stats-pdf/Table-12.pdf

http://www.riotinto.com/

http://www.riotinto.com/

http://mines.industry.qld.gov.au/assets/coal-stats-pdf/Table-12.pdf




4.3 Geological Setting, Deposit Characteristics, and Target Coal Seams

The coal seams within the Blair Athol Basin are restricted to the Blair Athol Coal Measures which are of Early Permian age. Similar age sub-basins exist in the general vicinity, including the Wolfang Basin (to the southeast) which hosts the Clermont mine and the Bendemeer basin further to the North West. The Blair Athol Basin has an approximate area of 25 km

2.

The host strata dips are generally between zero and two degrees (from horizontal) but the seams steepen around basement highs and towards the basin margins to about 5 - 8°.

The Coal Resources identified within the Blair Athol Basin are considered to be part of the Group II Coal Measures of early Permian age. The regional stratigraphy of the Bowen Basin is shown in Figure 4.4 (Blair Athol occurs within the Denison Trough).

Figure 4.4 Regional Stratigraphy of the Bowen Basin

The generalised local stratigraphic sequence is presented in Table 4.5. The Blair Athol Coal Measures typically comprise coarse grained sandstones, siltstones and coal deposited in an alluvial environment. The coal seams on-lap a metamorphic basement complex known as the Anakie Metamorphics, and in the southeast there is an expression of a basement high. In this area the coal seams are locally deformed (thin) over this feature. The basement high is indicated in Figure 4.5.




The seam subcrop lines generally follow the basin limits as shown in Figure 4.6. It will be noticed that the No. 4 Upper Seam subcrop line retreats inside the No. 3 Seam line, particularly in the northern part of the basin. This is due to the No. 4 Seam deteriorating (shale-out) to the north as it on-laps the basement rocks or is washed out by basal sandstones.

Table 4.5 Generalised Local Stratigraphy

Age Formation Lithology

Quaternary Undifferentiated Mud, sand, gravel

Quaternary to Tertiary

Undifferentiated Calcrete, magnesian limestone or dolomite

Tertiary Undifferentiated Silcrete, olivine basalt, minor agglomerate, tuff,

interbedded sediments

Permian

Back Creek Group Quartz sandstone, siltstone, carbonaceous shale, minor coal sandstone, shale, mudstone,

conglomerate, coal Birimgan Formation

Blair Athol Coal Measures sandstone, shale, mudstone, conglomerate, coal

Middle to Late Devonian

Undifferentiated granodiorite

Neoproterozoic

to Early Cambrian

Scurvy Creek Meta-Arenite

Hurleys Metamorphics (Part of the Anakie Metamorphic group)

meta-arenites, schist, phyllite

Quartzite, schist, phyllite

Rolfe Creek Schist Schist, phyllite

Bathampton Metamorphics (Part of the Anakie Metamorphic group)

Phyllite, schist, quartzite greenstone, calc- silicate rocks




Figure 4.5 Locality and Relative Extent of the Basement High




Figure 4.6 Modelled Outcrop Lines of the Primary Blair Athol Coal Measures




The No. 1 Seam is estimated to average approximately 7.5 m in thickness. The No. 2 Seam is estimated to average approximately 1.2 m in thickness. These upper two seams are not consistently developed at this locality due to the present day erosional surface, although there is evidence of limited historical mining of the No. 2 Seam.

Immediately below the poorer quality No. 2 Seam lies the No. 3 Seam. This seam has historically been the primary target for mining at this locality. This seam averages some 29 m in thickness, and only has minor stone bands within the seam, however the floor of the seam splits towards the north where it is thinnest. The No. 4 Seam is found approximately 5-15 m below the No. 3 Seam and it averages approximately 5 m in thickness.

The focus of the current Blair Athol project is the remaining areas of the deposit still hosting the No. 4 Seam. The No. 4 Seam is best developed in the southwest part of the basin. Within the seam an upper and lower unit is recognised and in the southwest the two seams coalesce to form a thicker composite seam referred locally as the No. 4C Seam. As the seam splits to the north, the raw ash (in situ) generally increases in the same direction.

Faulting is reasonably well understood following a study completed by Rio Tinto Coal Australia Pty Ltd (“RTCA”) which details the known faults. The interpretation is that two series of faults exist and are more prevalent in the southern areas of the basin. The faults are oriented on a north-west to south-east alignment and then the second set is orientated at approximately 90 degrees, being north-east to south-west. Fault throws are variable with the largest known fault, named R1S, having a throw of approximately 17 m. Faulting with throws of less than 5 m was not considered an issue when mining the thick No. 3 Seam, where it was seen more as a seam roll in the pit. In the No. 4 Seam faults could have more of an impact to mining given they could be greater than full seam thickness. The faults previously defined are shown in Figure 4.7. Fault R1S was the only fault that was modelled in the RTCA models for Blair Athol given the fact that this fault was considered to be the only fault with a displacement that would impact upon the mining of Seam 3. The additional faults identified by RTCA in Figure 4.7 may potentially have an impact on the accurate geological modelling and the mining of the remaining resource.




Figure 4.7 Identified Faults within the Blair Athol Mining Operations




4.4 Exploration Data

4.4.1 Historical Drilling

A total of 4,269 boreholes are recorded in the drillhole database that NEC received on acquisition of Blair Athol Mine. The current geological model (Schema: Bac_20111007_on) generated by Xenith contained 1,430 boreholes, of which 687 were cored boreholes, 724 rotary open holes and 19 large diameter (200 mm) boreholes. The average spacing of the boreholes used in the structural model was 100 m across the deposit. The most recent drilling program data for the Blair Athol Coal spanned the years 2006 to 2011.

Drilling, logging, and sampling were not discussed in any detail by Xenith. Xenith, however, conducted a review of the borehole seam picks, and validated other exploration borehole data, and did not identify any significant anomalies in the borehole dataset utilised in the resource model.

4.4.2 Current and Proposed Drilling

There are no proposed plans (finalised drill sites and associated exploration budgets) for Blair Athol at the time of writing. It is anticipated, however, that the Seam 3 remnant areas will require additional exploration and verification. This work will aim to define volumes and coal qualities, including mining extraction and economic analysis, to determine actual feasibility of extraction.

Xenith have not been able to validate a large portion of the drillhole data, particularly in those areas currently classified as Inferred due to a lack of data available to Xenith. Xenith have further commented that this data may become available once the final acquisition of Blair Athol is complete. In light of this, additional verification work may be required to validate the exploration data currently used in the model and allow the Coal Resources to be upgraded from Inferred to at least Indicated, and perhaps Measured.

4.4.3 Sample Preparation, Analyses, and Security

The cored and analysed samples that were used in the current geological model were from drilling programmes conducted from 2006 to 2011. This drilling programmes’ cored samples ranged in diameter from 63.5 mm to 200 mm, consisting of 63.5 mm, 84.3 mm, 100 mm and 200 mm diameter samples. Samples were typically crushed to 11.2 mm prior to analysis, and the 200 mm diameter samples underwent additional pre-treatment and washability analysis. All borehole samples for coal quality, inclusive of line of oxidation samples, were conducted on boreholes that were geophysically logged, at a minimum, for natural gamma, density and calliper logs.

The borehole core samples were analysed for the following raw (air dry) coal qualities:

Inherent Moisture

Ash Content

Volatile Matter

Fixed Carbon – calculated by difference

Relative Density

Total Sulphur content

Gross Calorific value

Forms of Sulphur – selected samples in the dataset

Chlorine content – selected samples in the dataset

Moisture holding capacity – selected samples in the dataset.




It is Snowden’s opinion that the sample preparation, security, and analytical procedures are appropriate for the development of a raw coal quality model for Blair Athol. Although there is a lack of information on sample security protocols for the bagging, identification, transport, and storage of the coal samples, the mine has a long history of successful operation and it can be reasonably assumed that sample security, transport and storage procedures have been adequate. The previous operator is experienced in coal exploration and mining and is considered to have utilised standards and protocols which would have ensured traceability and accountability in the handling and processing of the samples that were to have undergone coal analysis.

4.4.4 Data Verification

Although no exploration activities are currently active at Blair Athol, Xenith have undertaken site visits to verify and validate information and procedures (QA/QC). Xenith have verified and validated exploration borehole data to the extent that Coal Resources have been suitably modelled, estimated, and signed off by a recognised Competent Person.

Xenith have concluded from the site visits the following:

The borehole folders were well organised and retained in sleeves and boxes that were labelled and numbered.

The coal seam intervals for the holes selected from the MineScape model matched with the geophysical logs.

Not all of the original coal quality data (laboratory sample reports) could be located, possibly due to time constraints on site.

The holes that could be found had generally acceptable recoveries, except one.

More data is believed to be available stored digitally, but the extent is uncertain.

All the data provided was not reviewed due to time constraints on site.

4.4.5 Qualified Person’s Opinion on the Adequacy of the Data for the Purposes Used in the Technical Report

Snowden is of the opinion that the data utilised by Xenith for the purposes of developing geological models, and estimating and classifying Coal Resources, is suitable for this purpose.

4.5 Coal Resources

4.5.1 Resource Overview for Blair Athol

In Situ Coal Resource and Coal Reserve estimates are reported under the JORC Code, 2012 Edition, for Blair Athol (Table 4.6, Figure 4.8 and Figure 4.9). The In Situ Coal Resource estimate, of 46 Mt, is all from the Seam 4 Group. The Seam 4 Group is locally split within the Resource Model, the major splits being the 4U and 4L ply groups.

The Seam 4 Group has the following composited coal properties:

Raw Volatile Matter (air dry basis, “adb”) on average of 25%, converted a ‘dry ash free’ moisture basis of 33%

Raw Fixed Carbon (adb) on average of 51%, converted a ‘dry ash free’ moisture basis of 67%

Raw Calorific Value (adb) on average of 25 MJ/kg, with a range from 22 to 26 MJ/kg (adb)

Raw Total Sulphur content (adb) on average of 0.35%.




Table 4.6 Coal Resource Summary for Blair Athol Mine

Coal Resource (Mt @ 17% Moisture)

4 Upper 4 Lower TOTAL

Measured 6.9 5.7 12.6

Indicated 5.5 3.0 8.5

Inferred 18 7 25

Total Coal Resource 30 15 46

Snowden notes that a large proportion of the classified Coal Resources (54%) is classified in the Inferred category although the deposit is very well drilled (Figure 4.7 shows the distribution of exploration holes drilled across the mine area).

Xenith reported a lack of confidence in the core recoveries and subsequent coal qualities for a large number of boreholes in the exploration database used in the modelling, and thus the classification as Inferred. Xenith further report that the data to support a verification exercise is likely to exist on site and therefore it can be expected to be a reasonably straight forward process to upgrade the confidence categories once access to the site is gained.

The structural model, however, is not in doubt and Snowden is confident that reliable estimates of coal volume and tonnage are reported in all categories.

4.5.2 Resource Disclosure

Coal Resources have been estimated and reported (under the JORC Code, 2012 Edition) by Xenith. The Competent Person is Mr Troy Turner, a full time employee of Xenith. Mr Turner has given his consent to the inclusion of information in this report on matters related to Coal Resources in the form and context in which it appears.




Figure 4.8 Seam 4 Upper Coal Resource Classification




Figure 4.9 Seam 4 Lower Coal Resource Classification




4.5.3 Summary of the Geological Modelling

The Xenith geological model covers the majority of the Blair Athol tenement, ML 1804. Xenith has used the MineScape stratified geological modelling software package to generate the model in Stratmodel from design file boreholes. The current geological model contains 1,430 boreholes, of which 687 were cored boreholes, 784 rotary open holes, and 19 large diameter (200 mm) boreholes. The average spacing of the boreholes used in the structural model was 100 m across the deposit. The version of MineScape used was 4.119.

The following geological model information is extracted from the Xenith report:

The Seam 4 Group overburden ranges from less than 20 m to more than 60 m. This is the overburden to either the roof of 4C or 4U or 4UA or a compound of these units. If one of the aforementioned seams does not exist in the structural model (either mined out or pinches out) then it is the overburden to the next interval or compound within the schema.

The 4L interburden is taken from a plot to be in the range of zero (0) to twenty (20) metres in thickness, however it is thinnest in the south-east corner of the geological model.

Compound seam 4U is on average 2.50 m in thickness, with plies 4UA and 4UL each having a respective average thickness of 0.70 m and 0.60 m

Compound seam 4L is on average 1.20 m in thickness, with plies 4LA and 4LL each having an average thickness of 0.50 m

Compound seam 4C is on average 4.80 m in thickness. The compound seam 4C forms in the model where seams 4U and 4L are vertically separated by a stone band equal to or less than 0.30 m.

The model nomenclature can be summarised as follows:

The 4UA and 4UL ply intervals merge in the model to form the 4U compound interval.

The 4UL and 4LA ply intervals merge in the model to form the 4L compound interval.

The 4U and 4L compound intervals merge in the model to form the 4C compound interval.

The borehole data forming the basis of the geological model contains any combination of the model nomenclature above, with the exception of the 4C compound. The 4C compound is a product of the MineScape model when specific parameters are honoured, inclusive of the abovementioned stone band separation parameters and unselecting the schema setting that can force the geological model to show ply intervals. The modelled intervals (plies) and compounds (ply groupings), and average thicknesses, are shown in Figure 4.10.




Figure 4.10 Stratigraphic column of Blair Athol Mine (Seam 4 Group ply thicknesses from the Xenith geological model)

The geological borehole data was interrogated and reviewed against the downhole geophysical information. The modelled coal seams were truncated to the ‘Base of Weathering’ surface in the geological model and this automatically limits the inclusion of weathered material from any determination of Coal Resources. The modelled grids were developed to cover an approximate model area of 3,100 ha with a grid spacing of 20 m by 20 m.




The geological model generated by Xenith is intended for utilisation with long term mine planning and only contained one major fault, namely R1S. The R1S fault shows displacement of the order of magnitude that affected mining of the Seam 3 group. It is recommended that the other faults undergo an analysis for displacements and the structural effect on the Seam 3 group. The elemental (plies) and compound (ply groupings) intervals that define the Seam 4 Group are shown in Figure 4.11.

Figure 4.11 Minescape Model Schema showing seam splitting and modelled plies and ply compounds

4.5.4 Qualified Person’s Opinion on Geological Modelling

Snowden has not audited the digital geological models, but has reviewed the information and data, inclusive of:

Reports that summarise the due diligence, re-correlation and model generation process for Blair Athol




The modelling parameters used for the structural and coal quality models

Plots of the structural model i.e. thickness and burden

Plots of modelled coal qualities i.e. ash content, relative density, etc.

It is Snowden’s opinion that the structure of the Seam 4 Group is well defined and controlled across the Blair Athol deposit, with recognition that there are a number of faults that were not previously modelled as they had minimal impact on the mining of Seam 3. These unmodelled faults may have throws in excess of the Seam 4 Group thickness. Displacements of this magnitude will have minimal impacts on the mining of the coal seams through open pit methods, but they will affect the short term mine planning and scheduling. It is anticipated that the unmodelled faults will limit the layout, design and extraction of certain faulted blocks of Seam 4 Group coal using underground extraction methods. The extent of this has yet to be determined through detailed mine planning and engineering studies.

