appendix 6b kim independent qualified person s...

APPENDIX 6B – KIM INDEPENDENT QUALIFIED PERSON’S REPORTAND VALUATION

United Fiber System Ltd

PT Kuansing Inti Makmur Concession

Independent Qualified Persons Report

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HDR Salva HDR International, Inc.

www.hdrinc.com www.salvaresources.com

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Independent Qualified Persons Report Salva Resources Pty Ltd Level 11, 82 Eagle Street, Brisbane, QLD 4000, Australia PO Box 10791, Adelaide Street, Brisbane, QLD 4000, Australia Email: [email protected] Website: www.hdrinc.com

www.hdrsalva.com Phone: +61 (0) 7 3211 9911 Fax: +61 (0) 7 3221 5725

Effective Date: 31 July 2014

Independent Expert Person:

Manish Garg BEng (Hons), Master of Applied Finance MAusIMM, MAICD Director – Consulting / Partner, HDR Salva

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Table of Contents Executive Summary ............................................................................................. 11

1 Introduction ................................................................................................. 17

1.1 Scope ..................................................................................................................17

1.2 Data Sources ......................................................................................................17

1.2.1 Site Visit....................................................................................................17

1.3 Disclaimer and Warranty ....................................................................................18

1.4 Independent Competent Person and Expert Statement.....................................19

1.4.1 Statement of Independence .....................................................................19

2 Project Description ..................................................................................... 20

2.1 Property Description and Access .......................................................................20

2.2 Tenure ................................................................................................................21

2.2.1 Tenure Status ...........................................................................................21

3 Geology and Resources ............................................................................. 24

3.1 Coal Resource ....................................................................................................24

3.1.1 Resource Classification ............................................................................24

3.2 Statement of Coal Resources .............................................................................25

3.3 Coal Reserves ....................................................................................................26

3.3.1 Estimation Methodology ...........................................................................26

3.4 Modifying Factors ...............................................................................................26

3.5 Reserves Classification ......................................................................................27

3.6 Statement of Coal Reserves ...............................................................................28

4 Life of Mine Scheduling .............................................................................. 29

4.1 Other Mineable Coal Inside Pit Design ..............................................................29

4.2 Mine Schedule ....................................................................................................32

4.3 Mining Operations...............................................................................................33

4.3.1 Top Soil Removal .....................................................................................33

4.3.2 Drilling and Blasting ..................................................................................34

4.3.3 Waste Excavation .....................................................................................34

4.3.4 Coal Mining ..............................................................................................35

4.3.5 Dewatering ...............................................................................................36

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5 Coal Handling and Coal Logistics ............................................................. 37

5.1 Coal Logistics .....................................................................................................37

5.2 Haulage on Public Roads ...................................................................................38

6 Environment and Community Relations ................................................... 40

6.1 Environmental Aspects .......................................................................................40

6.1.1 Water Run-off from site ............................................................................40

6.1.2 Noise and Dust .........................................................................................40

6.1.3 Rehabilitation ............................................................................................40

6.1 Social Aspects ....................................................................................................41

6.1.1 Economy...................................................................................................41

6.1.2 Health .......................................................................................................41

7 Valuation ..................................................................................................... 42

7.1 Valuation Approaches ......................................................................................42

7.2 Valuation Approach for Assessing the KIM Project .....................................42

8 Economic Parameters ................................................................................ 43

8.1 Royalty and Local Government Fees .................................................................43

8.2 Inflation Outlook ..................................................................................................43

8.3 Corporate Income Tax ........................................................................................44

8.4 Depreciation and Amortisation ...........................................................................44

8.5 Working Capital ..................................................................................................44

8.6 Carried Forward Tax Losses ..............................................................................44

8.7 Value Added Tax ................................................................................................44

8.8 Weightage Average Cost of Capital (WACC) .....................................................45

9 Market Analysis and Coal Prices ............................................................... 46

9.1 Global Outlook ....................................................................................................46

9.1 Domestic Coal Demand ......................................................................................46

9.2 Indonesian Coal Supply ......................................................................................47

9.3 Coal Price Used for Project Assessment ...........................................................49

10 Capital Cost ................................................................................................. 52

10.1 Basis of Estimation .............................................................................................53

10.1.1 Project Currency and Foreign Exchange .................................................53

10.1.2 Duties and Taxes .....................................................................................53

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10.2 Land Acquisition .................................................................................................53

10.3 Haul Road Construction .....................................................................................53

10.4 Site Infrastructure ...............................................................................................53

10.5 Mine Reclamation ...............................................................................................54

10.6 Exclusions ...........................................................................................................54

10.7 Capital Phasing...................................................................................................54

11 Operating Cost ............................................................................................ 55

11.1 Method of Estimation ..........................................................................................55

11.2 Items included in the Operating Cost Estimates ................................................55

11.3 Contractor Costs .................................................................................................56

11.4 Owner Costs .......................................................................................................57

11.5 VAT .....................................................................................................................57

11.6 Royalties and Government Costs .......................................................................57

11.7 Overall Operating Cost .......................................................................................58

12 Financial Analysis & Project Valuation ..................................................... 59

12.1 Modelling Methodology & Considerations ..........................................................59

12.2 Base or Preferred Case ......................................................................................59

12.2.1 Preferred Case Results ............................................................................61

12.2.2 Sensitivity Analysis ...................................................................................62

12.3 Valuation Range .................................................................................................63

12.4 Valuation Summary ............................................................................................63

12.4.1 Previous Valuation ...................................................................................63

13 Risk Factors & Opportunities ..................................................................... 64

13.1 Risk Factors ........................................................................................................64

13.1.1 Resources And Reserves.........................................................................64

13.1.2 Geotechnical Risk ....................................................................................64

13.1.3 Coal Price Risk .........................................................................................64

13.1.4 Impact on Weather on Production ............................................................65

13.1.5 Mining Approvals, Tenure and Permits ....................................................65

13.1.6 Land Acquisition .......................................................................................65

13.1.7 Environmental and Social Risks ...............................................................65

13.1.8 Operational and Mine Safety ....................................................................66

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13.1.9 Operating and Capital Costs Estimates ...................................................66

13.1.10 Political and Regulatory Risk ...............................................................66

13.1.11 Coal Haulage on Public Road .............................................................67

13.2 Opportunities ......................................................................................................67

References ........................................................................................................... 68

Appendix A – CVs ................................................................................................ 69

Appendix B: SGX Mainboard Appendix 7.5........................................................ 70

Appendix C: Resource & Reserve Report .......................................................... 71

List of Figures Figure 2:1 IUP Boundary and Location of Individual Coal Blocks .......................... 20

Figure 3:1 Relationships between Mineral Resources & Ore Reserves .................. 27

Figure 4:1 Inferred Coal Resources inside Pit Shell- KIM East Seam S300L ......... 30

Figure 4:2 Inferred Coal Resources inside Pit Shell- KIM West Seam S300L ........ 31

Figure 4:3 LOM Production Schedule .................................................................... 33

Figure 4:4 Waste Excavations over Life of Mine ..................................................... 34

Figure 4:5 Coal Mining at KIM East Block .............................................................. 35

Figure 4:6 Waste Mining at KIM East Pit ................................................................ 35

Figure 5:1 Coal Stockpile ....................................................................................... 37

Figure 5:2 Coal Logistics – Current & Additional Options ....................................... 38

Figure 5:3 Current and Proposed Coal Logistics .................................................... 39

Figure 9:1 Indonesian Domestic Coal Demand (Mt) ............................................... 46

Figure 9:2 Indonesia Coal Supply .......................................................................... 48

Figure 9:3 Indonesian Coal Consumption Growth Rate by Sector. ......................... 48

Figure 9:4 Domestic Sales Prices (in nominal terms) ............................................. 51