Snowden is satisfied that the geological model reliably represents the geology (structure and coal quality) of the Blair Athol coal deposit.

4.5.5 Summary of the Resource Estimation Process

The estimation of Coal Resources involved the following process prior to the determination of coal resources:

The re-correlation in the drillhole data set of the compound 4C seam into the ply intervals of 4U and 4L.

The exclusion of certain samples from the compositing process i.e. where the sample crossed the 4L interburden or sampled the entire 4L interburden with a portion of the 4U.

No thickness, depth or raw composited ash percentage cut offs were applied in the selection of valid points of observation

Only the ply and compound intervals of the Seam 4 Group utilised to estimate the Coal Resources.

The above items were considered prior to the selection of points of observation. The points of observation were then determined by the following process:

The entire seam intersection had been cored.

The recovery of the cored seam intersection was greater than 95%.

The seam intersection has been geophysically logged, with at least density, natural gamma and calliper tools.

If the recovery of the cored seam intersection was slightly less than 95%, the samples were compared against core photographs to ensure that the samples were representative of the coal seam intersection, prior to inclusion as observation point.

Samples required analytical data for ash content and relative density as a minimum.

Coal Resources were then generated utilising the following parameters:

A minimum of three (3) points of observation required to be within the specified radii before the polygons could be automatically generated

Measured resources were defined using a spacing of 500 m between the point of observation and an extrapolation radius of 250 m




Indicated resources were defined using a spacing of 1,000 m between the point of observation and an extrapolation radius of 500 m

Inferred resources were defined using a spacing of 4,000 m between the point of observation and an extrapolation radius of 2,000 m.

4.5.6 Qualified Person’s Opinion on the Resource Estimation Process

It is Snowden’s opinion that the geological data and the subsequent geological models are suitable for confident and reliable Coal Resource estimation.

4.6 Mineral Processing and Metallurgical Testing

4.6.1 Overview

The operation of Blair Athol Mine has historically involved the direct sale of crushed raw coal with a small proportion of out of specification coal requiring processing. The existing processing plant (“CPP”) was owned and operated by a third party, with the coal processed on a toll basis.

For NEC’s proposed new mining project, up to 54% of the mined coal will require processing due to the inherent coal quality and assumed dilution levels. The increased proportion of processed coal has the following implications on the mine’s operations when compared to historical practices:

Reduced “whole of mine” product recovery due to the practical efficiencies of the CPP

Higher product moisture due to the wet processes employed within the CPP

Higher process operating costs of processing versus unwashed product coal

Potential for mine production capacity limitations due to throughput constraints of the CPP.

Snowden understands that NEC is planning to purchase the CPP and manage the operations with in-house resources.

4.6.2 Data Sources

The provided information was referenced for evaluation of the processing plant:

An electronic data room containing various documents and data relevant to mining costs, capital estimates, production rates, coal pricing etc.

Two presentations regarding the Xenith Geological Modelling and Due Diligence work.

A draft and subsequent final Due Diligence Report regarding the Project prepared by Xenith.

A Coal Resource Estimate Report in respect of the Project prepared by Xenith.

Marketability assessment for the Project prepared by Wood Mackenzie Coal Consulting.




4.6.3 Design Parameters

Processing Plant Capacity

The existing CPP has a nominal design capacity of 300 tph providing an annualised processing capacity of between 2.1 – 2.2 Mtpa. It is understood that historically these throughput rates have been achieved but lower rates may eventuate for feed coal with higher than expected levels of dilution.

The financial model has peak Run-of-Mine (“ROM”) tonnes of 3.01 Mt occurring in year three (3) of the mine plan corresponding to a peak plant feed requirement of 1.92 Mt based on the proportions of bypass product nominated. The available processing capacity, on an annual basis, is therefore expected to be adequate for the product plan presented.

Yield

The product yield estimates used in the financial model are derived from the Mine Schedule completed by Xenith. The methodology used by Xenith for yield estimates is based on applying dilution and efficiency factors to the washability data (at a cut point density of F1.60) in the geological model. An average yield for the opencut coal was then applied to the mining quantities to determine the final product tonnes. The average yield applied in the financial valuation model for the opencut ROM coal is dependent on the feed raw ash, averaging at approximately 71%.

Simulations of a 12.5% raw ash (adb) product from the Seam 4 Group presented by Xenith have been used to determine the CPP yields. Figure 4.12 presents the simulation results in the form of a correlation graph of CPP yield and ROM feed raw ash (these are theoretical yields and have been adjusted in the models to account for dilution and CPP efficiency).

Figure 4.12 Theoretical Yield-Ash Correlation at a CPP cut-point of 1.60RD




This methodology has limitations in recognising the spatial variability of the coal washability so that whilst the “average” yields may eventuate over the life of mine, short term fluctuations may impact on production rates over these periods. The month-by-month yield determinations for the opencut coal made by Xenith (Figure 4.13) suggest the initial yields will be above average and will generally decrease over the life of mine.

Figure 4.13 CPP Yield (Xenith)

Snowden’s has not independently verified the yield estimates in the financial model against the available data.

The Xenith report highlights uncertainty in the coal quality model especially in relation to product ash and yield with a discrepancy between model predictions and the historic actual yields achieved, with actual yields being significantly lower.

It is Snowden’s opinion that a detailed washability modelling exercise is warranted in order to better understand the washability characteristics of the coal and its potential behaviour in the CPP. There is a risk that the forecast marketable coal tonnages may be lower, although Snowden has not quantified the risk as a part of its review.

Bypass Product Coal

The financial model is based on 46% of the raw coal mined from the Opencut and all of the underground mined coal being saleable without processing. The in situ ash from the coal quality model supports the bypass assumptions based on clean, selective mining of the coal. The risk of this being unable to be achieved in practice is that the proportional cost of processing increases resulting in overall increased operating costs and an overall reduction in product yield.

4.6.4 Process Descriptions

The existing CPP is a conventional coal processing plant for beneficiating thermal coal utilising a dense medium cyclone (“DMC”) for coarse coal processing and spirals for fine coal processing. The ultrafine material is removed and disposed of as tailings.




Although a detailed flow-sheet was not available for review it is understood that the beneficiation processes utilised are suitable for the resource.

4.6.5 Operating Costs

The operating cost unit rate for CPP Processing used in the financial model is AUD$4.50/t excluding ROM handling and product haulage. The rate, in itself, would appear reasonable, in Snowden’s opinion, based on the mine being managed with tight cost control.

4.6.6 Capital Costs

The initial capital estimate for the cost of acquiring ownership of the existing CPP has been determined from an in principle agreement reached between NEC and the CPP owner, Sedgman Limited. The review has not been able to verify the agreement but Snowden believes the cost is not unreasonable given the plant has no value other than to the mine owner.

4.7 Run of Mine Coal

The mining study is essentially a concept level study addressing the mining of the modelled and estimated coal resources.

Snowden has reviewed the Xenith reports to assess the technical soundness of assumptions, methodologies, and costs for the project. Snowden has also reviewed the most recent Coal Reserves statements and other reports relating to mineable tonnages, prepared by Xenith, relating to both opencut and underground mining options.

Historically, Blair Athol extracted primarily a 20 m – 30 m thick coal seam (Seam 3) destined for the export thermal coal market. Underlying Seam 3, separated by an interburden ranging in thickness from 10 m to 20 m, is Seam 4. Seam 3 waste (overburden) removal was carried out by dragline, while truck and excavator was used for coal mining. Seam 4 however remains mostly in situ across the mine area and consists of two major plies: Seam 4 Upper (S4U); and Seam 4 Lower (S4L). S4U is the most persistent and of higher quality than S4L.

The proposed future mining of Seam 4 for Blair Athol consists of two distinct mining methodologies:

Opencut methods: It is planned to remove the previous spoil layer and then remove the in situ interburden layer above Seam 4. The planned approach will utilise a combination of dozer push and dragline methods to remove the old spoil to expose the Seam 4 interburden, which will then be extracted by excavator and truck to uncover Seam 4. The opencut potential for the Project is restricted to an area of relative thickening of Seam 4 coinciding with thin parting between Seam 4U and Seam 4L, located in the south-east of the deposit area.

Partial Block Extraction: PBE, or high-wall mining, is envisaged for much of the remainder of the deposit area where it is planned to excavate a series of box-cuts (trenches) to provide access to Seam 4U for the PBE operation.

The Life-of-Mine (“LOM”) plan shows a total ROM production of 12.1 Mt from the opencut and 8.7 Mt ROM from the PBE. The mine plan has both opencut and trenching for the first PBE blocks commencing in 2014. The opencut is planned to mine both the 4U and 4L seams, where these two plies coalesce (intra-seam parting <30 cm), while the PBE is planned to extract the 4U only. The 4U seam thickness is more consistent than the 4L and is of higher quality (lower ash content).




4.7.1 Pit Optimisation and Margin Ranking

The differentiation between opencut and PBE mining areas was achieved using a combination of Pit Optimisation and Margin Ranking:

Pit optimisation is essentially the development of a model consisting of geological, cost, and revenue data designed to establish hypothetical economic pit limits, and provides both quantitative data and a pictorial representation of the distribution of high and low margin areas within the resource area.

Margin ranking is a process that is applied to opencut coal deposits to determine the economic seam floor horizon for a given cash margin cut off. The Margin Rank trends are used to assist in the design of a practical pit layout, and in determining an optimal mining schedule. Margin ranking is a tool that helps facilitate the making of strategic decisions based around issues such as ultimate pit design and scheduling sequence.

The results of both studies identified basically the same areas of the pit as being a likely opencut target. Snowden considers any differences to be negligible. Margin Ranking was selected by NEC as the preferred process and Snowden is endorses this decision in this situation.

Economic Opencut Layout

Margin Ranking based on the key variables shown in Table 4.7was used as the basis for determining the limits of the economic opencut reserves lying within the bounds of Measured and Indicated Resources. Revised coal pricing assumptions are shown in Table 4.8.

Table 4.7 Margin Ranking Parameters: Mining, Processing and Royalties

Item Unit AUD$

Rehabilitation AUD$ / Ha 51,000

Drill and Blast AUD$ / bcm 1.00

Rip Parting AUD$ / bcm 0.30

Truck and Excavator Waste AUD$ / bcm 3.35

Dragline Waste AUD$ / m3 1.30

Dozer Push AUD$ / m3 1.30

ROM Coal Mining (inc. Rehandle) AUD$ / bcm 4.00

Pit Services AUD$ / ROM tonne 0.85

Sustaining Capital AUD$ / ROM tonne 1.90

CHPP Operating Costs AUD$ / ROM tonne 5.00

Stockpile Management AUD$ / ROM tonne 0.80

Load out AUD$ / Prod. tonne 2.50

Rail AUD$ / Prod. tonne 15.00

Port/Demurrage AUD$ / Prod. tonne 5.00

Overhead costs AUD$ / Prod. tonne 8.10

Fugitive Emissions AUD$ / Prod. tonne 1.50

Royalties

up to and including AUD$100 per tonne % 7

over AUD$100 up to including AUD$150 per tonne % 12.5

above AUD$150 per tonne % 15

Research Levy AUD$ / Prod. tonne 0.2675




Table 4.8 Platts Newcastle Thermal Coal Sales Price Forecast (23/7/2013)

Product Unit 2013 2014 2015

Thermal Coal US$/t 78.90 84.40 89.00

On the basis of the Margin Rank trends, a pit layout was developed with the limits being determined at the 6-8% Relative Profit Margin zone, considering also a practical pit arrangement (Figure 4.14). The extended pit design provides flexibility in responding to changing economic conditions. This is a sensible approach since changes in foreign exchange rates and coal price can have a material effect on economic limits.

4.7.2 Mine Design

Dragline / Truck and Excavator

The pit layout was developed based on the use of a BE1370 dragline as the principal waste removal machine. The design uses a 70 m wide strip with strips extending away on either side of a central ramp. The ramp appears to have been placed to coincide with the location of a pre-existing ramp which will assist in reducing rehandle.

Snowden concurs that the 70 m strip width is typical of that used with 1370 sized machines and provides a balance between rehandle, adequate pit room to establish drainage, and toe of spoil safety berms without unduly impacting working space.

Table 4.9 shows the base assumptions that were applied to the open-pit design.

Table 4.9 Base Assumptions for the Open-pit Design

Parameter Value Snowden Comment

Strip Width 70 m Within normal range for BE1370

Schedule Block Length 70 m Acceptable

Pit Wall batters

Coal 80° Acceptable

In Situ waste 70° Acceptable

Spoil 40° This angle may need to be

reduced if spoil is saturated (see geotechnical section)

Berm 10 m

Marginal, there will be a requirement to provide a catch

bund at base of old spoil, drainage, crest bund

Due to the uncertain material properties of potentially saturated spoil, Snowden are of the view that the spoil angle should be planned at an angle of <37° subject to further geotechnical investigation. In terms of spoil volumes, the impact of a reduced spoil angle will be a one off increase in waste volume for the first strip design only.




Figure 4.14 Margin Ranking Results showing Economic Opencut Area




It has been estimated that around 19.6 GL of water may be contained within the old spoils based on 15% void space, (15% approximates the consolidated dragline spoil swell factor).

Figure 4.15 is a schematic showing the waste and coal horizons as well as design assumptions used by Xenith.

Figure 4.15 Opencut Pit Design (Xenith)

Dragline Dig Technique

DragSim software was employed in developing the proposed dragline dig technique for Blair Athol. The technique is a two pass off-line approach using a 70 m strip width. The dragline is assisted by dozer to remove spoil and create the dragline bench at the required working level.

The mining methodology for the opencut as described by Xenith is essentially a 3 pass off-line technique. The dragline is planned to remove some or all of the Seam 4 interburden where this can be accommodated within a 50 m total dragline dig depth envelope.

Snowden considers the proposed dig technique to be feasible and variants are in common use throughout the industry. Again, this will require refinement during the detailed design phase.

Following removal of the old spoils, the Seam 4 interburden will be drilled and blasted prior to removal by truck and excavator or dragline. Details of the haulage and dumping of the interburden material was not documented by Xenith, however it is likely to be a combination of out of pit and in pit dumping. This will require further definition (location and truck haul simulation) during the detailed pit design phase.

Coal will be mined and hauled by excavator and truck with around 46% of ROM coal hauled direct to the Product Stockpile, with the remainder to be processed through the on-site washing facility.




Partial Block Extraction Technique

The PBE mining system planned to be employed at Blair Athol is a technological update of a system used elsewhere in the underground coal mining industry. The similar Magatar linear mining system has been widely used underground in South Africa and at Caledon Coal Pty Limited’s Cook colliery in central Queensland. The system employs a continuous miner coupled with a continuous haulage system. The principal differences between the PBE system proposed for Blair Athol and other pre-existing systems are:

The continuous haulage system is said to be a substantial improvement over other systems

Improved guidance systems

Improved remote operator capability.

Snowden understands that the improved system as described has not been implemented at any other site as yet. Blair Athol will essentially be the prototype installation of the system. Snowden also understands that the system will operate using a herring-bone panel orientation to drive into the coal from the excavated trenches.