Figure 12:1 Cash Streams – Base Case ................................................................ 61

Figure 12:2 Discounted Cash Flow Profile – Base Case ........................................ 62

Figure 12:3 Key Project Sensitivities ...................................................................... 62

List of Tables Table 2:1 KIM Concession Details ......................................................................... 21

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Table 3:1 Coal Resources, KIM Project, and 31 July 2014 ..................................... 25

Table 3:2 Coal Resources – Quality Estimates ...................................................... 25

Table 3:3 Modifying & Mine Optimisation Factors .................................................. 26

Table 3:4 Coal Reserves, KIM Project, and 31 July 2014 ....................................... 28

Table 3:5 Coal Reserves – Quality Estimates ........................................................ 28

Table 4:1 HDR Salva LOM Schedule, Inferred Resource Tonnes in Pit Shell ........ 32

Table 7:1 Typical Valuation Methods ..................................................................... 42

Table 8:1 Indonesian Coal Royalty Rates .............................................................. 43

Table 8:2 Corporate Tax Rates .............................................................................. 44

Table 8:3 WACC (After Tax) .................................................................................. 45

Table 8:4 WACC for Indonesian Coal Mining Companies ...................................... 45

Table 9:1 Contracted Price - KIM Coal ................................................................... 49

Table 9:2 Contracted Price in US$ ......................................................................... 50

Table 10:1 Capital Cost (Real Terms) .................................................................... 52

Table 10:2 Capital Cost Phasing (US $M, Real Terms) .......................................... 54

Table 11:1 Contractor Unit Rates (Real Terms) ..................................................... 56

Table 11:2 Owner Unit Costs (Real Terms) ............................................................ 57

Table 11:3 Average Unit Operating Cost (Real Terms) over Life of Mine ............... 58

Table 12:1 Base Case – Key Input Parameters...................................................... 59

Table 12:2 Base Case – Financial Model ............................................................... 60

Table 12:3 Base Case – Financial Outputs & Valuation ......................................... 61

Table 12:4 Project NPV Sensitivity ......................................................................... 63

Table 12:5 Valuation Range ................................................................................... 63

Table 12:6 Valuation Summary .............................................................................. 63

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Key abbreviations °C degrees Celsius $ or USD United States Dollar adb Air dried basis, a basis on which coal quality is measured AMSL Above Mean Sea Level AMDAL Analisis Mengenai Dampak Lingkungan Hidup- Environmental Impact

Assessment (EIA), which contains three sections, the ANDAL, the RKL and the RPL

ANDAL Analisis Dampak Lingkungan Hidup, component of the AMDAL that reports the significant environmental impacts of the proposed mining activity

Anticline An anticline is a fold that is convex, with older layers closer to the centre or core

ar As received basis AS Australian Standards ASR Average stripping ratio AusIMM Australian Institute of Mining and Metallurgy Batter Slope of Advancing Mine Strip bcm bank cubic meter cc Cubic Centimeter BD bulk density CCoW Coal Contract of Work CHPP Coal Handling and Processing Plant CV Calorific value Capex Capital Expenditure Mineral Resource A ‘Mineral Resource’ is a concentration or occurrence of solid material of

economic interest in or on the Earth’s crust in such 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 sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories.

Coal Reserve A ‘Coal Reserve’ is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified.

The reference point at which Reserves are defined, usually the point where the Coal is delivered to the processing plant, must be stated. It is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what is being reported.

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DCF Discounted cash flow DGMC Directorate General of Minerals and Coal within the Ministry of Energy and

Mineral Resources FC Fixed Carbon gar gross as received, a basis on which coal quality is measured GCV Gross Heating Value - The amount of heat produced by its complete

combustion of its unit quantity. It is usually expressed in kcal/kg unit. GEMS PT Golden Energy Mines Tbk gm Gram h hour ha Hectare(s) HDR Salva Salva Resources Pty Ltd HGI Hardgrove Grindability Index, an index on which grindability of coal is

measured IM Inherent Moisture IPPKH ‘Izin Pinjam Pakai Kawasan Hutan’ which translates to a borrow to use

permit in a production forest IRR Internal Rate of Return IUP ‘Izin Usaha Pertambangan’ which translates to ‘Mining Business Licence’ JORC 2012 Edition of the Australasian Code for Reporting of Exploration Results,

Mineral Resources and Ore Reserves, Australian Institute of Geoscientists and Mineral Council of Australia

k thousand kcal/kg Unit of energy (kilocalorie) per kilogram kg kilogram km Kilometers(s) km2 Square kilometre(s)

kt kilo tonne (one thousand tonne) kV kilovolt kV kilovolt L Litre m Meter mm millimetre(s) lcm loose cubic metre LOM Life of Mine lcm lcm loose cubic metre M Million Mbcm Million bank cubic metres Mbcmpa Million bank cubic metres per annum MEMR Ministry of Energy and Mineral Resources within the central government m RL metres reduced level m3 cubic metre m/s metres per second Mt Millions of tonnes

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Mtpa Millions of tonnes per annum MW Megawatt NAR Net as received NPV Net present value NTA Net tangible assets Opex operating expenditure PKP2B ‘Perjanjian Kerjasama Pengusahaan Pertambangan Batubara’ – same as

CCoW RD Relative density RKL ‘Rencana Pengelolaan Lingkungan’ - environmental management plan ROM Run of Mine RKL Relative Level - survey reference for height of landforms above a datum

level RPL ‘Rencana Pemantauan Lingkungan’ - environmental monitoring plan SE Specific Energy SMGC PT SMGC Consultants SR Strip ratio (of waste to ROM coal) expressed as bcm per tonne t Tonne tkm Tonne kilometer tph Tonnes per hour tpa Tonnes per annum TM Total Moisture (%) TS Total Sulphur (%) United Fiber United Fiber System Limited VALMIN 2005 Edition of the Code for the Technical Assessment and Valuation of

Mineral and Petroleum Assets and Securities for Independent Expert Reports

VM VM Volatile Matter (%) WACC Weighted Average Cost of Capital

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Executive Summary United Fiber System Limited (“United Fiber” or “Client”) has engaged Salva Resources Pty Ltd (“HDR Salva”) to prepare a mineral asset valuation and an Independent Qualified Persons Report (“Report”) of the Kuansing Inti Makmur concession (“KIM Project” or “KIM”) located in the Bungo Regency of Jambi Province, Indonesia.

United Fiber has signed a conditional sale and purchase agreement to acquire PT Golden Energy Mines Tbk (“GEMS”). The Qualified Persons Report to be presented to United Fiber shareholders is intended to comply with Section 5 of SGX-ST Listing Rules Practice Note 6.3. The independent valuation has been prepared in accordance with the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (VALMIN Code).

The KIM concession is beneficially owned and controlled by GEMS. The tenure for the KIM Project is covered by 8 Izin Usaha Pertambangan Produksi (“IUP Production”) and covers a 2,610 ha area of coal concession. The KIM project consists of following 2 coal Pits:

• KIM East Pit (“KIM East Pit” or “KIM East”); and • KIM West Pit (“KIM West Pit” or “KIM West”).

Conventional open-pit coal mining operations was commenced in the KIM East in 2007 and the KIM West in 2010.

Coal Resources

An independent estimate of Coal Resources within the KIM Concession was prepared by HDR Salva. Coal Resources have been estimated, classified and reported according to the JORC Code (2012) and the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (2003) as at 31 July 2014. The Coal Resources are detailed in Tables below.

Coal Resources, KIM Project, 31 July 2014

Coal Resources (Mt)

Block Measured Indicated Inferred Total KIM East 57 37 74 168 KIM West 58 23 11 91 Total 115 60 85 260

Mineral Resources are reported inclusive of the Mineral Reserves (Note: individual totals may differ due to rounding)

Coal Resources – Quality Estimates

Coal Resources (Mt)

Block Measured Ash% adb

CV (Kcal/kg)

adb Indicated Ash%

adb

CV (Kcal/kg)

adb Inferred Ash%

adb

CV (Kcal/kg)

adb Total

KIM East 57 18.1 5286 37 18.49 5211 74 18.51 5212 168

KIM West 58 16.7 5445 23 17.51 5340 11 15.73 5228 91

Total 115 60 85 260

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Coal Reserves

An independent estimate of the Reserves within the KIM concession was prepared by HDR Salva. These Reserves have been estimated, classified and reported according to the JORC Code (2012). HDR Salva prepared the Coal Reserve estimate as at 31 July 2014 on the basis for the Coal Reserve estimate as at that date after application of appropriate modifying factors determined during the mine optimisation studies.

Coal Reserves, KIM Project, 31 July 2014

Coal Blocks Coal Reserves (Mt)

Proved Probable Total KIM East 3.1 2.0 5.1 KIM West 24.4 6.0 30.5 Total KIM 27.5 8.0 35.6

(Note: individual totals may differ due to rounding)

Coal Reserves – Quality Estimates

Block

Total Moisture

(%) (arb)

Inherent Moisture

(%) (adb)

Ash (%)

(adb)

Total Sulphur

(%) (adb)

Calorific Value

(Kcal/Kg) (gar)

KIM East 23.1 11.9 16.7 1.2 4,967 KIM West 22.3 11.5 16.9 1.1 4,995

Life of Mine Schedule

The KIM Mine is an operating mine since 2007 (KIM East pit commenced production in 2007 while the KIM West pit started in 2010). The KIM Mine is operated as single mining operation; even though the production from the KIM West pit has been temporarily suspended while the KIM East pit is operating as part of normal operation control. It is planned to resume production from the KIM West pit by Q1, 2016.

The Modifying Factors used are based on actual operations at the KIM Mine which were independently verified by the HDR Salva’s subject specialist during the site visit.

Therefore it is considered valid to use Modifying Factors from the operating KIM Mine to satisfy clause 29 of the JORC Code. While JORC 2012 is not explicit with reference to operating mines, the guidance given in ASX FAQ no. 9 is considered relevant in this regard. Further, HDR Salva has carried out independent life of Mine (LOM) Study to develop the mining schedule and its economic evaluation of the Mine.

As per HDR Salva’s preliminary production schedule, the LOM minable tonnes over life of mine are expected to be 35.5 Mt and the corresponding waste mining would be 242.2 Mbcm. The LOM stripping ratio is expected to be 6.8 bcm/t of coal mined. During initial years of operations, the production from the KIM pits will be restricted to 0.8 Mtpa, with peak production of 3 Mtpa forecast by year 5 onwards once the dedicated haulage road is completed.

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LOM Production Schedule-KIM East and KIM West

Logistics

The coal from the KIM Mine is currently being sold to domestic customers. The mine to end user supply chain involves hauling of coal to the ROM stockpile, followed by transportation using public roads to the domestic customers.

The Jambi provincial government in conjunction with regency governments from Jambi’s major coal producing regions has agreed on a suspension of coal trucks using public roads, starting from 31 December 2012 (Jambi Province Regulation No 13 Year 2012).

However, the Jambi Province Regulation No 13 Year 2012 does stipulate some conditions on which the hauling of coal through public roads may be permitted. This is further clarified in “Governor Jambi Regulation No 18 Year 2013 (Implementation Rules to the Jambi Province Regulation No 13 Year 2012), where under Article 3, paragraph 1 and 2, laid out conditions on which the Governor may allow limited utilisation of special public roads for coal hauling purposes and. The Article 6, paragraph 1 and 2 of the Jambi Province Regulation number 13, year 2012, stipulates that “in the event Special Road (dedicated haul road) is yet to develop or still unavailable to be utilised then hauling may be allowed through specific public road”.

Presently, GEMS have developed plans to build a new haul road which will connect the KIM Mine to an existing special road. This new haul road will connect the KIM Mine to Port Nilau (owned by GEMS) via the Lontar Papyras Pulp and Paper Plant (“LPPP”). This 65 km dedicated connecting road is expected to be completed in 36 months. This will enable coal to be hauled on a special road to LPPP, a power plant at Ombilin and potential exports via the Nilau Port.

Although the interpretation of this regulation is somewhat ambiguous, HDR Salva is in opinion that the government is likely to allow hauling by public road where a coal company is developing its own dedicated haul road.

0.2

0.8 0.8

2.0

3.0 3.0

2.7

3.0 3.0 3.0 3.0 3.0 3.0 3.0

2.0

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

9.0x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Strip

ping

Rat

io (B

CM

/t)

Mt

KIM East KIM West Overall Stripping Ratio (BCM/t), RHS

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Capital and Operating Cost

The overall estimated capital cost for the project (including land compensation for life of mine and contingency) is shown below.

Capital Cost (Real Terms)

Particulars Direct Cost ($M)

Contingency ($M)

Total Cost ($M)

Land Compensation 18.0 2.7 20.7 Land Compensation 18.0 2.7 20.7 Site Infrastructure 5.0 0.8 5.8 Mine Infrastructure 5.0 0.8 5.8 Haul Road Construction 27.8 4.2 31.9 Hauling to Customers 27.8 4.2 31.9 Total Project Capital 50.8 7.6 58.4

HDR Salva estimated total operating costs for mining and other activities including coal hauling, barging and port handling charges. At this level of study these estimates are considered reasonable. The cost components are given in Table below.

Average Unit Operating Cost (Real Terms) over Life of Mine

Cost Item $/t Land Clearing $0.02 Topsoil Removal $0.05 Waste Mining $12.25 Waste Overhaul $1.00 Coal Mining $1.10 Haul to ROM Stockpile $0.45 ROM Coal Handling $0.30 Haul to Customer $26.20 Mine Closure $0.07 Environmental and Rehabilitation $0.06 Salary and Wages $0.25 Medical & Community Development $0.05 Corporate Overheads $0.50 Local Government Fees $0.50 VAT $4.11 Contingency $2.35 Operating Cost Excl. Royalty $49.25 Royalty $2.83 Operating Cost incl. Royalty $52.08

The unit operating costs are reasonable when compared to industry standards by HDR Salva.

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Price Outlook

Domestic demand for thermal coal in Indonesia has grown rapidly since 2008, at a CAGR of 18%, primarily driven by strong demand from the power sector. 2013 was a strong year for domestic coal consumption in Indonesia, with 86 Mt consumed. The domestic demand for thermal coal is largely driven by government energy policy which laid out plans to boost domestic coal consumption by coal fired power station in country. Subsequently, Government owned power producer PT PLN (“PLN”) laid out its road map to build 20 GW of power generation capacity by 2016.

Indonesian supply has grown considerably, from 104 Mt in 2002 to 404 Mt in 2013, growing at a staggering compound annual growth rate (CAGR) of 13.13%.

The sales price assumptions used in this study are based on domestic coal prices received for the KIM Mine in the current market. HDR Salva has reviewed the actual purchase orders and sales contracts for coal sales for the past two years. The sales’ contracts and purchase orders specified a coal at a range of prices from 600,000 IDR to 650,000 IDR per tonne at a base CV of 4,900 kcal/kg on a gross as received basis. These sales’ contracts are linked with the fuel index in Indonesia (which is a proxy for petrol and diesel prices in Indonesia). While the current contracts are linked with the Fuel Index in Indonesia, HDR Salva has adopted a conservative approach for assessing domestic coal prices outlook for this project. The domestic coal price forecast has been assumed to stay flat in real terms (US $56.5/t) over the life of mine.