During operation, coal is cut by the continuous miner operating in drives up to 300 m in length, aligned obliquely to the direction of the trench, and transported out of the drive by the continuous haulage system (Figure 4.16). The mined coal is discharged either onto a small in-pit stockpile for later load-and-haul to the coal handling facilities or directly into haul trucks for dispatch to the Product Stockpile.

Notwithstanding the fact that the report detailing ROM tonnages for the PBE system prepared by Xenith is not a statement of Coal Reserves, Snowden have sufficient confidence in the reported tonnages, following a reasonable due diligence exercise, to enable their consideration in the LOM plan and financial valuation.

PBE Mining Recovery

The anticipated PBE coal recovery factor has been estimated to average 59.8%. This will vary according to seam height since seam height is directly related to pillar widths. The graph presented in

Figure 4.17 shows the impact on coal recovery related to seam thickness.




Figure 4.16 Schematic of the PBE Design Panel Layout (Xenith)

Figure 4.17 Mining Recovery as a function of Seam Thickness (Xenith)




The PBE target mining area has been defined using the following constraints:

Minimum Mining Height of 1.4 m

Maximum Mining Height following Seam 4U thickness up to 6.0 m

Clear of mined-out Seam 4 Upper areas

Clear of opencut target area in the south.

A summary of the design parameter assumptions applied by Xenith is presented in Table 4.10. Coal loss and mining dilution parameters are presented in Table 4.11.

The area available for PBE was identified based on mine design assumptions and geotechnical design constraints (Figure 4.18). A mining layout was developed which takes account of the approximate locations of interpreted faults (Figure 4.7) and was designed to maximise coal recovery. The required trench network (Figure 4.19) was developed to match the layout requirements to gain access to individual PBE blocks. The trench development and PBE extraction was included in the mine schedule.

Apart from understanding the geotechnical aspects for the PBE design, the critical issues in achieving the scheduled production from the system are:

the system achieving projected Mechanical Availability and Utilisation – this has been a problem with similar systems elsewhere

the ability of the system to achieve production rates i.e. continuous miner productivity

the predictability of drive length – heavily dependent on fault locations

the accuracy of guidance system

understanding plant relocation timing

understanding geotechnical constraints.

Table 4.10 PBE Design Parameters (Xenith)

Design Parameter Unit of Measure Value

Trench Construction

Mine Trench Floor Width m 40

Fresh / Spoil Waste Interface Bench m 10

Highwall Angle in Fresh Degree (°) 70

Highwall Angle in Spoil Degree (°) 40

Trench Access Ramp Gradient – max % 10

PBE Drives

PBE Target Seam 4U

Min. Mining Height m 1.4

Max. Mining Height m 6.0

Drive Widths m 3.5

Max. Drive Length m 300

Max. Seam Slope Ratio (°) 1:6 (9.5°)

Coal Web Width m 4U Thickness

Coal Web Factor of Safety 1.3

Span of PBE Drive m DOC

Barrier Pillar Seam Height Ratio Ratio 4:1

Preferable Drive Orientation to Joints Degree (°) 20




Table 4.11 Loss and Dilution assumptions (PBE)

Item Unit of Measure Value

Coal Loss – Roof m 0.05

Coal Loss – Floor m 0.05

Dilution – Roof m 0.05

Dilution – Floor m 0.05

Operational Recovery % 90

Geotechnical Recovery % 45 – 65

Moisture:

Inherent % 7

In Situ % 16

ROM % 17




Figure 4.18 PBE Target Area




Figure 4.19 PBE Trench Layout within Recoverable PBE Coal Area




PBE Trenching / Box-Cutting

A key component of the PBE operation is the requirement to excavate a series of box-cuts to provide access for the PBE operations.

The box-cutting method requires removal of a combination of old spoil and prime waste to establish coal seam access. The location of the trenches in the plan have been determined as a function of the orientation of the principal PBE block layout which in turn is largely driven by the location of faulting and seam thickness.

There are two principal components to the trench excavation for the PBE operation:

Excavating a box-cut (trench) in the old spoils to provide access to the Seam 4 interburden using BE1370

Extraction of the in situ Seam 4 interburden by excavator and truck as well as the mining of the Seam 4 coal.

The target seam for PBE is the Seam 4 Upper section which is the highest quality ply of the Seam 4 Group. The workable seam thickness range has been set at from 1.4 m to 6.0 m based on the equipment specification. The trench design outlined by Xenith is shown in Figure 4.20.

Figure 4.20 Trench Design (Xenith)

It is Snowden’s view that due to the uncertain nature of the saturated spoil properties, the spoil angle on both sides of the trench may require further lay back to an angle of at least 37 degrees (natural angle of repose), or less. Furthermore, the adequacy of the 10 m berm width at the base of the spoil should be investigated as this will be required to accommodate a substantial catch berm at the toe of the spoil slope as well provide adequate drill tail room. The adequacy of the 40 m wide trench floor should be confirmed as the trench will require adequate operating space for excavator and truck waste removal, front-end loader and truck coal loading, the PBE equipment, ancillaries and appropriate drainage.

The excavation sequence as shown below is for a 40 m wide trench and is essentially a box-cut with shallow wall batter angles on either side. The dig methodology is more complex than the strip technique and as shown in Figure 4.21, should result in low rehandle. Based on the DragSim work, the excavation approach relies on adequate spoil room being available at the dragline working level. The dig sequence may be further complicated if existing spoils are materially higher than the dragline working level. In this case there may be the requirement for some spoil pull back or dozer assistance to create spoil room. Any material change to spoil removal requirements due to either a wider trench design or the requirement for pull back will impact the dragline rate of advance and add additional cost.




Figure 4.21 A Schematic of the Dragline Trench Dig Sequence (Xenith)

Following the excavation of the previous dragline spoil, the Seam 4 interburden will require drilling and blasting prior to removal by excavator and truck. Although not stated in the Xenith reports reviewed, this waste will likely need to be hauled either out of pit or into an old trench. Coal mined from the trenches will be hauled to the processing facility by truck. PBE extraction will then be able to commence. Trenching is planned to commence in 2014.




Snowden considers the key issues / risks associated with the PBE trenching operations that will require further investigation and that have potential cost implications are:

Spoil slope angles

Berm width (trench)

Trench width in terms of operating space for excavator /truck waste operation and front–end loader/truck coal loading and hauling

Waste dumping strategy

Lag times between principal mining processes

Accurate knowledge and model of the fault system, particularly location, frequency, and magnitude of faulting.

Any fault greater than seam height will be a limiting constraint for the PBE continuous miner, depending on the hardness of roof or floor material, and will impact production

Blair Athol will be the first installation site of this particular PBE system, and the ability of the system to rapidly ramp up and consistently achieve planned utilisation and production rate is a key risk

Mining Equipment

Snowden understands that the existing mobile equipment fleet, located at the site, is planned to be utilised for the ongoing open cut mining operations. The existing equipment is listed in Table 4.12.

Table 4.12 Equipment List

Equipment Type Model No. Units SMU Hours (Current)

Dragline BE1370 1 147,000

Excavators EX3600 1 41,000

Front End Loader WL994 1 16,000

Trucks RD789 6 82,000

Track Dozer TDD11 3 55,000

Track Dozer (Ancillary) TDD11_Anc 3 40,000

Wheel Dozer WD844 1 32,000

Water Truck WT777 1 27,000

Grader GR16 1 15,000

Drill DR460 1 51,000

Equipment hours have been developed by applying indicative productivities to the production schedule. The productivities applied are provided in Table 4.13.




Table 4.13 Key Equipment Productivity Ranges

Machine Productivity Range

Dragline 1,800 bcm/hr to 1,900 bcm/hr

EX3600 1,150 bcm/hr waste, 1,250 t/hr coal and 575 bcm/hr mud removal

Cat 994 550 t/hr coal rehandle

TDD11 350 bcm/hr production dozing

RD789 285 bcm/hr waste, 200 bcm/hr mud, 260 bcm/hr coal and 340 bcm/hr coal rehandle

The mobile equipment fleet is relatively underutilised throughout the schedule, especially from FY2017 onwards. Annualised and cumulative hours are presented in Table 4.14 and Table 4.15 respectively.

It is likely some dozers (dragline and carry dozers) and the rear dumps may need to be replaced throughout the scheduled LOM as their average SMU hours will approach 70,000 and 100,000 hours respectively.

Snowden is satisfied with the approach that has been taken to derive the equipment hours for this level of study. The assumed equipment rates are within the expected range for the equipment listed based on Snowden’s experience. Some of the equipment is old, and as stated, may require replacement or additional maintenance during the schedule period.

In terms of the dragline operation, there is no specific mention of dragline dead heading time or pit access / exit impacts on productivity and no specific detail was reported for expected Equipment Availability or Utilisation.

Table 4.14 Annual Equipment Hours

Machine Machine Hours

2014 2015 2016 2017 2018 2019 2020 2021 2022

Bucyrus 1370 Dragline 3,104 6,042 6,338 5,272 6,084 5,711 6,290 4,317 3,906

Hitachi EX3600 Excavator 1,830 4,541 4,418 1,581 1,347 1,168 1,253 719 52

Caterpillar 994 Loader 232 429 579 1,700 2,392 1,993 1,399 1,670 2,090

Caterpillar RD789 Truck 6,895 16,795 16,308 7,764 7,686 6,484 6,090 4,681 2,715

Caterpillar D11 Dozer CD 3,874 6,706 7,066 5,211 5,708 5,255 5,424 2,911 2,020

Caterpillar D11 Dozer DL 2,024 3,940 4,134 3,438 3,968 3,725 4,102 2,816 2,547

Drilltech DR 460 Drill 760 1,181 1,173 776 916 991 1,075 303 11

Caterpillar D11 Dozer (Anc) 696 2,126 2,163 622 491 365 423 350 26

Caterpillar GR16H 657 1,619 1,573 729 713 598 565 438 244

Caterpillar WT777 657 1,619 1,573 729 713 598 565 438 244

Caterpillar WD844 304 852 848 263 210 165 182 134 10




Drill & Blast

The Seam 4 interburden layer is the only waste horizon requiring blasting. The mine equipment list shows that the only drill available on site will be a Drilltech DR460. Based on available specs, this drill can be configured down to a 9-7/8” hole size. Across most of the opencut area included in the mine schedule, the Seam 4 interburden thickness is less than 15 m (Figure 4.22).

Snowden recommends that the suitability of this drill for the interburden and coal blasting be reviewed along with the predicted powder factors which appear to be high based on previous experience.

Table 4.15 Cumulative Equipment Hours

Machine Machine Hours

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Bucyrus 1370 Dragline 147,000 150,104 156,146 162,484 167,756 173,840 179,551 185,842 190,159 194,065

Hitachi EX3600 Excavator 41,000 42,830 47,372 51,790 53,371 54,718 55,886 57,138 57,858 57,910

Caterpillar 994 Loader 16,000 16,232 16,661 17,240 18,941 21,333 23,326 24,724 26,394 28,484

Caterpillar RD789 Truck 82,000 83,149 85,948 88,666 89,960 91,241 92,322 93,337 94,117 94,570

Caterpillar D11 Dozer CD 55,000 56,937 60,290 63,823 66,429 69,282 71,910 74,622 76,078 77,088

Caterpillar D11 Dozer DL 55,000 57,024 60,965 65,098 68,536 72,504 76,229 80,332 83,147 85,694

Drilltech DR 460 Drill 51,000 51,760 52,941 54,114 54,890 55,807 56,797 57,872 58,175 58,186

Caterpillar D11 Dozer (Anc) 40,000 40,232 40,941 41,662 41,869 42,033 42,154 42,295 42,412 42,421

Caterpillar GR16H 15,000 15,657 17,275 18,848 19,577 20,290 20,887 21,453 21,890 22,134

Caterpillar WT777 27,000 27,657 29,275 30,848 31,577 32,290 32,887 33,453 33,890 34,134

Caterpillar WD844 32,000 32,304 33,157 34,004 34,267 34,477 34,642 34,824 34,958 34,968

4.7.3 Coal Reserve Constraints

The boundary between areas of opencut and underground potential was defined using a combination of pit optimiser (Lerchs-Grossman method) and margin ranking techniques. These are accepted standard methodologies used globally in the coal industry for assessing mining potential. The results of both studies identify basically the same areas of the pit as being a likely open-cut target. There are minor differences in some individual cost items applied to the respective evaluations, but overall the cost assumptions applied for both studies are reasonable for the level of due diligence and evaluation undertaken by Xenith.

Physical Limits

The open cut pit is bounded to the south by the existing mining faces. The remainder of the open cut pit has been limited through the margin rank analysis (section 4.7.1).

Lease boundaries

The Coal Reserves are wholly contained within ML1804 and are not limited by the proximity of the lease boundaries.




Creeks

The South Eastern Diversion Drain requires further diverting to enable the full extraction of the Coal Reserves indicated. The approval of the diversion has been granted and has commenced, however the work had been halted with cessation of mining.

Cemetery

The south east is restricted by the proximity of a local cemetery which has incurred a 50 m standoff and subsequent batters.

4.7.4 Coal Mining

In order to maximise bypass coal from Seam 4U, a coal extraction process has been assumed whereby the Seam 4U high ash tops (roof ply) and a high ash floor ply are mined selectively while the higher quality middle section of the seam is extracted separately and delivered directly to the Product Stockpile.

This is a coal seam extraction methodology which Snowden is familiar with and is quite practical in most instances. The schematics presented in Figure 4.23 and Figure 4.24 illustrate the proposed coal extraction processes.

Mining dilution and loss assumptions are tabulated in Table 4.16 for the opencut extraction method.

Table 4.16 Loss and Dilution assumptions (Opencut)

Item Unit of Measure Value

Coal Loss – Roof m 0.15

Coal Loss – Floor m 0.10

Dilution – Roof m 0.05

Dilution – Floor m 0.05

Diluent Density t/bcm 2.20

Diluent Ash % 80

CHPP Efficiency Factor % 95




Figure 4.22 Hard Burden Thickness (m) requiring blasting




Figure 4.23 Working Section where intra-seam parting is greater than 30 cm thick (Xenith)

Figure 4.24 Working Section where intra-seam parting is less than 30 cm thick (Xenith)

Geological Loss

The Seam 4 resource is well understood with a large amount of exploration drilling data having been collected across the life of the mine. The principal areas likely to incur significant geological losses are around faults. Exploration and mining have identified some faulting in the pit and it is estimated that the geological losses will be in the range of 5% to 8%.

Mining Dilution and Loss

As stated previously, the mining of Seam 4 consists of two distinct mining methodologies:

Opencut methods utilising dragline and truck and excavator methods

Partial Block extraction utilising a continuous miner and continuous haulage system.

* Thickness of seams are only typical examples

1.5m 4 Lower 1.5m 4 Lower

Floor Loss/Dilution Applied

Roof Loss/Dilution Applied

>0.3m Partings >0.3m Partings

1.2m 4 Upper

Upper Scalp sent to Washplant Feed


0.7m 4 UpperBypass targeted when insitu ash < 15%

No Loss/Dilution Applied

0.25m ScalpingLower Scalp sent to Washplant Feed


0.25m Scalping

* Thickness of seams are only typical examples

4 Upper

0.25m

<0.3m


No Roof Loss/Dillution Applied

4 Lower<1.85m

1.5m 4 Lower

Lower Scalp and Partings blended in

with 4 Lower Seam

Bypass Targeted when Insitu Ash < 15%

No Loss/Dilution Applied0.9m 4 Upper

Partings

ScalpingUpper Scalp to Washplant Feed


1.2m




Coal Quality

The Blair Athol coal is classified as a low energy, high moisture bituminous coal. Being low rank and with a high moisture content, the Blair Athol coal is susceptible to spontaneous combustion. Many coals have this property and it is an issue which is generally easily managed. Figure 4.25 presents indicative product specifications for a 12.5% ash product.