Other Economic factors

HDR Salva has applied appropriate economic and other factors including VAT, corporate tax, depreciation etc. Discount rate used for determination of discounted cash flow and valuation was assesses as 11.5% WACC (after tax).

Project Valuation and Range

In HDR Salva’s opinion, it is appropriate to use the discounted cash flow (DCF) method to determine the value of the project as the KIM Project as an operating mine undergoing expansion. The valuation model for the KIM Project was developed in Microsoft Excel. Valuation has been derived from analysis of cash flows calculated for the project over the life of mine. The valuation was designed so that input parameters could be varied to investigate different scenarios to determine an estimated valuation range.

A base case valuation along with low and high case was developed using the assumptions discussed in this report. Following assumptions were applied for development of low and high scenario:

Low Case: While the KIM Mine complies with the logistics regulations. Mine could be shut if permission to haul coal haulage on public road is not allowed along with management decision not to construct special road.

High Case: Price increases by 5% while operating cost decreases by 3%.

HDR Salva’s opinion of the technical value and the corresponding project value (on 100% basis) as at 31 July 2014 is shown in Table below. The valuation range accounts for high and low cases and the sensitivity.

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Valuation Summary

Item Market Value (US $M)

Lower Preferred Upper

Net Present Value , 100% of Project Basis 0.0 24.7 84.0

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1 Introduction United Fiber System Limited (“United Fiber” or “Client”) has engaged Salva Resources Pty Ltd (“HDR Salva”) to prepare a mineral asset valuation and an Independent Qualified Persons Report (“Report”) of the Kuansing Inti Makmur concession (“KIM Project” or “KIM”) located in the Bungo Regency of Jambi Province, Indonesia. PT Golden Energy Mines Tbk (“GEMS”) has the rights to explore and mine the KIM Project through its subsidiary company, PT Kuansing Inti Makmur (“PT KIM”).

HDR Salva understands that this report will be relied on as part of the proposed transaction to be presented to United Fiber shareholders. The Qualified Persons Report is intended to comply with Section 5 of SGX-ST Listing Rules Practice Note 6.3. The independent valuation has been prepared in accordance with the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (VALMIN Code).

The KIM concession is beneficially owned and controlled by PT Golden Energy Mines Tbk (GEMS). The effective date of valuation is as on the 31 July 2014, the date on which the Resource and Reserves that support this valuation were estimated.

1.1 Scope

United Fiber has requested that HDR Salva prepare a mineral asset valuation and an Independent Qualified Persons Report (“Report”) for the KIM coal concession (“KIM Project” or “KIM”) located in the Bungo Regency of Jambi Province, Indonesia. This report covers the mineral asset valuation of the KIM coal concession only and is not a valuation of the entire holding company.

1.2 Data Sources

This review is based on the information provided by United Fiber and GEMS, the technical reports of previous consultants and current owners, Pt Golden Energy Mines Tbk (“GEMS”), as well as other published and unpublished data relevant to the project area.

HDR Salva has carried out, to a limited extent, its own independent assessment of the quality of the geological and mining data. HDR Salva relied on an Independent legal firm “LasutLay and Pane Advocates”, a technical specialist that has carried out independent enquiry regarding the status of agreements, royalties or concession standing pertaining to the assets..

In developing our assumptions for this Statement, HDR Salva has relied upon information provided by the company and information available in the public domain. Key sources are outlined in this Report and all data included in the preparation of this Report has been detailed in the references section of this report. HDR Salva has accepted all information supplied to it in good faith.

1.2.1 Site Visit

Mr. Sunil Kumar, Principal Consultant – Mining conducted the site visit to the KIM project from 22 July to 23 July 2014. Mr. Manish Garg, Director – Consulting conducted the visit to GEMS offices in Jakarta from 4 Aug 2014 to 7 Aug 2014 to review technical studies and commercial information.

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1.3 Disclaimer and Warranty

This Report was commissioned by United Fiber on a fee-for-service basis according to HDR Salva’s schedule of rates. HDR Salva’s fee is not contingent on the outcome of its valuation or the success or failure for the transaction for which the report was prepared. None of HDR Salva’s partners (including Mr. Garg), directors, substantial shareholders and their associates have (or had) a pecuniary or beneficial interest in/or association with any of the United Fiber, GEMS or their directors, substantial shareholders, subsidiaries, associated companies, advisors and their associates prior to or during the preparation of this report.

HDR Salva’s partners (including Mr. Garg), directors, substantial shareholders and their associates are independent of United Fiber, GEMS its directors, substantial shareholders, advisers and their associates.

A draft version of this report was provided to the directors of United Fiber and GEMS for comment in respect of omissions and factual accuracy. As recommended in Section 39 of the VALMIN Code, United Fiber and GEMS has provided HDR Salva with an indemnity under which HDR Salva is to be compensated for any liability and/or any additional work or expenditure, which:

• Results from HDR Salva’s reliance on information provided by United Fiber and/or GEMS and/or their Independent consultants that is materially inaccurate or incomplete, or

• Relates to any consequential extension of workload through queries, questions or public hearings arising from this report.

This report may contain or refer to forward-looking information based on current expectations, including, but not limited to timing of mineral Resource estimates, future exploration or project development programs and the impact of these events on the United Fiber.

Forward-looking information is subject to significant risks and uncertainties, as actual results may differ materially from forecasted results. Forward-looking information is provided as of the date hereof and HDR Salva assumes no responsibility to update or revise them to reflect new events or circumstances.

The conclusions expressed in this report are as on the 31 July 2014, the date on which the Resource and Reserves that support this valuation were estimated. The valuation is only appropriate for this date and may change in time in response to variations in economic, market, legal or political factors, in addition to ongoing exploration results. All monetary values outlined in this report are expressed in US dollars ($) unless otherwise stated. HDR Salva services exclude any commentary on the fairness or reasonableness of any consideration in relation to this acquisition.

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1.4 Independent Competent Person and Expert Statement

The independent valuation has been prepared in accordance with the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (VALMIN Code). This Mineral asset techno-commercial assessment and valuation in this report was prepared by, or under the supervision of Manish Garg (B.Eng. (Minerals Engineering), MAppFinance, MAusIMM, MAICD).

Mr. Garg, Director – Consulting / Partner and a full time employee of HDR Salva has sufficient assessment and valuation experience, which is relevant to the activity that he is undertaking to qualify as an Expert as defined in the 2005 Edition of the “Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports” (VALMIN Code).

This report was prepared on behalf of HDR Salva by the signatory to this report, assisted by the subject specialists’ competent persons whose qualifications and experience are set out in Appendix A of this report.

Mr. Manish Garg Director – Consulting / Partner HDR Salva

1.4.1 Statement of Independence

This Report was commissioned by United Fiber on a fee-for-service basis according to HDR Salva’s schedule of rates. HDR Salva’s fee is not contingent on the outcome of its valuation or the success or failure for the transaction for which the report was prepared. The above mentioned person(s) have no interest whatsoever in the mining assets reviewed and will gain no reward for the provision of this techno-commercial assessment.

HDR Salva’s partners (including Mr. Garg), directors, substantial shareholders and their associates are independent of United Fiber, GEMS, its directors, substantial shareholders, advisers and their associates.

None of HDR Salva’s partners (including Mr. Garg), directors, substantial shareholders and their associates have (or had) a pecuniary or beneficial interest in/or association with any of the United Fiber, GEMS or their directors, substantial shareholders, subsidiaries, associated companies, advisors and their associates prior to or during the preparation of this report.

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2 Project Description 2.1 Property Description and Access

The KIM Project is located in the Bungo Regency of Jambi Province on Sumatra Island, Indonesia.. The KIM Project is located ~300 km to the South East of the Padang Port in West Sumatra. Access to the site is via a 2 hour plane flight from Jakarta to Padang followed by a either an 6 hour car journey or via a 1.5 hour plane flight from Jakarta to Jambi followed by a 7 hour car trip.

The tenure for the KIM Project is covered by 8 Izin Usaha Pertambangan Produksi (“IUP Production”) and covers a 2,610 ha area of coal concession. The KIM project consists of following 2 coal blocks:

• KIM East Block (“KIM East Block”); and

• KIM West Block (“KIM West Block”).

The IUP boundaries, existing workings and exploration borehole locations are shown in Figure 2:1. Conventional open-pit coal mining operations was commenced in the KIM East pit in 2007, which was followed by opening of the KIM West pit in 2010. Approximately 8 Mt of coal has already been mined from these pits until 31 July 2014.

Figure 2:1 IUP Boundary and Location of Individual Coal Blocks

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2.2 Tenure

Clause 67 of the VALMIN Code states that status of tenement is Material and requires disclosure. Determination of the status of Tenements is necessary and must be based on a recent independent inquiry, either by the Expert or a Specialist.

LasutLay & Pane (“LLP”), a Jakarta based legal firm, was commissioned to prepare a report in respect of the legal aspects of the mining activities within the KIM concession, solely from the perspective of Indonesian laws. LLP’s scope was to confirm that:

KIM has good title to its mining concessions; and

KIM has complied with material, applicable provisions of the Mining Law 2009 and its implementing regulations, environmental law, forestry law and other relevant laws (as applicable).

LLP report was made available to HDR Salva for reference in preparing this Report.

2.2.1 Tenure Status

Eight (8) of the IUPs with a total area of 2,610 ha are owned directly and in-directly by subsidiaries of GEMS. Tenure at the KIM concession is held under the ‘Izin Usaha Pertambangan’ which translates to ‘Mining Business License’ (IUP) system of ownership. The ownership details of these IUPs are given in Table 2:1 below.

Table 2:1 KIM Concession Details

Company IUP Number Area (ha) Granted Expiry GEM Ownership

PT Bungo Bara Utama

341/DESDMTAHUN 2009 1,301 9-Jul-09 20 years 99.998%

PT Bungo Bara Utama

250/DESDM TAHUN 2010 199 23-Apr-10 8 years 99.998%

PT Bara Harmonis Batang Asam


PT Karya Cemerlang Persada

350/DESDM TAHUN 2009 143 22-Jul-09 10 years 99.998%

PT Tanjung Belit Bara Utama


PT Kuansing Inti Makmur


PT Kuansing Inti Makmur


PT Berkat Nusantara Permai

545/DESDM TAHUN 2010 199 15-Dec-10 10 years 99.998%

Total Area (ha) 2,610 GEMS Ownership 99.998%

All IUP’s have a provision for 2 x 10 years extensions. A possible issue with tenure for the project is a number of gaps between the IUPs that cover the project area. The gaps are for a

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maximum of 150 m in width (Figure 2:2). HDR Salva has been informed by Independent legal firm “Lasutlay and Pane Advocates (LLP)” that no other party holds tenure over the land in these gaps and that application is currently underway to change the coordinates of the current IUPs to ensure that there is no gap between them. This type of issue is not uncommon in Indonesia and there is no known reason why it could not be resolved. HDR Salva is not aware of any disruptions to operations at the KIM project that have occurred due to this issue. All of the land inside the KIM project area is designated ‘Area Pengunaan Lain’ (Other Purpose) by the Forestry Department, and thus no borrow to use permit (Izin Pinjam Pakai Kawasan Hutan) is required for mining operations in this area.

The current production operation permits held by KIM or its subsidiary has been detailed below.

KIM Directly Owned Production Operation IUP

KIM is the direct holder of the following Production Operation IUP

251/DESDM Tahun 2010 tentang Izin Usaha Pertambangan Operasi Produksi Batubara dan Revisi Titik Koordinat / concerning Approval of Mining Production Permit and the Revision of The Coordinate Points. Issued by Bungo Regent, Jambi Province and valid from 23 April 2010 until 23 April 2020, covering an area of 199 hectares, located at Bungo Regency, Jambi Province, in conjunction with 166/DESDM Tahun 2012 tentang Perubahan Atas Lampiran Keputusan Bupati Bungo No. 251/DESDM Tahun 2010 tentang Izin Usaha Pertambangan Operasi Produksi dan Revisi Titik Koordinat PT Kuansing Inti Makmur / concerning the Amendment of Bungo Regent Decision No. 251/DESDM Tahun 2010 concerning Approval of Mining Production Permit and the Revision of The Coordinate Points. Issued by Bungo Regent, jambi Province on 5 April 2012.

252/DESDM Tahun 2010 tentang Izin Usaha Pertambangan Operasi Produksi Batubara / concerning Approval of Mining Production Permit. Issued by Bungo Regent, Jambi Province and valid from 23 April 2010 unti 23 April 2018, covering an area of 199 hectares, located at Bungo Regency, Jambi Province.

KIM Indirectly Owned Production Operation IUP

Following Production Operation IUP are owned by KIM’s subsidiaries:

PT Berkat Nusantara Permai (“BNP”)

BNP is the holder of Production Operation IUP 545/DESDM Tahun 2010 tentang Persetujuan Pengalihan Kepemilikan Izin Usaha Pertambangan Operasi Produksi Batubara Kepada PT Berkat Nusantara Permai (Dari PT Lively Duaji Energy Pemegang IUP No. 492/DESDM Tahun 2009) / concerning Approval of the Transfer of Production Operation Minging Permit to PT Berkat Nusantara Permai (From PT Lively Duaji Energy, Holder of IUP No. 492/DESDM year 2009).Issued by Bungo Regent, Jambi Province and valid from 15 December 2010 until 30 December 2019, covering an area of 199 hectares, located at Bungo Regency, Jambi Province.

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PT Bungo Bara Utama (“BBU”)

341/DESDM Tahun 2009 tentang Pemberian Izin Usaha Pertambangan Operasi Produksi Batubara / concerning Approval of Production Operation Mining Permit. Issued by Bungo Regent, Jambi Province and valid from 9 July 2009 until 9 July 2029, covering an area of 1,301 hectares, located at Bungo Regency, Jambi Province.

250/DESDM Tahun 2010 tentang Izin Usaha Pertambangan Operasi Produksi Batubara / concerning Approval of Production Operation Mining Permit. Issued by Bungo Regent, Jambi Province and valid from 23 April 2010 until 23 April 2018, covering an area of 199 hectares, located at Bungo Regency, Jambi Province.

PT Bara Harmonis Batang Asam (BHBA)

BHBA is the holder of Production Operation IUP 247/DESDM Tahun 2010 tentang Izin Usaha Pertambangan Operasi Produksi PT Bara Harmonis Batang Asam / concerning Approval of Production Operation Mining Permit. Issued by Bungo Regent, Jambi Province and valid from 23 April 2010 until 23 April 2016, covering an area of 172 hectares, located at Bungo Regency, Jambi Province.

PT Karya Cemerlang Persada (“KCP”)

KCP is the holder of Production Operation IUP 350/DESDM tahun 2009 tentang Persetujuan Peningkatan Izin Usaha Pertambangan Eksplorasi menjadi Izin Usaha Pertambangan Operasi Produksi / concerning Approval of Escalation of Exploration Mining License to Production Operation Mining Permit. Issued by Bungo Regent and valid from 22 July 2009 until 21 July 2019, covering an area of 143 hectares located at Bungo Regent, Jambi Province.

PT Tanjung Belit Bara Utama (“TBBU”)

TBBU is the holder of Production Operation IUP 249/DESDM Tahun 2010 tentang Izin Usaha Pertambangan Operasi Produksi / concerning Approval of Production Operation Mining Permit. Issued by Bungo Regent, Jambi Province and valid from 23 April 2010 until 23 April 2018, covering an area of 198 hectares located at Bungo Regency, Jambi Province.