Figure 4.25 Indicative Specifications for a 12.5% Ash Product (Xenith)

Resource-Reserve Clarification

Proved Reserves are subsets only of areas of Measured Resources category

Probable Reserves are subsets of areas of Indicated Resources




No Measured Resources have been converted to Probable Reserves due to the level of certainty of the modifying factors.

4.7.5 Opencut Mine Schedule

It is understood that the mine schedule was based on a pre-determined coal production profile for the opencut operation. This production profile is summarised as follows:

1.8 Mt ROM coal – average for Year 1 and Year 2

1.3 Mtpa ROM coal – average for Year 3 to Year 6

1.0 Mt down to 0.8 Mtpa ROM coal – ramp down from Year 7 to Year 9

180 kt ROM coal in final year (Year 10).

The other key schedule parameters were:

Schedule of coal quality based on 54% washing (yield/ash sourced from RTCA geological model derived data).

Figure 4.26 shows the annual ROM production schedule and associated coal qualities (ash content).

Figure 4.26 Opencut Annual Production Schedule (Xenith)




Other key constraints include:

Maximum assumed dragline hours per month ~400 hrs (notionally a maximum of 5,000 hrs/per annum dig hours is less than the assumed maximum available dig hours, which allows for the time required for additional mining activities within the limited strike length and dead heading)

Strip advance rate designed to allow time for all mining activities (drill & blast, dragline, truck/excavator post strip/partings and coal)

12 months has been allowed to complete the drainage diversion before mining the south eastern blocks

Scheduled on a monthly basis to review sequence/practicality. The schedule sequence is shown in Figure 4.27 for the open-cut area but excludes the trench sequencing.

Figure 4.27 Opencut Schedule Sequence (Xenith)

The schedule advances through the nominated mining sequence to match the target coal mined requirement and includes the PBE box cuts. All waste volumes, (dragline, truck and excavator, dozer etc.) are directly part of the mine plan block and report out as the coal mining schedule progresses and accounts for the highly variable waste volume reported month by month. Further schedule refinement will flatten the waste profile to align more with dragline and truck/excavator scheduled hours. The schedule results provide an indication of the amount of waste removal required to meet the required coal mining target for each report period. In the case of this schedule, the waste requirements are comfortably inside the installed stripping equipment capacity for the Project. The irregular waste profile will likely be smoothed when more detail can be applied to the schedule.




Based on production rates of 1850 bcm/hr for the 1370 and 1100 bcm/hr for the Ex3600 and assuming a seven (7) day roster for both machines, the annual stripping capacity would be approximately 18 Mbcm/yr or approximately 1.5 Mbcm per month.

Schedule Physicals

The principal risks to the opencut schedule success are:

A material change to batter angles may negatively affect dragline rate of advance

Saturated spoils may impact on stability (dewatering in advance of mining requires further investigation)

Striking a balance between PBE trenching and the opencut sequence to minimise the risk of bottlenecking.

The schedule also shows a number of strips being mined consecutively. PBE trench stripping should provide the lag time to allow completion of drill & blast, interburden removal and coal mining prior to next strip commencing. Investigation of the opportunity for a second ramp access would be useful in the next phase of planning as this would reduce the risk of bottlenecking.

Based on the opencut strip design, it may be difficult to speed up the rate of opencut coal exposure taking into account the limited strike length for dragline operation, the relative uncertainty of PBE trench development requirements, and the possibility of dragline wait time while strips are cleared of coal. Greater scheduling detail is required to resolve these issues.

The Schedule Summary physicals and high level financial analysis, including qualifiers, are presented for the 12% bypass cut off in Table 4.8.

4.7.6 ROM Coal Reserve Statement

The reserve statement presented is for the opencut component of the Project only. The reserve determination economic limits as reported are based solely on the results of the Xenith Margin Ranking study.

Given that the Coal Reserve determination is for a Brownfields continuance of previous Blair Athol operations, Snowden is of the view that the methodology and assumptions applied are reasonable and provide a fair and reasonable estimate of the opencut Coal Reserve for Blair Athol. The resultant opencut Coal Reserve estimate is shown in Table 4.17.

Table 4.17 Blair Athol Opencut Coal Reserve Estimates

Coal Reserve (Mt ROM)*


Proved 5.1 3.6 8.7

Probable 1.5 1.2 2.6

Total Coal Reserve 6.6 4.7 11.3

* At 17% ROM Moisture Basis




Table 4.18 Blair Athol Open-cut Mine Schedule Physicals 12.5% Ash Bypass

Item Region Unit Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 Total

Area Disturbed Total ha 25.8 25.7 20.0 20.3 20.3 21.1 15.1 13.7 13.5 3.1 178.7

Overburden Blasted Total kbcm 3,734.28 4,598.72 4,454.04 4,484.36 5,439.49 4,917.55 3,477.26 2,670.10 2,727.14 343.83 36,846.77

TEx Overburden Total kbcm 780.96 317.97 330.16 369.26 635.03 1,497.18 1,442.74 720.84 417.30 266.65 6,778.10

DL Prime Overburden Total kbcm 3,931.15 5,005.07 5,087.27 5,496.52 6,607.83 6,635.89 4,686.30 3,428.26 3,015.57 639.66 44,533.52

DL Rehandle Overburden Total kbcm 1,040.78 1,502.18 1,657.86 1,940.79 2,438.01 2,538.92 1,696.68 1,191.23 933.66 210.47 15,150.57

DL Total Overburden Total kbcm 4,971.93 6,507.25 6,745.13 7,437.31 9,045.85 9,174.81 6,382.98 4,619.49 3,949.22 850.13 59,684.10

Dozed Total Overburden Total kbcm 1,780.27 2,099.90 1,666.43 1,560.14 1,937.50 1,983.81 1,415.23 1,594.59 1,262.70 165.87 15,466.44

Parting Blasted Total kbcm - - - - 20.84 35.54 - - - -

Parting Ripped Total kbcm 105.04 56.36 35.83 39.78 50.88 44.26 50.25 35.44 30.82 15.36 464.02

Parting Removed Total kbcm 105.04 56.36 35.83 39.78 71.72 79.80 50.25 35.44 30.82 15.36 520.41

Waste Prime Removed Total kbcm 4,817.16 5,379.39 5,453.26 5,905.57 7,314.59 8,212.87 6,179.29 4,184.54 3,463.69 921.67 51,832.03

Waste Total Removed Total kbcm 7,638.20 8,981.47 8,777.55 9,406.50 11,690.10 12,735.59 9,291.20 6,970.36 5,660.05 1,298.02 82,449.04

ROM Coal Blasted Total kt 1,418.57 1,221.13 1,169.28 1,034.13 938.95 924.71 741.47 629.76 587.49 114.42 8,779.92

ROM Coal Ripped Total kt 476.79 520.90 212.30 325.57 425.24 461.28 267.46 299.58 280.68 65.28 3,335.08

ROM Coal Mined Total kt 1,895.36 1,742.04 1,381.58 1,359.70 1,364.20 1,385.98 1,008.94 929.35 868.16 179.69 12,115.00

CHPP Feed Total kt 1,175.38 896.20 724.61 724.88 729.94 723.83 507.60 467.61 509.27 141.91 6,601.22

CHPP Yield Total % 72.9% 71.5% 70.8% 70.4% 70.5% 69.3% 70.1% 68.7% 68.1% 74.2% 70.7%

CHPP Product Total kt 857.25 641.02 512.85 510.04 514.28 501.56 355.81 321.34 346.76 105.27 4,666.16

Bypass Product Total kt 719.98 845.84 656.97 634.82 634.26 662.16 501.34 461.74 358.90 37.78 5,513.78

Total Product Total kt 1,577.23 1,486.86 1,169.82 1,144.86 1,148.54 1,163.72 857.14 783.07 705.65 143.05 10,179.94

ROM Strip Ratio Total bcm/t 4.0 5.2 6.4 6.9 8.6 9.2 9.2 7.5 6.5 7.2 6.8

Product Strip Ratio Total bcm/t 4.8 6.0 7.5 8.2 10.2 10.9 10.8 8.9 8.0 9.1 8.10




4.8 Marketable Coal Reserves

4.8.1 Open Cut Marketable Reserves for Blair Athol Mine

The total opencut Marketable Coal Reserves for Blair Athol are presented in Table 4.19.

Table 4.19 Blair Athol open Cut Marketable Coal Reserve Estimate

Type Marketable Coal

Reserve (Mt Product)*


Washed Product

Proved 0.8 2.6 3.4


Washed Subtotal 0.9 3.4 4.3

Bypass Product

Proved 4.0 0.0 4.0


Bypass Subtotal 5.2 0.0 5.2

Total Product

Proved 4.8 2.6 7.3


Total Marketable Coal Reserve

6.1 3.4 9.5

* Total Marketable Coal Reserve is nominally at 12.5% Ash Content (air dry basis), tonnages reported at a 17% Total Moisture Basis

4.8.2 Reserve Disclosure

Coal Reserves have been estimated and reported (under the JORC Code, 2012 Edition) by Xenith. The Competent Person is Mr John Cawte, a full time employee of Xenith. Mr Cawte consents to the inclusion of information in this report on matters related to Coal Reserves in the form and context in which it appears.

4.8.3 Product Marketability

Wood Mackenzie Coal Consulting Pty Ltd (“WoodMac”) has provided a marketability assessment for Blair Athol. The Blair Athol product coal is a low energy bituminous thermal coal. The WoodMac report states that this product could be sold into the rapidly growing Chinese and South East Asian import markets and also the traditional North Asian markets of Japan, South Korea and Taiwan.

The graphs shown in Figure 4.28 below depict a forecast of the demand for lower energy bituminous coal into China and India for the period 2013 to 2030, and indicate sustained market demand across the life of the Project out to 2022 and beyond.




Figure 4.28 Import Demand for Low Energy Thermal Coal (2013-2030)

In terms of overall coal quality of the marketable products, WoodMac considers the Blair Athol coal to be comparable to the Newcastle benchmark standard (Figure 4.29).

Figure 4.29 Blair Athol Coal Quality compared with Newcastle Benchmark and Global Thermal Exports (modified after WoodMac)




Based on the Newcastle thermal pricing benchmarks, WoodMac believes the likely price range for the Blair Athol product will be as shown in Figure 4.30.

Figure 4.30 Expected price range for Blair Athol coal sold into the seaborne thermal market (2013 real US$/t) (WoodMac)

4.9 Summary and Conclusions

In terms of mine planning, the Xenith due diligence study and subsequent opencut Coal Reserve statement provides a reasonable, high level assessment of the potential of Blair Athol, albeit in Snowden’s opinion, somewhat conservative. This study has identified minor gaps in the data and evaluation which will need to be further investigated and refined either prior to or during the early phase of the operation. Items to be addressed include:

The development of an effective strategy for de-watering and water management will be important. This will require an understanding of the water dynamics within the old spoil and is critical to the design of stable excavated spoil slopes.

To ensure PBE drive roof stability, additional geotechnical investigation is required for the seam 4 interburden properties above the planned PBE blocks. This will likely be an ongoing operational requirement.

In terms of the detailed mine plan and scheduling, the pit design parameters, dump design, and rehabilitation requirements will need to be reviewed and refined.

The drill and blast requirements need to be better understood in terms of drill suitability and powder factor.

It will be important to ensure adequate mining process lag times and time for dragline dead heading.

A Coal Reserve Statement is currently available for the opencut component of the project only. The PBE and dragline trenching volumes have not been reported as Coal Reserves at the time of compiling this report (although anticipated tonnages have been scheduled for financial modelling purposes).




Tonnages reported for the PBE system are derived from Inferred Coal Resources and a programme to validate the coal qualities will be required to upgrade the confidence category to at least Indicated (volumes, and to a lesser extent tonnages, are not materially at risk)

On completion of a coal quality validation exercise, Snowden is confident that the PBE tonnages can then be classified into an appropriate Coal Reserve category.

In terms of PBE, apart from understanding the geotechnical aspects for the PBE design, the critical issues in achieving the scheduled production from the system are:

the ability of the system to achieve production rates i.e. continuous miner productivity

a solid understanding of availability and utilisation of the installed capability

the predictability of drive length

the accuracy of guidance system

understanding plant relocation timing

design assumptions for trenches (working room), and costs associated with trenching.

None of the above items represent fatal flaws in the due diligence study, but are items which will require further detailed analysis in the development of more robust mine plans.

Snowden notes that the PBE assumptions modelled to date are relatively conservative and significant upside is possible with careful planning and implementation. In Snowden’s opinion there has been sufficient time allowed for proving and fine tuning the system.




5 Teresa Project

5.1 Property Description and Location

5.1.1 Tenement Location

The Teresa Project (“Teresa”) is a greenfields project targeting underground coal mining in central Queensland, Australia, approximately 17 km north of the town Emerald (Figure 5.1). Teresa comprises six (6) tenements as described in Section 3.1.

The Teresa Project is split into two physical domains by the existing Emerald-Clermont railway line that transverses the project area in a north-west to south-east direction. The Gregory Highway also transverses the project area and is approximately 2-3 km to the east of the existing Emerald-Clermont railway line (Figure 5.2).

The project area lies within the Central Highlands Regional Council, an area with over 29,000 residents. Emerald is the main regional centre with a population of over 11,000 residents (Xenith).

5.1.2 Cultural Heritage

Environmental & Licensing Professionals Pty Ltd (“ELP”) undertook a tenement status assessment of the tenements in terms of cultural heritage, native title, and environmental conditions. The following is a brief summary of the findings:

There is one registered native title claim by the Bidjara People #7 and further review is required to ascertain whether the current land tenure affects native title

There do not appear to be any cultural heritage conflicts or indigenous land use agreements associated with any of the tenements for Teresa

There appear to be no historical cultural heritage conflicts associated with the tenements

5.1.3 Environmental Liabilities and Economic Responsibilities

ELP indicates that the rental payments were up to date at the time of that report. Snowden does not consider there to be any material environmental or economic impediments to further developing the project from its current state of development.

Snowden understands that the project is progressing through a prefeasibility level engineering assessment, although no detailed information is yet available in terms of environmental liability.




Figure 5.1 Regional Locality of the Teresa Project (relative to other NEC tenements)




Figure 5.2 Existing Infrastructure Proximal to the Teresa Project




5.1.4 Current Consents and Consent Applications

ELP report that at the time of their report all necessary consents to actively operate (exploration) were in place. All tenements are covered by an appropriate EA, all of which are Level 2 and code compliant.

5.1.5 Environmental, Rehabilitation and Abandonment Responsibilities

In May 2013 a draft Environmental Impact Statement (“EIS”) was submitted to the Department of Environment and Heritage Protection (“DEHP”).