LLP reports that Production and Operation IUPs comprising KIM Project granted are in good standing, with permanent rent requirements met. KIM has complied with all applicable environmental regulations, Forestry laws and there are no pending investigations by government agencies on environmental .issues. All IUPs were granted ”Clean and Clear”” status by the General Director of Mineral and Coal on 28th February 2012.

Based on the report by LLP, HDR Salva considers the tenement tenure and permits to be in good standing.

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3 Geology and Resources Resources and Reserves Estimates are presented in the format prescribed in “Appendix 7.5 to the SGX listing rules” in Appendix B.

3.1 Coal Resource

An independent estimate of Coal Resources within the KIM Concession was prepared by HDR Salva and is current as of 31 July 2014. The Coal Resource estimates were prepared by Mr. Craig Williams, who is a Member of the Australasian Institute of Mining and Metallurgy. Mr. Williams, Principal Consultant - Geology is a full time employee of HDR Salva and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Mineral Resources and Ore Reserves” (JORC Code, 2012).

3.1.1 Resource Classification

The coal resources present in the KIM concession have been classified in accordance with the JORC Code, 2012. The JORC Code identifies three levels of confidence in the reporting of Resource categories. These categories are briefly explained below.

Measured – “...That part of a Mineral Resources for which quantity, grade (or quality), densities, shape and physical characteristics are estimated with confidence sufficient to allow for the application of Modifying Factors to support detailed mine planning and financial evaluation”;

Indicated – “…That part of a Mineral Resources for which quantity, grade (or quality), densities, shape and physical characteristics are estimated with confidence sufficient to allow for the application of Modifying Factors in sufficient detail to support mine planning and evaluation”; and

Inferred – “…That part of a Mineral Resources for which quantity and grade (or quality) are estimated on the basis of limited geological evidence and sampling.”

For the purpose of coal resource classification according to JORC Code (2012) guidelines, HDR Salva has only considered drillholes with core recovery above 90% as a valid point of coal quality observation. In terms of Coal Resource classification, HDR Salva is also guided by the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (2003) (The Coal Guidelines) specifically referred to under clause 37 of the JORC Code (2012). According to the Coal Guidelines, maximum spacing’s between points of observation for both structural and coal quality points of observation for Measured, Indicated and Inferred resources are 500 m, 1000 m and 4000 m respectively.

Based on due consideration of the continuity of the coal seams as observed in the geological models for each of the five resource areas, the relative lack of evidence for significant faulting and the population statistics of the coal quality composites per seam, HDR Salva has sub-divided Coal Resources within the KIM concession into resource classification categories based on the following sample point spacing (expressed as a radius of influence around points of observation which is half of the spacing between points of observation):

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Measured 250 m radius of influence; Indicated 500 m radius of influence; and Inferred 2000 m radius of influence.

It is a requirement of the JORC Code (2012) that the likelihood of eventual economic extraction be considered prior to the classification of coal resources. Therefore, given the average coal quality attributes of the coal seams considered, which makes it amenable to be marketed as a thermal coal for power generation purposes, HDR Salva considers that it is reasonable to define all coal seams within the classification distances discussed above, to a depth of 250 m below the topographic surface, as potential open cut coal resources.

3.2 Statement of Coal Resources

Coal Resources which have been estimated, classified and reported according to the guidelines outlined in JORC Code (2012) and the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (2003) as at 31 July 2014 are detailed in Table 3:1 and Table 3:2 below.

Table 3:1 Coal Resources, KIM Project, and 31 July 2014 Coal Resources (Mt)

Block Measured Indicated Inferred Total KIM East 57 37 74 168 KIM West 58 23 11 91 Total 115 60 85 260

Mineral Resources are reported inclusive of the Mineral Reserves (Note: individual totals may differ due to rounding)

Table 3:2 Coal Resources – Quality Estimates Coal Resources (Mt)

Block Measured Ash% adb

CV (Kcal/kg)

adb Indicated Ash%

adb

CV (Kcal/kg)

adb Inferred Ash%

adb

CV (Kcal/kg)

adb Total

KIM East 57 18.1 5286 37 18.49 5211 74 18.51 5212 168

KIM West 58 16.7 5445 23 17.51 5340 11 15.73 5228 91

Total 115 60 85 260

More detailed discussion of the Resource estimate including the following aspects in included in the Resource and Reserve Report (Appendix C):

Description of regional and local geology; Exploration undertaken to date including the number of boreholes, borehole locations and

spacing, drilling and sampling techniques; The number of core samples taken and core recovery percentages; Criteria used to define points of observation; Ore body modelling techniques and procedures; Coal quality results, relative density of coal, laboratory used and analytical standards; Classification of Resources; and Ore body geometry and dimensions.

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3.3 Coal Reserves

The Coal Reserves estimates were prepared by Mr. Sunil Kumar who is a Member of the Australasian Institute of Mining and Metallurgy. Mr. Kumar, Principal Consultant - Mining is a full time employee of HDR Salva and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Mineral Resources and Ore Reserves” (JORC Code, 2012).

3.3.1 Estimation Methodology

An independent estimate of the Reserves within the KIM concession was prepared by HDR Salva as of 31 July 2014. HDR Salva prepared the Coal Reserve estimate on the basis for the Coal Reserve estimate as at that date. The Coal reserves estimates presented in this report are based on the outcome of pit optimisation results and the techno-economics study carried out by HDR Salva.

The subject specialist for Reserves considers the proposed mine plan and mining schedule is techno-economically viable and achievable. This has been done by reviewing all the modifying factors, estimating reserves in the pit shell and doing a strategic production schedule and economic model which confirms a positive cash margin using the cost and revenue factors as described below in this report.

3.4 Modifying Factors

The KIM Mine is an operating mine since 2007 (KIM East pit commenced production in 2007 while the KIM West pit started in 2010). The KIM Mine is operated as single mining operation; even though the production from the Kim West pit has been temporarily suspended while the KIM East pit is operating as part of normal operation control. It is planned to resume production from the KIM West pit by Q1, 2016.

HDR Salva considers the Modifying Factors to be valid for both pits. The Modifying Factors used are based on actual operations at the KIM Mine which were independently verified by the HDR Salva’s subject specialist during the site visit.

Therefore it is considered valid to use Modifying Factors from the operating KIM mine to satisfy clause 29 of the JORC Code. While JORC 2012 is not explicit with reference to operating mines, the guidance given in ASX FAQ no. 9 is considered relevant in this regard.

Further, HDR Salva has carried out independent life of Mine (LOM) Study to develop the mining schedule and its economic evaluation of the Mine. The following Table 3:3 outlines the factors used to run the mine optimisation and estimate the Coal Reserve tonnage.

Table 3:3 Modifying & Mine Optimisation Factors Factor Chosen Criteria

Seam roof & floor coal loss of 0.05 m each 0.10m Seam roof & floor dilution 0.02 m each 0.04m Geological & mining loss including loss in transportation and handling 5% Minimum mining thickness minable coal seam 0.3m Dilution default density 2.2bcm/t

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Dilution default calorific value 500Kcal/kg Dilution default ash 75% Overall High-wall and End-wall slope (varies in different blocks) 20 deg to 42 deg Maximum pit depth 200m max. Minimum mining width at pit bottom 50m Exclusion of Mining lease (CCOW) and offset from pit crest 50m Offset from the creek/ river edge 100-300m Mining , coal handling and transport cost – validated by HDR Salva

Coal selling price for break-even stripping ratio calculation US$ 56.5/t

Government approvals Environment report Geotechnical report Hydrogeology report

3.5 Reserves Classification

Under the JORC Code as shown below only Measured and Indicated Coal Resources can be considered for conversion to Coal Reserves after consideration of the “Modifying Factors” including mining, processing, economic, environmental, and social and government factors.