The EIS process identifies and evaluates potential impacts of the proposed operation in addition to nominating mitigation measures that will allow the project to proceed with acceptable environmental impacts.

The EIS will be assessed at a Queensland State level; however it will also be referred to the Commonwealth Department of Sustainability, Environment, Water, Population and Communities (“SEWPaC”) for assessment of the potential impacts on matters of national environmental significance i.e. migratory species, listed threatened species and ecological communities, and approval.

An initial adequacy review by State and Federal government agencies recommended the following areas where more information is required:

Biodiversity Offsets

Transport (specifically addressing subsidence of Gregory Highway)

Further waste rock characterisation

Clarification on vegetation mapping methods, and predicted flooding.

These areas are currently being addressed and the EIS will be resubmitted to DEHP in September 2013. The EIS will then be made available for public comment for a two month period, where the public and other Government agencies will have an opportunity to review and provide feedback on the EIS. Following this, the assessment and approval of the project and compilation of an Environmental Authority is expected to take around 12 months.

5.2 Tenement History

5.2.1 Historical Ownership and Exploration

Snowden has reviewed reports detailing historical exploration covering parts of the current tenements. The history of exploration for coal relating to the tenement area can be summarized as follows:

1964: Coal was reported in water bores from the Emerald area (Emerald 1: 250,000 Geology).

1966: Bellambi Coal Company took up APC27C over a large tract of ground to the east of Emerald that just overlapped unto the most eastern sub-blocks of EPC753. Silver Valley Mines held APC81C, which fell inside EPC753.

1968: Mount Isa Mines Ltd held APC42C over Gordonstone (Kestrel) and the eastern portion of EPC753.




1971-83: Queensland Department of Mines and Energy conducted a series of drilling campaigns in the region. Initially the target was coking coal in the German Creek formation. Later the Department conducted stratigraphic drilling and included the Rangal Coal Measures.

1982: Denham Coal Management acquired ATP389C over Kestrel.

1983: Tenneco Oil and Minerals carried out a seismic survey on ATP278C south of EPC753.

1987: ARCO Coal acquired 80% of Kestrel with Mitsui holding a 20% interest.

1990: ML1978 was granted over Kestrel.

1993: The first longwall commenced at the Kestrel Mine.

1993: The Kingower area, which had been held as RA289, was put out to tender but was not taken up.

1995-98: Minyango Resources took up the Kingower area as EPC592. Five holes were drilled targeting the Corvus 2 coal seam of the German Creek Formation.

1998: Pacific Coal acquired ARCO’s interest in Kestrel.

2002: EPC753 granted to Aquila Coal Pty Ltd. over the Kingower area.

2005: EPC980 granted to New Emerald Coal Pty Ltd (EPC1226 and EPC 1267 were applied for and granted, with extensions, in 2008).

The size and shape of the permits covering the current Teresa Project have changed over the years. EPC592 is the earliest reference Snowden has reviewed and this EPC is presented in Figure 5.3. EPC753, and the area relinquished by Aquila Coal Pty Ltd, is presented in Figure 5.4. The area relinquished was subsequently renamed EPC890, and later reshaped to what is currently held by NEC.




Figure 5.3 Historical Tenements EPC592 and EPC389 relative to the current Teresa Project Tenements




Figure 5.4 Historical Tenement EPC753 relative to the current Teresa Project Tenements




5.2.2 Historical Coal Resource and Coal Reserve Estimates

Two historical exploration reports were received and reviewed, namely:

1. Final Report on Exploration Conducted on Behalf of Minyango Resources N.L. within EPC592, Kingower, for the period 12

th December 1995 to 11

th December

1998 – Queensland Geological Services Pty Ltd

2. Relinquishment Report on Area Relinquished, EPC753, Kingower Project, 9th

April 2004 – Aquila Resources Pty Ltd and Bowen Central Coal Pty Ltd (Bowen Central Coal Management Pty Ltd)

The historical exploration report prepared by Queensland Geological Services Pty Ltd in 1996 on behalf of Minyango Resources N.L. covering EPC592 presented Coal Resource estimates but these have not been reported in accordance with the JORC Code (either the 2004 or the 2012 editions). For this reason, these estimates are not reported in this report. No Coal Reserve estimates were presented in the historical reports reviewed.

The EPC753 Relinquishment Report did not present any Coal Resource estimates.

Xenith have referred to the historical exploration relative to the Teresa Project but have not disclosed any information relevant to the results of that exploration. Considering that the historical exploration comprises less than 10% of the drilled exploration boreholes used by Xenith in preparing the current Coal Resource estimates for the project, Snowden does not consider the lack of disclosure of historical data to be of any material importance to the current assessment.

5.2.3 Production history

The Teresa Project is not yet an operating mine and therefore there is no production history.

5.3 Geological Setting, Deposit Characteristics, and Target Coal Seams

The Teresa Project is located within the Central Bowen Basin and the target coal seams lie within the German Creek Formation (Figure 4.4), which in turn is part of the Blackwater Group. The coal seams are late Permian in age and the regional dip of the coal seams is south to south-east. The coal is described as a low rank bituminous coal that has medium to high volatiles and desirable ash fusion temperatures. The project area is on the western limb of a south-west plunging syncline.

The Permian strata in the Teresa Project area are unconformably overlain by Cainozoic sediments and Tertiary basalts, dependent on the upper surface exposure time between the basalt flows within the western edge of the project area. The German Creek Formation coal seams are bounded by a regional fault structure interpreted from historical drilling data (Figure 5.5).

The regional fault structure is interpreted to be a reverse fault that thrusts from the east / north-east, bounding the German Creek Formation and truncating the target coal seams against the Reid Dome Beds.




The target coal seams in the Teresa project, from top to base, with additional local geology information from Xenith, are:

Aquila – on average 0.50 m, persistent across the deposit

Corvus 1 – on average 0.68 m, persistent across the deposit

Corvus 2 – on average 2.58 m, the primary mining target seam, this seam occurs 5 m to 10 m below the Corvus 1 Seam

German Creek Upper – on average 1.17 m, the upper split of the German Creek seam, this seam occurs 8 m to 10 m below the Corvus 2 Seam

German Creek Lower - on average 0.64 m, the lower split of the German Creek Seam, this does not coalesce into a single mineable working section with the German Creek in the Teresa Project tenements: there is a interburden between the splits that ranges from 1 m to 5 m.

A stratigraphic section of the deposit geology of the Teresa Project tenements can be seen in Figure 5.6.




Figure 5.5 Regional Fault Structure (western edge) of the Teresa Project




Figure 5.6 Generalised Stratigraphy of the Teresa Project




5.4 Exploration Data

A number of historical reports as well as the recent independent geological appraisals and Coal Resource estimates prepared by Xenith have been received and reviewed by Snowden.

The following sections discuss and assess the historical and recent exploration data in terms of drilling, logging, sampling, and analysis.

5.4.1 Historical Exploration

The exploration undertaken by Minyango Resources N.L. is reported by Queensland Geological Services Pty Ltd to have been through the drilling of partially cored HW-sized boreholes (core diameter is assumed to be equivalent to HQ i.e. 63.5 mm).

No samples were generated and submitted to a laboratory for analysis during this exploration.

Basic lithology logs were made available for review. The corresponding geophysical wireline logs were also available for review.

Considering the paucity of meaningful data acquired during the Minyango exploration, Snowden did not undertake to validate the lithological logs against the geophysical logs.

Nonetheless, the historical exploration did verify the presence of coal within the permit area.

The Bowen Central Coal Joint Venture (Aquila Coal Pty Ltd and Bowen Central Coal Pty Ltd) followed on from the Minyango exploration with the drilling of three non-cored open holes.

Being open holes, the coal samples that were generated for submission to a laboratory for analytical testing were considered to be highly contaminated and therefore no meaningful interpretation of the results was made.

5.4.2 Recent Exploration

Xenith has reported on the recent exploration undertaken by NEC over the Teresa Project.

In summary, a total of 97 exploration boreholes have been drilled and used in the geological models developed by Xenith. All holes have been geophysically logged with at least Caliper and Long and Short Spaced Density sondes.

5.4.3 Sample Preparation, Analyses, and Security

All core holes have been sampled and analysis performed on all the samples includes proximate analysis, relative density, total sulphur, specific energy and raw crucible swelling number. Further laboratory analysis programs including basic sizing, fast coke (F1.40 float) and detailed pre-treatment, sizing and washability was undertaken on selected holes only.




5.4.4 Qualified Person’s Opinion on the Adequacy of Sample Preparation, Security, and Analytical Procedures

Although not explicit in the reports reviewed, Snowden has no reason to doubt that generally accepted procedures and standards were applied during exploration activities related to Sample Preparation, Analyses, and Security.

Snowden is satisfied that sufficient analytical data has been generated for the project at this stage of evaluation.

5.4.5 Data Verification

Snowden has not undertaken to verify exploration data from first principles. Snowden has relied on the other experts’ reports in this regard.

Although not explicit in the reports reviewed, Snowden has no reason to doubt that generally accepted procedures and standards were applied during exploration activities related to Data Verification.

5.4.6 Qualified Person’s Opinion on the Adequacy of the Data for the Purposes used in the Technical Report

Snowden is satisfied that the data and information available for the Teresa Project is suitable for use as intended in this report.

5.5 Mineral Processing and Metallurgical Testing

The Teresa Project is considered to be a thermal coal deposit and no washability test work has been reported by Xenith.

5.6 Resources and Reserves for the Teresa Project

5.6.1 Resource and Reserve Overview for the Teresa Project

Both Coal Resources and Coal Reserves have been estimated and reported for Teresa. Coal Reserves are discussed in more detail in Section 5.7.

The Teresa coal deposit has been modelled based on historical and recent exploration and the Corvus 2 Seam is the target for underground extraction.

The coal seam is expected to deliver an export quality steam (thermal) coal.

5.6.2 Resource Disclosure

Coal Resources have been estimated and reported (under the JORC Code, 2004 Edition) by Xenith. The Competent Person is Mr Troy Turner, a full time employee of Xenith. Mr Turner consents to the inclusion of information in this report on matters related to Coal Resources.




5.6.3 Summary of the Geological Modelling

The geological models have been generated using the MineScape (Stratmodel) geological modelling software.

The following statements are extracted from the Xenith report:

A 1.50 m seam thickness limit has been applied to the model to determine the Corvus 2 Seam resource. The Corvus 2 is generally always thicker than 1.50 m, except in the south-east of the deposit around drill holes EEC11 and EEC35. This constraint has been applied in this resource statement due to the depth below ground of the Corvus 2 target seam. The Corvus 2 seam is in excess of current economic open cut mining depths and is therefore considered an underground coal resource at this time.

The seam and stratigraphic relationships are defined in Stratmodel (Schema: Linc_emer0812). The Teresa Project stratigraphic model contains five coal seams. The schema is set up to allow for the main coal seams to have associated upper and lower splits if splitting occurs.

5.6.4 Qualified Person’s Opinion on the Geological Modelling

Given the fairly advanced stage of the project (progressing through a prefeasibility level engineering study), Snowden would have expected there to be substantially more detailed information related to the construction of the geological models, particularly in terms of modelling parameters and assumptions.

Notwithstanding this, in Snowden’s opinion the geological models developed by Xenith are robust and reliable.

5.6.5 Summary of the Resource Estimation Process

Xenith reports on the processes for Coal Resource estimation including the selection of relevant boreholes for use as points of observation, classification methodology, and resource block definition.

At the current stage of evaluation and project development, only Indicated and Inferred Coal Resources have been reported.

5.6.6 Qualified Person’s Opinion on the Resource Estimation Process

In Snowden’s opinion the Coal Resources have been estimated appropriately at this stage of the project’s development.




Table 5.1 Coal Resource and Coal Reserve Summary for the Teresa Project

Category Mineral

Type

Gross Attribute to Licence

Net Attribute to Issuer

Remarks Tonnes

(millions) Grade

Tonnes (millions)

Grade

Change from

previous update

(%)

Reserves

Proved Coal



Resources*

Measured Coal

Indicated Coal 82 Thermal 82 Thermal N/A



* Coal Reserves are a modified sub-set of the Measured and Indicated Coal Resources

5.7 Extraction of the Minerals from the Deposit

The three principal underground mining methods recommended by MineCraft and Xenith are appropriate in Snowden’s opinion namely:

Longwall Mining Methods (MineCraft)

Continuous Miner Methods (MineCraft)

Partial Block Extraction Methods (Xenith)

Longwall extraction is a highly productive mining method with the highest potential for resource recovery and is widely used in Australia.

The current design calls for a dual set of gate roads to be developed and longwall panels in excess of 3.5 km in length were designed. A dual set of roadways will support the ventilation requirements for a longwall panel up to 3.5 km. Industry experience has shown that excessive pressure drops would be experienced for longwall panels longer than 3.5 km, and therefore a triple set of gate roads might be required. Further ventilation simulations are required to confirm this.

Mains and gate road development for longwall mining is done using continuous miner mining methods. The longwall panels are developed from a set of mains which usually vary in size pending ventilation requirements from five (5) to seven (7) headings. The main headings for Teresa comprise of seven (7) roads which is potentially over-designed considering the current low gas content of the resources (1.24 m

3/t).

The Partial Block Extraction (“PBE”) method is an adaption of opencut highwall mining methods where approved underground mining equipment is used to extract coal that is not suitable for conventional longwall mining methods. By using this mining method it is possible to achieve much higher production rates than conventional continuous miner extraction methods. This can be achieved as no strata support is required in the plunge drive mining area and upon completion of a plunge, the continuous miner is relocated to the next plunge area, leaving a solid column of coal to support the roof.




There is no detailed design of this mining method for Teresa, and only a high level concept study and financial analysis was conducted to depict the potential value of the associated coal.

5.7.1 Geotechnical Engineering

Many underground coal operations use the Coal Mine Roof Rating (“CMRR”) classification system to provide a measure of ground conditions which requires detailed core logging. Geotechnical logging for Teresa has not been carried out.

To understand or obtain an indicative measure of ground conditions at Teresa, geophysical borehole logging was undertaken through a measure called Geophysical Strata Rating (“GSR”) and this data was also compared to nearby operations. GSR analysis was conducted over only 4 boreholes which had suitable geophysical data for geotechnical characterisation. Variability in strata conditions is evident and could have severe impacts on mining conditions, resulting in more ground support requirements and ultimately adversely impacting on production output.

The major stress direction at Teresa appears similar in orientation to that observed at nearby operations viz. North East–South West. This aspect has a major impact on the longwall panel orientation and can affect the panel extraction sequence. The sequence currently might impose a stress notch on the main gate and production might be influenced negatively with an increased ground supporting costs.

5.7.2 Geological Structures

The nature of geological structure with respect to its orientation relative to a longwall face or development headings and associated dip forms a major constraint with respect to mining. Geological interpretation of cleating direction with in-situ stress direction from core logging should be used to assist with optimal panel layout. Current information illustrates that the general cleat direction approximates north-south. This is not conducive to current panel layout and design and under longwall abutment loading can cause an unstable longwall face and adverse rib stability impacts. The current mine plan allows for a bi-directional cutting method of the longwall. Cleat direction with respect to panel orientation can impact on the cutting method which might result in uni-directional cutting only. This would have a significant impact on production output.