To convert Resources to Reserves it must be demonstrated that extraction could be justified after applying reasonable economic assumptions. Proved Reserves is derived from the highest level geological confidence of established Measured Resources while Probable Reserves is derived from a moderate level geological confidence of established Indicated Resources. A level of uncertainty in any one or more of the Modifying Factors may result in Measured Resources converting to Probable Reserves depending on materiality. A high level of uncertainty in any one or more of the Modifying Factors may preclude the conversion of the affected Resources to Reserves (Figure 3:1).

Figure 3:1 Relationships between Mineral Resources & Ore Reserves

Source: JORC Code 2012

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This classification is also consistent with the level of detail in the mine planning completed for KIM Coal concession deposits. In the opinion of HDR Salva, the uncertainties in most of these are not sufficiently material to prevent the classifications of areas deemed Measured Resources to be areas of Proved Reserves and areas deemed Indicated Resources to be the areas of Probable Reserves.

3.6 Statement of Coal Reserves

The Statement of Coal Reserves has been prepared in accordance with the 2012 Edition of the JORC Code. The total ROM coal Reserves are summarised in Table 3:4 and Table 3:5 below. Total ROM coal reserves are same as total marketable coal reserves.

Table 3:4 Coal Reserves, KIM Project, and 31 July 2014

Coal Blocks Coal Reserves (Mt)

Proved Probable Total KIM East 3.1 2.0 5.1 KIM West 24.4 6.0 30.5 Total KIM 27.5 8.0 35.6

(Note: individual totals may differ due to rounding)

Table 3:5 Coal Reserves – Quality Estimates

Block

Total Moisture

(%) (arb)

Inherent Moisture

(%) (adb)

Ash (%)

(adb)

Total Sulphur

(%) (adb)

Calorific Value

(Kcal/Kg) (gar)

KIM East 23.1 11.9 16.7 1.2 4,967 KIM West 22.3 11.5 16.9 1.0 4,995

More detailed discussion of the Reserve estimate including the following aspects in included in the Resource and Reserve Report (Appendix C):

Reserve estimation methodology; Discussion on Modifying Factors; Current Mining Operations; Pit Optimisation; Pit design considerations; Cut off parameters and pit limits; Audits and reviews; and Reserve Classification and Reserves statements.

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4 Life of Mine Scheduling A life of mine (LOM) plan was prepared based on the final pit design. This was done to ensure that the proposed mining method would be practical and achievable and that the proposed dumping strategy would be able to contain the waste mined in the final pit design. This provides a check on the reasonableness of the assumed waste mining costs and estimates the average waste haul per production period.

4.1 Other Mineable Coal Inside Pit Design

The optimised pit designs and ultimate pit shells were used to estimate Coal Reserves for the KIM Mine. It contains a significant proportion of Inferred Coal Resources. Under the JORC Code, these Inferred Coal Resources cannot be converted to Reserves because of insufficient confidence in the estimate “is not sufficient to allow the results of the application of technical and economic parameters to be used for detailed planning”. Hence, the results of the technical assessments of this Inferred Coal Resources should.be treated with caution.

Generally the Inferred Coal Resources included in the optimised pit shell are from open hole intersections, where geophysical data at sufficiently close spacing reasonable confirms the continuity and thickness of coal seams and partings.

In the process of Reserve Estimation, HDR Salva has followed the process which aimed to minimize the quantity of Inferred Coal Resources included in the final pit designs. However, under certain circumstances, it was considered necessary to include this coal as exclusion of it would result in an impractical pit design. Typical situations where inclusions of Inferred Coal Resources within the pit design were:

Inferred Coal Resources located at the sub-crop but with Measured and Indicated coal located down dip;

Small areas of Inferred Coal Resources located close to the high-wall where exclusion would result in unrealistic high-wall shapes; and

Thin seams in the stratigraphy where it is difficult to achieve sufficient core recovery or sufficient core for analysis to classify the coal as Measured or Indicated, but which are underlain or overlain by thicker seams with Measured and Indicated Resources.

A schematic diagram for the KIM East and the KIM West blocks showing other the Inferred Coal Resources within the designed Pit shell is shown in Figure 4:1 and Figure 4:2.

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HDR Salva notes that care must be taken with the inclusion of Other Mineable Coal in life of mine schedules to avoid cases where confidence in the thickness, continuity and quality of the coal is so low that resulting pit designs and schedules would be unrealistic. During the Reserve estimation process, the subject specialist inspected these seams and determined an appropriate limit for the final pit shell taking these considerations into account. The quantity of Inferred Resources inside the pit designs with Reserves and the scheduled tonnes are shown in Table 4:1.

Table 4:1 HDR Salva LOM Schedule, Inferred Resource Tonnes in Pit Shell

Coal Reserves Inferred Resource

within Optimised Pit Shell

HDR Salva Scheduled LOM

KIM East 5.1 6.8 5.1 KIM West 30.5 4.8 30.5 Total, KIM 35.6 11.6 35.6

To mitigate the risk associated with the inclusion of Inferred Resources within Optimised Pit Shell and to be on conservative side, HDR Salva has opted to kept total minable tonnes over LOM to be equal to the quantity of proved and probable reserves only for the purpose of this valuation report.

4.2 Mine Schedule

At the time of writing of this report, mining operation was carried out in the KIM East pit, whereas the coal production at the KIM West pit was suspended as the margins are more attractive from the KIM East pit. Currently KIM West pit is under care and maintenance.

The production from KIM West pit is likely to recommence from 2017 onwards when the dedicated haul road expected to become operational. The Coal Reserves in the KIM East pit are expected to be depleted by 2020 and the mine will be closed.

As per HDR Salva’s preliminary production schedule, the minable tonnes over life of mine are expected to be 35.6 Mt requiring waste mining of 242.2 Mbcm. The LOM stripping ratio is expected to be 6.8 bcm/t of coal mined. During initial years of operations, the production from KIM pits will be restricted to 0.8 Mtpa, with peak production of 3 Mtpa from year 5 onwards (Figure 4:3) once the dedicated haulage road is completed.

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Figure 4:3 LOM Production Schedule

HDR Salva recommends converting LOM Mine plan into detailed mining schedule reflecting up to 3 Mtpa target production rate. This document will address all the necessary detailed aspects related to the mining and associated activities for this project. Completion of this document will assist in reducing contingency which is factored in the current LOM plan.

4.3 Mining Operations

Currently, the mining method for all pits within the KIM concession can be described as a “multi seam, moderate dip, open cut coal mine using truck and shovel equipment in a combination of strip and haul back operations”.

The mining operations in KIM concession is carried out by conventional open pit mining method using truck and excavator combination. Mining of both coal and waste are outsourced to third party contractor, which are a common practice in Indonesia.

Mining operation at KIM East block was commenced in 2007. This was followed by development and commencement of mining in the KIM west Block in 2010. So far, approximately 9 Mt of coal have been produced from both the pits combined together.

4.3.1 Top Soil Removal

It is necessary to clear land and removes topsoil to advance any open pit mining operations. At KIM concession, land clearing and topsoil removal is undertaken by contractors. Natural Vegetation is cleared by using dozers. The vegetation is pushed into piles and moved to a suitable location. All necessary care is taken to minimize soil profile disturbances and same process will be followed during the life of mine operations. Once land is cleared, a fleet of small trucks and excavators removes topsoil which is either preserved for final reclamation or directly dumped into final landform area (where coal is already mined out) for rehabilitation.

0.2

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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

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KIM East KIM West Overall Stripping Ratio (BCM/t), RHS

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4.3.2 Drilling and Blasting

Most of the coal mining operations in Indonesia do not require drilling and blasting of overburden material to expose coal. The overburden is free digging which is not typical in countries outside Indonesia. It is generally possible to mine waste up to 100 m by either free digging with excavator or ripping with dozers. However, in some large operations it is more efficient to drill and blast waste overburden or inter-burden before handling by excavator as blasting significantly improves excavator productivity.