5.7.3 Hydrological Influences

Potential water aquifers were identified during the conceptual study phase. Thereafter a network of groundwork monitoring bores has been installed across the site to:

Ascertain the baseline groundwater quality

Identify and delineate any aquifers

Determine the hydraulic conductivity of the groundwater and estimate likely inflows into the mine

Input into a groundwater model in order to determine the impact of mine dewatering on groundwater levels.

The results of this testing is incomplete and the impacts of water on Teresa are not known as of yet. There could be potential impact on operating costs (underground dewatering system and or surface storage) and lower production through put if aquifers connect to the longwall goaf.




5.8 Summary and Conclusions

In summary:

The resource and reserves are appropriate

The mining methods are appropriate

However additional geotechnical and hydro analysis work will be required.

In Snowden’s opinion the information is appropriate for the current stage of development but a detailed feasibility study still needs to be completed.




6 Valuation of the Mineral Deposits

6.1 Valuation Methods

6.1.1 Introduction

This Mineral Asset Valuation is included in this Independent QPR as part of the requirements for NEC to list on the mainboard of the SGX and therefore has been prepared to conform to the Australian VALMIN Code (2005 Edition).

Snowden has provided a Technical Valuation of the mineral assets, based on the fundamental mineral aspects of each mineral tenement, such as geology, anomalies and identified mineral resources and ore reserves. Snowden notes that, under the Code, value is comprised of the Technical Value and a premium or discount relating to market, strategic or other considerations, thus deriving a “Market Value”.

The valuation of companies, businesses and assets such as Mineral Assets is not a precise science and the conclusions arrived at in many cases will of necessity be subjective and dependent on the exercise of individual judgement. There is therefore no indisputable single value and Snowden normally expresses an opinion on the value as falling within a likely range, as required by the Code.

In formulating its opinion of the value of mineral assets and potential mineralisation of a project area, Snowden considers application of various recognised valuation techniques, briefly summarised below.

6.1.2 Mineral Resources and Ore Reserves

Where Mineral Resources and/or Ore Reserves have been defined, Snowden’s approach is to excise them from the mineral property and to value them separately on a value per resource tonne basis or on the basis of a discounted cash flow (“DCF”) or comparable transaction. The value of the exploration potential of the remainder of the property can also then be assessed. Where appropriate, discounts are applied to the estimated grade to represent uncertainty in the information depending on the level of classification (Inferred, Indicated or Measured).

In Snowden’s opinion, an Expert charged with the preparation of a development or production project valuation must give consideration to a range of technical issues as well as make a judgement about the market.

The most commonly employed methods of Resource valuation are:

Discounted cash flow (DCF) methodology

The DCF methodology requires the availability of long-term cash flow projections but provides a valuation that is transparent and defensible. Under this method, the value of the asset is equal to the net present value (“NPV”) of the estimated future free cash flows. In order to arrive at the NPV the future cash flows are discounted using a discount rate which reflects the risks associated with the cash flow stream. In Snowden’s opinion this is the most robust methodology for valuing a mining operation as there is usually a wealth of actual results that can be used and compared to industry standards.




Comparable market transaction value

When a discounted cash flow analysis of a project has not been made, and Ore Reserves have not been defined then a comparable market transaction value approach is typically applied. The comparable market transaction value approach for resources is a similar process to that for exploration property, however a dollar value per resource tonne / metal in the ground is determined.

As no two mineral assets are the same, the Expert must be cognisant of the quality of the assets in the comparable transactions, with specific reference to:

the grade of the resource

the metallurgical qualities of the resource

the proximity to infrastructure such as an existing mill, roads, rail, power, water, skilled work force, equipment, etc.

likely operating and capital costs

the amount of pre-strip (for open pits) or development (for underground mines) necessary

the likely ore to waste ratio (for open pits)

the size of the tenement covering the mineral asset; and

the overall confidence in the resource.

6.2 Previous Valuations

Snowden notes that NEC’s mineral assets, except the Blair Athol project, were valued at Linc’s request by WoodMac as at 01 January 2013. WoodMac provided this Valuation in accordance to the VALMIN Code, but for internal use by Linc only and so did not finalise the report for public reporting. Snowden has reviewed the valuation report by WoodMac and has completed a reasonable due diligence on the methodologies and information used, and found no reason to doubt the accuracy or reliability of the information and the conclusions that have been made.

6.3 Snowden Methodology and Compliance with the VALMIN Code (2005 Edition)

Table 6.1 summarises the methodologies applied by Snowden to complete VALMIN (2005) compliant valuations for NEC’s mineral assets.

Table 6.1 Snowden Methodologies for the Valuation of the NEC Projects

Asset Valuation Methodologies

Blair Athol DCF & Comparative Transaction

Teresa DCF & Comparative Transaction




6.3.1 Site Inspections

The individual Competent Persons (“CPs”) for both Blair Athol and Teresa have conducted a number of site visits throughout the process of defining and reporting the Resource and Reserve statements. Snowden’s staff member, Mr Glen Guy, has visited the Blair Athol site on a number of occasions and is familiar with this project. No site visits were undertaken by Snowden for the Teresa Project. The Teresa Project is essentially at an early stage of development with only exploration and early stage prefeasibility study work thus far completed.

Snowden did therefore not deem it necessary to visit site as part of this valuation exercise.

6.3.2 Tenement Details

Details associated with the tenements have been provided in the relevant sections earlier in this report. Snowden has not independently verified the ownership and legal standing of the mineral tenements, which are the subject of this valuation and is not qualified to make legal representations in this regard. Snowden has not attempted to re-establish the legal status of the tenements with respect to joint venture agreements, Native Title or potential environmental and land access restrictions. However, Snowden has reviewed the information provided by ELP (ELP, 2013) and other publically available information through the Queensland DNRM and has found no reason to doubt the accuracy or reliability of the information provided. The information reviewed does not highlight any material ownership, native titles aspects, environmental or land access issues.

6.3.3 Resource and Reserves

Details associated with the Resources and Reserves for both the Blair Athol and Teresa projects has been documented in the relevant sections of this report. These statements are made under the JORC code and have been signed off by Competent Persons as noted in these sections with the required industry experience and professional affiliations. Snowden has carried out sufficient investigation to determine that, in its opinion, there is no reason to doubt the accuracy or reliability of these statements and the information provided.

6.3.4 Mining and Ore Processing

Details associated with the mining and processing for the Blair Athol project has been documented in the relevant sections of this report. Snowden has carried out sufficient investigation to determine that in its opinion there is no reason to doubt the accuracy or reliability of the information provided.

6.3.5 Capital and Operating Costs

Details associated with the capital and operating costs used in mine planning for both the Blair Athol and Teresa projects has been documented in the relevant sections of this report and are explained within the context of the valuation models constructed by Snowden. Snowden has carried out sufficient investigation to determine that in its opinion there is no reason to doubt the accuracy or reliability of the information provided.




6.3.6 Revenue Assumptions

Details associated with the revenue assumptions used in the mine plans for both the Blair Athol and Teresa projects has been documented in the relevant sections of this report and are explained within the context of the valuation models constructed by Snowden. Snowden has carried out sufficient investigation to determine that in its opinion there is no reason to doubt the accuracy or reliability of the information provided.

6.3.7 Finance and Market Considerations

Assumptions around inflation, commodity prices, interest and discount rates are included in the valuation sections for each project. Snowden is not a qualified financial advisor or economic forecasting organisation but has carried out sufficient investigation to identify public domain information and use values that are in line with industry good practice in order to derive the values presented in the discounted cash flow models. In Snowden’s opinion the assumptions that are presented below are a reasonable and adequate sensitivity analysis and benchmarking exercise that has been completed to validate its conclusions.

6.3.8 Risk

Details of risks associated with various aspects of both the Blair Athol and Teresa projects have been documented in the relevant sections of this report.

6.3.9 Disclosures

Snowden is an independent firm providing specialist mining industry consultancy services in the fields of geology, exploration, resource estimation, mining engineering, geotechnical engineering, mineral processing, risk assessment, mining information technology and corporate services. The company, which operates from offices in Perth, Brisbane, Johannesburg, Vancouver, Calgary, London and Belo Horizonte (Brazil), has prepared independent technical reviews and mineral asset valuations on a variety of mineral commodities in many countries in the past over the last 26 years.

This report was prepared by Mr Grant van Heerden (Principal Consultant - Coal) as Principal author with assistance from Mr Ross Broadley (Principal Consultant – Coal) and Mr Adriaan Benson (Associate and Principal Consultant – Coal) and was reviewed by Mr David Lawrence (General Manager Coal) and Mr Craig Morley (Executive Consultant) in accordance with the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Experts Reports (“the VALMIN Code”) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“the JORC Code”).

Neither Snowden nor those involved in the preparation of this report have any material interest in the companies or mineral assets considered in this report. Snowden is remunerated for this report by way of a professional fee determined according to a standard schedule of rates which is not contingent on the outcome of this report.

6.4 Valuation of Blair Athol Coal Mine

6.4.1 Introduction

The financial valuation is presented herein as a conventional discounted cash flow analysis produced at a base date of 01 January 2014.




As part of the information available to Snowden, NEC provided a financial model for the Blair Athol Coal Mine. Snowden carried out its own due diligence on the model and Snowden reviewed and revised this model as necessary. In Snowden’s opinion the methodology and results are seen as fair and reasonable for this project and provide a realistic and transparent assessment of the value, while taking into account the technical, market and material risks in this project. Below are Snowden’s comments on the DCF model as provided and used for the valuation.

6.4.2 Production

The production profile contemplated for the purpose of the financial valuation is a combination of opencut and PBE mining methods targeting predominantly the Seam 4 Group. A target of 46% of the Opencut ROM coal is planned to bypass the wash plant while all planned PBE ROM coal will bypass the CPP. The opportunity to selectively mine and realise potential upside through experience and balancing CPP cut-points and bypass percentages is considered material.

The financial modelling is constructed in yearly increments which in Snowden’s opinion is sufficient to demonstrate the viability of the concept for this stage of study. Monthly mine schedules have been viewed and support the detail methodology within equipment capacity.

On the basis of the Margin Rank trends, a pit layout was developed and the limits extended to match the break-even limit for the 6-8% Relative Profit Margin. The extended pit design provides flexibility in responding to changing economic conditions. In Snowden’s opinion this is a practical and appropriate approach since changes in foreign exchange rates and coal price can have a dramatic effect on economic limits. A summary of the available tonnages from Coal Resource to Coal Reserve is presented in Table 6.2.

Table 6.2 Life of Mine Coal Reserve Summary

Mine Life Unit of

Measure Quantity

Coal Resource Estimate (Measured + Indicated) Mt 21.1

Opencut ROM Coal Reserves (Proved + Probable) Mt 11.3

CPP Bypass Opencut ROM % 46

CPP Yield % 71

Marketable Coal Reserve Estimate Mt 9.5

In addition to the above stated Resource and Reserve tonnages is a total of 8.7 Mt of ROM coal delivered from the PBE system that has been included in the Life of Mine Plan. These tonnages have been estimated from Inferred Resources and are therefore not classified as Coal Reserves.

Quality

NEC requested WoodMac to carry out a high level assessment of the potential market demand for coal from Blair Athol Coal Mine.

The WoodMac assessment was based on an export thermal coal of ≤12.5% ash (adb), with an energy content of 5,291 kcal/kg NAR, classified as a low energy bituminous coal. Energy content nominally determined at the bottom end of the acceptable range for the Newcastle High Ash benchmark.




Price discounts considered in the financial model would seem appropriate, and in particular represent lower downside risk on quality adjustments with the potential upside to be realised through experience at balancing CPP cut points and bypass percentages.

6.4.3 Inflation and Escalation

Inflation of 2.5% is treated appropriately within the discount rate.

Escalation does not require consideration in this modelling scenario.

6.5 Revenue and Deductions

Based on the quality specifications provided, WoodMac has assessed marketability by considering the forecast future size of the seaborne market for lower energy bituminous thermal coal. This informed the WoodMac view on the market potential of the coal, its target destination and its possible pricing.

Price discounts considered (NEC discount) in the financial model are appropriate in Snowden’s opinion, if not a little pessimistic, but are reflective of the trends supported by historical penalties as disclosed in the WoodMac report.

It should be noted that the sensitivity of the project to coal price is significant, but has to be considered in AUD terms as such is sensitive to exchange rate movements as well.

6.6 Operating Costs

Operating costs are summarised in Table 6.3.

6.6.1 Direct Operating Costs

In Snowden’s opinion Mining costs around AUD$27 / ROM Tonne are seen as reasonable for the equipment specified, and consistent with acceptable benchmarks, and include appropriate elements.

The cost of operating the PBE has been supplied through NEC experience elsewhere and is difficult to benchmark locally. In Snowden’s opinion, compared to other underground mining elements, it is in the right order of magnitude.

Coal Processing operating cost used in the financial model is AUD$4.50 / tonne excluding ROM handling and product haulage. In Snowden’s opinion this rate, is reasonable based on the mine being managed with tight cost control.

Detailed build-up of labour costs for directs provided high confidence for this element.

Consumables including diesel, power explosives etc. were covered adequately and tied to production as appropriate.

The ROM operating cost range was in line with the scheduled tonnage extraction from the various sources over the scheduled life of mine.

6.7 Off Mine and Indirect Operating Costs

Detailed build-up of indirect operating charges including all support functions was seen as realistic and defendable.




6.8 Total Operating Costs and Margin

In Snowden’s opinion the Operating costs are realistic, and bordering on conservative (upside potential exists).

Confidence in the operating cost is gained from the proven operational history, excess capacity in equipment, and all infrastructure and services essentially ready and configured.

Operating margin is healthy across the schedule at modelled price and exchange rate forecasts.

6.8.1 Foreign Currency Component

Exchange rate forecast for revenue was appropriate at the valuation date, however would be viewed as conservative in current market.

6.8.2 Transport and Logistics

Outbound coal logistics (rail and port) volumes and costs are implicit in the potential mine sales agreement. They are favourable and capped. The risk of capacity being not available for the Project is low as the agreements have guaranteed 3 Mtpa capacity to 2016 and then the unused balance up to 14.6 Mtpa following. The risk of Clermont Mine (or other users) filling greater than 11.6 Mtpa post 2016 has to be considered.

6.8.3 Other

In Snowden’s opinion all other cost elements are in line with industry norms.

6.8.4 Environment and Closure

The closure estimate for the Project is in Snowden’s opinion to be fit for purpose and reasonable when compared with similar scenarios.

Table 6.3 Operating Costs

Operating Expenditure Item Unit of Measure Value

Cost to Pit Top AUD$ / ROM t 27.55

Rom Handling AUD$ / ROM t 0.50

CHPP Processing AUD$ / ROM t 4.50

Product Haulage AUD$ / ROM t 0.80

Stacking and Train Loading AUD$ / Prod t 2.90

Rail Freight AUD$ / Prod t 15.00

Port Charges AUD$ / Prod t 5.00

Sampling AUD$ / Prod t 0.10

Coal Royalty (<100 $/t) % of Revenue 7%

Coal Royalty (>100 $/t) % of Revenue 10%

Mine Fugitive Emissions T CO2 / ROM t 0.05

6.9 Capital Costs

Capital costs are summarised in Table 6.4.




6.9.1 Project Capital

The project capital is estimated at AUD$67.0M with a major component being the purchase of the PBE equipment. Some risk is inherent in this yet to be proven system however it is noteworthy that the components of the PBE system are essentially proven elsewhere.

In Snowden’s opinion there appears to be scope to reduce some capital as firm scope of requirements is determined once access to site is available. Estimates of creek diversion, tailings dam capping and provision of a new tailings facility as well as raw site water storage and handling are adequately contemplated at this stage.

6.9.2 Stay in Business (SIB) / Sustaining CAPEX

The following items and assumptions are relevant to the DCF model:

Sustaining CAPEX is assumed to be minimal due to short life of mine.

No replacement capital has been contemplated for mobile fleet.

The general age and condition of equipment would suggest slightly lower availability, and higher operating costs than benchmark new equipment.

Snowden believes this has been allowed for sufficiently in the operating costs, and projected utilization.

There is sufficient capacity across the fleet to meet production targets.

CPP and other sustaining CAPEX is not contemplated.

6.9.3 Working Capital

The working capital contemplated is assumed to be 2 month of revenues. This assumption is valid for normal export sales in an operating mine.

Table 6.4 Capital Costs

Capital Expenditure Item Unit of Measure Value

CPP AUD$ Million 12.0

Surface Facilities AUD$ Million 20.0

PBE Equipment AUD$ Million 30.0

Owners Costs and Ind. Costs AUD$ Million 5.0

Total Project CAPEX AUD$ Million 67.0

6.10 Tax and Royalties

6.10.1 Income Tax

In Snowden’s opinion Income Tax has been modelled appropriately for this purpose.

6.10.2 Royalties, Carbon Tax, and MRRT

Production based additional taxes have been modelled appropriately and no MRRT liability has been considered (operation below threshold).




6.11 Cashflow Model

A DCF model was provided based on annual reporting with no inflation related escalation applied. Snowden reviewed and revised this model as necessary. Figure 6.1 shows the DCF over the mine life.

Figure 6.1 Discounted Cash Flow for Blair Athol over Planned Mine Life

6.12 Model Results

6.12.1 Financial Metrics

The financial model presents strong metrics. The investment, capital outlay is meagre due to the opportunity to take on the closure liability, in exchange for all plant and equipment, remaining coal resource and a payment spread over 4 years commencing in 2016.

In terms of establishing a valuation, the following adjustments have been made to the schedule results and consequent financial results. In Snowden’s opinion these adjustments are required to satisfy the terms of the VALMIN Code:

The Seam 3 Opportunity coal has been excluded from the schedule economics since this coal is not currently included in the Blair Athol Coal Resource estimate

Snowden believes that bringing forward opencut tonnage to replace the Seam 3 opportunity would be closer to reality in terms of the mine development in line with NEC trying to maximise tonnages in the earlier years

The PBE component of the mine design and schedule extends across mostly an “Inferred Resource” base. However, this classification is technical, and in Snowden’s opinion there is little doubt that the Seam 4 Upper tonnage exists, and the final verification of the points of observation would appear to be routine once access to site is gained

Snowden also believes the quality estimate is defendable given the extensive exploration and modelling as well as actual mining to substantiate the model estimates.




However, a higher risk weighted discount rate of 15% was applied to the evaluation of PBE component of the project. Snowden considers a 33% increase in the WACC to compensate for any risk associated with PBE is appropriate for the level of understanding and modelled conservatism at this stage of the project.

Results of the Financial Metrics include:

Combined Net Present Value of AUD $181 M

Internal Rate of Return is greater than 35%

The Maximum Cash (Capital) Exposure is only AUD$31 M seen in year 2.

6.12.2 Sensitivity Analyses

To examine the robustness of the financial results, a sensitivity analysis was undertaken by varying several key parameters by +/- 10%. These being:

Coal Price

Exchange Rate

Yield

Discount rate.

Figure 6.2 illustrates the sensitivity of the project NPV to individual variation of the above variables.

Figure 6.2 Blair Athol NPV Sensitivity Analysis

Figure 6.2 clearly shows that the project is most sensitive to changes in the coal price and foreign exchange rate and therefore these market driven variables have been used to derive the high and low ranges of the valuation.

$M




The sensitivity analysis demonstrates a solid financial result with the NPV varying between approximately AUD$121M and AUD$238M for the +/- 10% variance applied. As is typical for many projects of this nature, the NPV is most sensitive to price, foreign exchange, and product yield.

6.12.3 DCF Valuation conclusion

Based on the results of the DCF modelling, in Snowden’s opinion the Market Value of the Blair Athol Project is AUD$181M within a range of AUD$121M to AUD$238M respectively (Table 6.5).

Table 6.5 Low, High and Preferred Values of the Blair Athol Project

Project Low (AUD$M) High (AUD$M) Preferred (AUD$M)

Blair Athol 121.0 238.0 181.0

6.13 Comparative transaction valuation of the Blair Athol Project

WoodMac provides a detailed list of comparative transactions for Queensland and New South Wales Coal projects, which has been included herein (Table 6.6). Benchmarking projects on an Enterprise Value (“EV”) per resource tonne basis is an accepted practice in mining valuations. In Snowden’s opinion the most relevant of these transactions with respect to the Blair Athol project are shown in Table 6.6.

Table 6.6 Recent Comparative Transactions (WoodMac)

Date Transaction Basin Coal Status EV/

Resource Tonne

Implied Blair Athol Value

(AUD$M)

Aug-08 J-Power & EDF / Narrabri Sydney Thermal Ops +

Projects 3.8 175

Aug-09 Narrabri / Korean

consortium Sydney Thermal

Mature project

4.99 230

Aug-10 Middlemount JV /

Gloucester Bowen SHCC / PCI

Mature project

8.38 386

Jun-11* Leighton / Peabody Bowen Coking / Thermal

Ops + Projects

2.88 133

Apr-12* Aquila/Sumitomo Bowen Metallurgical

/ Thermal Ops +

Projects 3.5 161

Maximum 8.38 386

Minimum 2.88 133

Median 3.8 175

Average 4.71 217

*Note: Transactions added by Snowden

Based on these transactions Snowden calculates the Market value of the Blair Athol is AUD$175M in the low-high range of AUD$133M to AUD$386M respectively. Snowden notes that the preferred value reported above and derived through the DCF valuation methodology is with in this range and the preferred values are similar. In Snowden’s opinion the comparative transaction data supports the results derived through the use of the DCF methodology.




6.14 Valuation of the Blair Athol Project conclusion

Based on the results of using both DCF modelling and comparative transaction analysis, in Snowden’s opinion the Market Value of the Blair Athol Project is AUD$181M in the low high range of AUD$121M to AUD$238M respectively (Table 6.7).

Table 6.7 Low, High and Preferred Values of the Blair Athol Project


Blair Athol 121 238 181

6.15 Valuation of the Teresa Project

6.15.1 Introduction

The financial valuation is presented herein as a conventional discounted cash flow analysis produced at a base date of 1

st January 2014

Snowden reviewed and revised the information provided by NEC and created a DCF model for the purpose of this valuation. In Snowden’s opinion the methodology and results are seen as fair and reasonable for this project and provide a realistic and transparent assessment of the value, while taking into account the technical, market and material risks in this project.

6.16 Production

The production profile contemplated for the purpose of the financial valuation is a greenfields underground coal mine targeting the Corvus 2 coal seam. The anticipated product strategy for Project Teresa is to sell the coal as a raw high ash thermal product at an ash content of 20.5%. This strategy requires only crushing, screening and a coal load out facility is required which is deemed appropriate for the level of study. The opportunity to wash the coal to a low ash thermal product might realise in a potential upside in the value for the project.

The financial modelling is coarse in yearly increments but is sufficient to demonstrate the workability of the concept for this stage of study. Annualised production schedules have been produced and further work is required to support the detail around development and longwall mining.

The mine plan was developed over indicated and inferred resources and for the purpose of this exercise the inferred resources were discounted by 60% representing the percentage that in Snowden’s opinion might convert to indicated category during the process of further drilling and mining. Although no mine plan was developed for the PBE mining method these tonnages were only valued after the longwall mining was completed (2036). Discounting the inferred resources resulted in a mine life of 17 years for longwall mining only.

In Snowden’s opinion the production profile outlined for Project Teresa is practical and achievable and therefor suitable as a foundation for valuation purposes.

6.17 Quality

Linc Energy requested Wood Mackenzie to carry out a high level assessment of the potential market demand for coal from Project Teresa to supply up to 6 Mtpa of high ash bituminous coal to the seaborn market.




Wood Mackenzie determined that the Teresa project will produce a high ash bituminous coal that could be sold into the rapidly growing Chinese market as a standalone product or a blend coal. Energy content nominally determined at the bottom end of the acceptable range for the Newcastle High Ash benchmark.

Price discounts considered in the financial model would seem appropriate, with the potential upside to be realised through washing the Teresa coal to a low ash thermal product.

6.18 Inflation and Escalation

Inflation of 2.5% is treated appropriately within the discount rate. In Snowden’s opinion escalation does not require consideration in this modelling scenario.

6.19 Revenue and Deductions

Based on the quality specifications provided, Wood Mackenzie has assessed marketability by considering the forecast future size of the seaborne market for lower energy bituminous thermal coal. This informed Wood Mackenzie's view on the market potential of the coal, its target destination and its possible pricing.

Price discounts considered (Linc discount) in the financial model would seem appropriate, but are reflective of the trends supported by historical penalties as disclosed in the Wood Mackenzie report. The prices in the financial model are based upon an ash value of 18% but the latest indications from the mine plan estimates ash value around 20.5%, which could have a negative impact on the revenue stream.

6.20 Operating Costs

6.20.1 Direct Operating Costs

Mining costs are seen as reasonable for the equipment specified, and lower than acceptable benchmarks, but include most appropriate elements for this level of study. Cognisance needs to be taken that this is a low gas emissions operation and therefore a reduced operating cost can be expected.

Coal crushing and screening cost used in the financial model is AUD$2.75/ ROM tonne and considered to be appropriate.

Operating cost elements deemed appropriate for this level of study. The longwall cost element appeared to be on the lower end of the envelope.

The ROM operating cost range was in line with the scheduled tonnage extraction from the underground operations over the scheduled life of mine.

Labour costs are acceptable for this level of study.

6.20.2 Off mine and Indirect Operating Costs

Indirect operating charges of all support functions were seen as realistic and defendable.

6.20.3 Total Operating Costs and Margin

Operating costs are realistic, and bordering the lower end of the benchmarking operations.




Operating margin is healthy across the schedule at modelled price and exchange rate forecasts.

A sensitivity analysis has been conducted and the Teresa Project is highly sensitive to coal price and exchange rate.

6.20.4 Foreign Currency Component

Exchange rate forecast for revenue was appropriate at the valuation date, however would be viewed as conservative in current market.

6.20.5 Transport and Logistics

The Draft Pre-feasibility study addresses the major logistic considerations and requirements. Further studies are still required to ensure a total or optimum solution is found.

6.20.6 Environment and Closure

In the financial modelling, no allowance was made for mine closure or environmental liability and it is strongly recommended that this be incorporated.

6.20.7 Contingency and Allowances

Contingency will be expected to be quantified in the next level of study. It is appropriate for now to not include an extensive analysis of estimate uncertainty, timing risk and allowance. Sensitivity analysis conducted on mining costs still resulted in a positive NPV at higher costs.

6.21 Capital Costs

6.21.1 Project Capital

The project capital is estimated at AUD$850M which is in line with recent Australian underground operations. Estimated accuracy was allowed for at 23% and the sensitivity analysis conducted illustrates still a positive NPV for a +30% increase in project capital.

6.21.2 Stay in Business (SIB) / Sustaining CAPEX

Sustaining CAPEX is assumed to be AUD$3.0 per ROM tonne mined and is in line with proximate benchmark mines.

6.21.3 Working Capital

The working capital contemplated is assumed to be 2 month of revenues.

This assumption is valid for normal export sales in an operating mine.

6.22 Tax and Royalties

6.22.1 Income Tax

In Snowden’s opinion Income Tax has been modelled appropriately for this purpose.




6.22.2 Royalties, Carbon Tax, and MRRT20

Production based additional taxes have been modelled appropriately and no MRRT liability has been considered (operation below threshold).

6.23 Cashflow Model

A DCF model was provided based on annual reporting with no inflation related escalation applied.

6.24 Model results

6.24.1 Financial metrics

The sensitivity analysis supports that the financial model presents strong metrics.

The investment capital employed for Project Teresa is AUD$850M over a project period of 6 years and the development distribution is shown in Table 6.8.

Table 6.8 Capital Development Distribution

Total Yr1 Yr2 Yr3 Yr4 Yr5 Yr6

100% 6% 30% 32% 17% 12% 2%

The discounted cumulative cashflow for Project Teresa is shown in Figure 6.3

Figure 6.3 Discounted Cumulative Cashflow – Project Teresa

20

MRRT = Mineral Resource Rent Tax




Key parameters defined by the DCF analysis include:

The Net Present Value @ 10 % on this basis is AUD$259M

Internal Rate of Return of 13.8% is significant return on investment

The Maximum Discounted Cash (Capital) Exposure is AUD$650M

6.24.2 Sensitivity analyses

To examine the robustness of the financial results, sensitivity was run by varying several key parameters. These being:

Project capital – varied by 23% for upper and lower limits

Mining cost – varied by -5% for the lower limit and +21% for the upper limit

Sustainable capital – varied by -19% for the lower limit and +133% for the upper limit

Run of mine tonnages – varied by -15% for the lower limit and +5% for the upper limit

Coal Price – varied by + 10% for upper and lower limit

Exchange Rate - varied by + 10% for upper and lower limit.

Figure 6.4 illustrates the sensitivity of the project NPV to individual variation of the above variables.

Figure 6.4 Sensitivity analysis for Project Teresa

Figure 6.4 clearly shows that the project is most sensitive to changes in the coal price and exchange rate and therefore these market driven variables have been used to derive the high and low ranges of the valuation.

The sensitivity analysis demonstrates a financial result with the NPV varying between AUD$59M and AUD$479M.




6.24.3 DCF Valuation conclusion

Based on the results of the DCF modelling, in Snowden’s opinion the Market Value of the Teresa Project is AUD$259M in the low high range of AUD$59M to AUD$479M respectively (Table 6.9).

Table 6.9 Low, High and Preferred Values of the Teresa Project


Teresa 59.0 479.0 259.0

6.25 Comparative transaction valuation of the Teresa Project

WoodMac provides a detailed list of comparative transactions for Queensland Coal projects. The most relevant of these transactions are highlighted in Table 6.10. Benchmarking projects on an Enterprise Value (“EV”) per resource tonne basis is an accepted practice in mining valuations. Snowden has reviewed the transactions listed by WoodMac and independently validated them with publicly available data thereby carrying out sufficient investigation to determine that in Snowden’s opinion there is no reason to doubt the accuracy or reliability of the information provided.

WoodMac utilised the three Bowen Basin transactions highlighted in Table 6.10 as the most relevant when making comparison to the Teresa project concluding that this results in a low high range of between AUD$121M and AUD$341M respectively. Based on these transactions Snowden notes that the preferred value reported above and derived through the DCF valuation methodology is with in this range while the Low and High Values that are based on the sensitivity analysis provides a broader range. In Snowden’s opinion the more detailed analysis of the DCF model highlights the projects sensitivity to commodity prices and exchange rates which are valid considerations in the current market. While the comparative transaction data supports the results derived through the use of the DCF methodology, it is Snowden’s opinion that the DCF modelling results provide a more conclusive indication of the market value of the project.




Table 6.10 Wood Mackenzie Comparative Valuation Transactions (WoodMac)

Date Transaction Basin Coal Status

EV/

Resource Tonne

Implied Teresa Value

(AUD$M)

Feb-07 Guangdong /

Narrabri Sydney Thermal Project 2.05 1,747

Jul-07 Sojitz / Moolarben Sydney Thermal Project 1.46 1,244

Sep-07 Xstrata - Anvil Hill Sydney Thermal Project 0.81 690

Dec-07 Noble / Monto Sydney &

Bowen Thermal Project 0.93 792

Jan-08 Kores + Kepco /

Moolarben Sydney Thermal Project 1.46 1,244

Aug-08 J-Power & EDF /

Narrabri Sydney Thermal

Ops + Projects

3.80 3,238

Jun-09 Rey Resources /

Gujarat NRE Canning Thermal Project 0.04 38

Aug-09 Narrabri / Korean

consortium Sydney Thermal

Mature Project

4.99 4,250

Nov-09 Maules Creek /

Aston Gunnedah Thermal Project 1.33 1,133

Feb-10 Doyles Creek /

Nucoal Sydney SSCC Project 0.38 324

Jul-10 Anglo coal (5 tenements )

Surat & Sydney

Thermal Project 0.78 666

Jul-10 Bylong / KEPCO Gunnedah Thermal Project 0.95 809

Aug-10 Carmichael / Adani Galilee Thermal Project 0.07 57

Aug-10 Middlemount JV /

Gloucester Bowen SHCC/PCI

Mature Project

8.38 7,138

May-11 Coalworks (Vickery

S.) / Itochu Sydney Thermal/SSCC Project 0.44 375

Sep -11 Metrocoal / DADI

Engg Surat Thermal Project 0.13 110

May-12 Nucoal / Plashett Sydney Thermal/SSCC Project 0.38 324

Sep-12 Shandong / Rocklands

Bowen Metallurgical Project 0.40 341

Oct-12 U&D Mining /

Endocoal Bowen PCI/Thermal Project 0.14 121

Dec-12 Cuesta / Orion Bowen Thermal Project 0.22 187

6.26 Valuation of the Teresa Project Conclusion

Based on the results of the DCF modelling, in Snowden’s opinion the Market Value of the Teresa Project is AUD$259M in the low high range of AUD$59M to AUD$479M respectively (Table 6.11).

Table 6.11 Low, High and Preferred Values of the Teresa Project


Teresa 59.0 479.0 259.0




6.27 Summary of Valuation

The tables that detailed the Project information for the Low, High and Preferred Values of each project have been compiled into Table 6.12.

Table 6.12 A compilation of the Low, High and Preferred Values for Each Project

Project Low

(AUD$ Million) High

(AUD$ Million) Preferred

(AUD$ Million)

Blair Athol 121.0 238.0 181.0

Teresa 59.0 479.0 259.0

Totals 180.0 717.0 440.0

In Snowden’s opinion the combined preferred market value of the Blair Athol and Teresa projects is AUD$440M in the low high range of AUD$180M to AUD$717M respectively.




7 Glossary, Abbreviations and Units

Table 7.1 Glossary of Technical Terms

Term Description

Beneficiation When applied to coal, it is the process of separating mined coal into various density groups through mechanical and dense medium processes.

Dip Inclination of geological features from the horizontal.

Dilution The inclusion of waste rock in the coal seam mined as a result of mining operations. The inclusion of a non select ply of coal with the ply of coal being selectively mined can affect profitability or coal processing performance.

Expert Either:

“an Independent Individual who prepares and accepts responsibility for a Report”

Or:

“a Representative Expert who is the nominated representative of a legally constituted body. He or she supervises the preparation of a report and accepts responsibility for it on behalf of that body”

Fault Fracture or a fracture zone in crustal rocks along which there has been displacement of the two sides relative to one another parallel to the fracture.

Indicated Resource That portion of a Mineral Resource for which quantity and quality are estimated with a lower degree of certainty than for a Measured Mineral Resource. The sites used for inspection, sampling, and measurement are too widely or inappropriately spaced to enable the material or its continuity to be defined or its grade throughout to be established.

Inferred Resource That part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that may be limited, or of uncertain quality and reliability.

In Situ Generally used with reference to the reporting of coal resources to indicate a volume or tonnage of coal present undisturbed in the ground.

JORC Code The Australasian Code for reporting of Mineral Resources and Mineral Reserves: “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code, 2012 Edition”




Term Description

Material / Materiality Means that:

a) the contents and conclusions of a Report;

b) any contributing assessment, calculation or the like; and

c) data and information

are of such importance that their inclusion or omission from a

Technical Assessment or Valuation may result in a reader of the

Report reaching a different conclusion than would otherwise be the

case. The determination of what is Material depends on both

qualitative and quantitative factors. Something may be Material in the

qualitative sense because of its very nature, such as, for example,

country risk. In the case of quantitative issues, the Materiality of data

can be assessed in terms of the extent to which the omission or

inclusion of an item could lead to changes in total value of:

Less than five per cent

Between five and ten per cent

More than ten percent

Item is generally not Material

Item may be Material

Item is definitely Material

(This guidance is derived from the Australian Accounting Standards Board AAS5 Materiality “useful benchmarks”.)

Measured Resource That portion of a Mineral Resource for which the tonnage or volume is calculated from dimensions revealed in outcrops, pits, trenches, drill-holes, or mine workings, supported where appropriate by other exploration techniques. The sites used for inspection, sampling and measurement are so spaced that the geological character, continuity, grades and nature of the material are so well defines that the physical character, size, shape, quality and mineral content are established with a high degree of certainty.

Mineral Asset All property 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 either:

Exploration Areas – properties where mineralisation may or may not have been identified, but where a Mineral or Petroleum

Resource has not been identified.

Advanced Exploration Areas – 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 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 resource category.

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




Term Description

Assessment, delineation or advanced exploration is being undertaken.

Development Projects – 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.

Mineral Reserve The economically mineable material derived from a Measured and/or Indicated Mineral Resource. It is inclusive of diluting materials and allows for losses that may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out, including consideration of, and modification by, realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified.

Mineral Resource A concentration or occurrence of solid mineral of economic interest in or on the Earth’s crust in such a form, grade (or quality), and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade (or quality), continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling. Mineral Resources are subdivided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories.

Minimum Mining Height The minimum mining width at which an in-situ Mineral Resources is stated.

Overburden Designates material of any nature, consolidated or unconsolidated, that overlies an economic deposit.

Ply A coal seam can be divided vertically into different laterally persistent sub-seams based on coal quality or other characteristics; a ply refers to one of these sub-seams.

Seam The term used for a coal bearing stratigraphic layer.

Resource A tonnage or volume of rock or mineralisation or other material of intrinsic economic interest, the grades, limits and other appropriate characteristics of which are known with a specified degree of knowledge.

Risk The chance of an event occurring that will have an impact on objectives. A risk may be quantifiable in terms of the likelihood of loss, less than expected returns or an undesirable outcome.

Specialist Persons who may be retained by the Expert to prepare sections of Reports concerning matters about which the Expert is not personally Competent. Specialists must accept responsibility for the sections of the reports they prepare.

Specialists must be Independent and Competent in relevant technical, commercial or legal fields associated with the Mining or Petroleum Industries and have at least five years of relevant and recent experience in the fields on which they are to report.

Except in special circumstances that must be explained in the Report, the Expert or the Senior Specialist must be members of appropriate recognised Professional Associations having enforceable codes of




Term Description

ethics such as The AusIMM, AIG or MICA or their equivalents in countries other than Australia.

Strike The course or bearing of the outcrop of an inclined bed, vein, or fault plane on a level surface; the direction of a horizontal line perpendicular to the direction of the dip.

Tailings The gangue and other refuse material resulting from the washing, concentration, or treatment of ground ore.

Technical Assessment An appraisal prepared by an Expert or Specialist, of the technical aspects of a Mineral or Petroleum Asset.

They may involve the review of such matters as geology, resources, reserves, mining methods, metallurgical processes and recoveries, petroleum engineering, provision of infrastructure and environmental aspects.

Valuation The process of determining the monetary Value of a Mineral or Petroleum Asset or Security.

Valuation Report A report that expresses an opinion as to the Value of a Mineral or Petroleum Asset or of a Mineral or Petroleum Security and its underlying Assets.

Washability Ability of the coal to be separated from waste fractions at a range of relative densities.




Table 7.2 List of Acronyms

Acronym Description

NEC New Emerald Coal Pty Ltd

Linc Linc Energy Limited

Snowden Snowden Mining Industry Consultants Pty Ltd

IVR Independent Valuation Report

DCF Discounted Cash Flow

NPV Net Present Value

LOM Life of Mine

ROM Run of Mine

CPP Coal Processing Plant

CHPP Coal Handling and Processing Plant

DNRM The Queensland Government Department of Natural Resources and Mines

DMC Dense Medium Cyclone

POps Plan of Operations

POBs Points of Observation

PBE Partial Block Extraction

WoodMac Wood Mackenzie Coal Consulting Pty Ltd

CP Competent Person

CPGeo Chartered Professional Geologist

ELP Environmental and Licensing Professionals Pty Ltd

Xenith Xenith Consulting Pty Ltd

RTCA Rio Tinto Coal Australia Pty Ltd

AusIMM The Australasian Institute of Mining and Metallurgy

SACNASP South African Council for Natural Scientific Professions

EIANZ Environment Institute of Australia and New Zealand

ACIRL Australian Coal Industry Research Laboratories




Table 7.3 Units of Measure

Unit of Measure Description

bcm bank cubic metres

bcm/t bank cubic metres per tonne

bcm/hr bank cubic metres per hour

cm centimetre

g gram

g/cc grams per cubic centimetre

GL giga litre (metric trillion litres)

ha hectare

hr hour

J joule

lb pound

kg kilogram

kg/t kilogram per tonne

km kilometre

kt thousand metric tonnes

L/s litres per second

m metre

mm millimetre

m2 square metre

m3 cubic metre

MJ mega joules

ML mega litres (metric million litres)

MJ/kg mega joules per kilogram

MPa mega Pascal

Mt million metric tonnes

Mtpa Million metric tonnes per annum

t metric tonne

tph metric tonnes per hour

t/hr metric tonnes per hour

AUD$ Australian Dollar

US$ United States of America Dollar

°C Degree Celsius

° Degree

‘ minutes

% percent




8 References

Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves (2004 edition of the JORC Code). The Joint Ore Reserves Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia. Accessible from: http://www.jorc.org/docs/jorc2004web_v2.pdf

Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves (2012 edition of the JORC Code). The Joint Ore Reserves Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia. Accessible from: http://www.jorc.org/docs/JORC_code_2012.pdf

Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves. 2003 Edition (2003 Coal Guidelines). The Coalfields Geology Council of New South Wales and The Queensland Mining Council. Accessible from: http://www.resources.nsw.gov.au/__data/assets/pdf_file/0015/35025/Australian_guidelines_for_estimating_and_reporting_of_inventory_coal_coal_resources_and_coal_reserves.pdf

Australian Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (2005 edition of the VALMIN code). The VALMIN Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia. Accessible from: http://www.ausimm.com.au/content/docs/valmin_2005.pdf

Beeston, J.W. 1986. Coal rank variation in the Bowen Basin, Queensland. International Journal of Coal Geology 6(2) p 163-179.

Biggs, M.S., Burgess, A.W., and Patrick, R.B., 1995. Callide Basin in Ward, C.R., Harrington, H.J., Mallett, C.W., & Beeston, J.W., Geology of Australian Coal Basins, Geological Society of Australia Special Publication No.1 published by the Geological Society of Australia.

Environmental & Licensing Professionals Pty Ltd, 2013. Tenement Report.

Gordon Geotechniques Pty Ltd, 2013. Preliminary Geotechnical Assessment of Highwall Mining at Blair Athol.

Goscombe, P.W., & Coxhead, B.A., 1995. Clarence-Moreton, Surat, Eromanga, Nambour and Mulgilde Basins in Ward, C.R., Harrington, H.J., Mallett, C.W., & Beeston, J.W., Geology of Australian Coal Basins, Geological Society of Australia Special Publication No.1 published by the Geological Society of Australia.

MineCraft Pty Ltd, 2011. Teresa Project Area Conceptual Underground Coal Mine Study.

MineCraft Pty Ltd, 2013. Teresa Project Prefeasibility Study Progress Update.

MineCraft Pty Ltd, 2013. Teresa Project, Underground Coal Reserves Report.

M Resources Pty Ltd, 2012. Teresa Thermal Coal Initial Raw Coal Quality Review.

http://www.jorc.org/docs/jorc2004web_v2.pdf

http://www.jorc.org/docs/JORC_code_2012.pdf

http://www.resources.nsw.gov.au/__data/assets/pdf_file/0015/35025/Australian_guidelines_for_estimating_and_reporting_of_inventory_coal_coal_resources_and_coal_reserves.pdf



http://www.ausimm.com.au/content/docs/valmin_2005.pdf




Scott, S.G., Beeston J.W., & Carr, A.F., 1995. Galilee Basin in Ward, C.R., Harrington, H.J., Mallett, C.W., & Beeston, J.W., Geology of Australian Coal Basins, Geological Society of Australia Special Publication No.1 published by the Geological Society of Australia.

Staines, H.R.E., Falkener, A.J., and Thornton, M.P. 1995. Ispwich Coalfield in Ward, C.R., Harrington, H.J., Mallett, C.W., & Beeston, J.W., Geology of Australian Coal Basins, Geological Society of Australia Special Publication No.1 published by the Geological Society of Australia.

Wood Mackenzie Coal Consulting Pty Ltd, 2012. Market assessment for Teresa coal project.

Wood Mackenzie Coal Consulting Pty Ltd, 2013. Marketability Assessment for "Project Bill".

Wood Mackenzie Coal Consulting Pty Ltd, 2013. Linc Energy Coal Assets Valuation.

Xenith Consulting Pty Ltd, 2013. Project Bill - 0745XXX: Due Diligence Report – DRAFT.

Xenith Consulting Pty Ltd, 2013. Project Bill - 0745XXX: Due Diligence Report.

Xenith Consulting Pty Ltd, 2013. Blair Athol Project - Coal Resource Estimate.

Xenith Consulting Pty Ltd, 2013. Blair Athol Coal Mine, Reserve Estimate.

Xenith Consulting Pty Ltd, 2013. PBE Tonnage Estimate - Project Bill.

Xenith Consulting Pty Ltd, 2013. Teresa Project PBE Tonnage Estimate.

Xenith Consulting Pty Ltd, 2013. Independent Geological Appraisal Teresa Project.

Xenith Consulting Pty Ltd, 2013. Resource Estimate, Teresa Project.

Documents

Mandala Final Report