At the time of writing of report, drill and blast was not required in the KIM East block. However, some drilling and blasting was carried out in the ignimbrite (a type of rock derived from volcanic ash fall) layers of KIM West block. In the later year of operation, some drilling and blasting at KIM West is likely to be required. Drilling will likely to be undertaken using standard down hole drill rig with hole diameters up to 165 mm. Drill hole depth is limited to 11m (including 1 m of subgrade drilling) for a bench size of 10 m. Explosives will be stored in magazines on the site and mixed and loaded into blast holes by mobile mixing units.

In line with the standard practice in Indonesia, drilling and blasting will be part of the mining contractor’s responsibilities.

4.3.3 Waste Excavation

Waste material is mined using hydraulic excavators and loaded into standard rear tipping off-highway trucks for haulage to waste dumps which are either in close proximity to the pits or in pit where possible. Diesel powered hydraulic excavators in backhoe configuration are currently being used at KIM East Block and it is assumed for the purpose of this study that this type of equipment will continue to be used over the life of mine. The new bench will be opened of 5 meter height which will be subsequently converted into a 10 m bench.

Waste will be dumped in lifts with a typical height of 5 m; with dozers pushing waste and ensuring the dump area is clean and that safety berms are maintained. A swell factor of 1.2 was assumed for all waste dumping and handling calculations. The waste to be mined over life of mine has been shown in Figure 4:4 below.

Figure 4:4 Waste Excavations over Life of Mine

0

5

10

15

20

25

30

M b

cm

KIM East KIM West

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4.3.4 Coal Mining

Coal at KIM East Block is mined using 40 to 60 tonne excavators backhoe excavator which typically sits on top of the coal and load trucks directly. Coal is then hauled and dumped to the ROM stockpile using smaller rigid axle coal haulage trucks of up to 30 tonne capacity (Figure 4:5 & Figure 4:6).

Figure 4:5 Coal Mining at KIM East Block

Source: HDR Salva

Figure 4:6 Waste Mining at KIM East Pit

Source: HDR Salva

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4.3.5 Dewatering

For any efficient mining operations, dewatering of pit and pit water management is of critical importance. During the site visit at KIM concession, the subject specialist inspected pit sumps and found that the water management systems were of high standard. The pit drainage system, which is designed to prevent external water from entering into pit was also inspected and found effective and fit of purpose.

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5 Coal Handling and Coal Logistics HDR Salva has carried out a high level review of logistic options to access the KIM Project economics. A number of options were validated and techno-economic assessment of each option was carried out. Based on the assessment of available information, data gathered during the site visit and while visiting GEM office in Jakarta, the following logistics chain for the coal blocks comprising the KIM project is considered appropriate.

5.1 Coal Logistics

The coal from the KIM project is currently being sold to domestic customers. The mine to end user supply chain involves hauling of coal to the ROM stockpile, followed by transportation using public roads to the domestic customers. Until recently, the coal from the KIM project had been sold to export customers as well; however at the time of writing this report, HDR Salva is of the opinion that it is more appropriate to sell coal domestically as the margins are significantly better as compared to exporting the product. Therefore, for the purpose of this valuation report, coal from the KIM Project is assumed to be sold to domestic customers only for the life of the mine. However, an option to export coal to overseas customers still exists if margins improve in the future.

At the KIM Mine, the mined coal is hauled to the ROM stockpile, located at an approximate distance of 2 km from the KIM pits, using rigid body coal haulage trucks (Figure 5:1). Although facility for crushing and screening exist at the ROM stockpile area, crushing is not required for sales to most domestic customers which reduce operating cost.

Figure 5:1 Coal Stockpile

Source: HDR Salva

Coal is loaded from the ROM stockpile into rigid-body coal haul trucks and hauled along public roads to customers. It is anticipated that most of the coal will be sold to the Lontar Papyrus pulp

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and paper plant in the near term. However, in medium term, some of the coal produced from the KIM Project may go into to nearby power plants which are currently under construction including one at Jambi and one at Teluk Sirih. The coal flow logistics is outlined in Figure 5:2.

Figure 5:2 Coal Logistics – Current & Additional Options

5.2 Haulage on Public Roads

The Jambi provincial government in conjunction with regency governments from Jambi’s major coal producing regions has agreed on a suspension of coal trucks using public roads, starting from 31 December 2012 (Jambi Province Regulation No 13 Year 2012). The provincial government is planning to construct an alternative route for coal trucks, in order to avoid resistance from coal producers in the area. The validity of this regulation has been questioned by the Association of the Coal Mines, Asosiasi Pengusaha Batubara Indonesia (APBI), Jambi Region and is under juridical review by the Supreme Court of Indonesia.

Jambi Province Regulation No 13 Year 2012 does however stipulate some conditions on which the hauling of coal through public roads may be permitted. This was further clarified in “Governor Jambi Regulation No 18 Year 2013 (Implementation Rules to the Jambi Province Regulation No 13 Year 2012), where under Article 3, paragraph 1 and 2, laid out conditions on which the Governor may allow limited utilisation of special public roads for coal hauling purposes, regulation. The Article 6, paragraph 1 and 2 of the Jambi Province Regulation number 13, year 2012, stipulates that “in the event Special Road (dedicated haul road) is yet to develop or still unavailable to be utilised then hauling may be allowed through specific public road”.

Presently, GEMS have developed plans to build a new haul road which will connect the KIM Mine to an existing special road. This new haul road will connect the KIM Mine to Port Nilau (owned by GEMS) via the Lontar Papyras Pulp and Paper Plant. This 65 km dedicated connecting road is

KIM East

KIM West

Lontar Papyrus, Pulp and Paper

Port Nilau (Owned by GEMS)

Port Teluk Bayur (Padang)

ROM

Stockpile

PLTU Ombilin

Other Power Plants in Jambi

~2km

~5 km

~262 km

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expected to be completed in 36 months. This will enable coal to be hauled on a special road to LPPP, a power plant at Ombilin and potential exports via the Nilau Port.

Although the interpretation of this regulation is a little ambiguous in nature, HDR Salva is in opinion that the government is likely to allow hauling by public road where a coal company is developing its own dedicated haul road.

While hauling coal on public roads may be allowed at the current time, in HDR Salva’s opinion this is an issue that is likely to impact future operations. As per the plans provided to HDR Salva, the dedicated haul road is expected to be completed by mid 2017. HDR Salva has considered the use of the dedicated special road from 2017 onwards for base or preferred case valuation. HDR Salva has opted to assume that no haulage on public roads will be allowed immediately, while developing low case valuation.

The current and proposed logistics map for the KIM project is shown in Figure 5:3 below.

Figure 5:3 Current and Proposed Coal Logistics

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6 Environment and Community Relations A preliminary assessment of potential issues pertaining to environment and community relations that may impact the Project valuation was carried out by HDR Salva. These included following activities:

Review of environment management procedure at site;

Visit to GEMS Jakarta office and inspection of environmental management plans;

Review of the Analisis Mengenai Dampak Lingkungan Hidup (AMDAL) - environment impact assessment and management plans; and

Review of Corporate Social Responsibility Reports.

HDR Salva’s preliminary assessment did not reveal any issues related to environment and community relations that will adversely impact project valuation. However, it should be noted that HDR Salva’s assessment was only preliminary in nature and HDR Salva cannot provide any guarantee or warranty that significant environmental or community issues will not affect the operation. Key environmental and community relations issues are discussed below.

6.1 Environmental Aspects

Key issues which can have potential impact on project valuations are: Water Run-off, noise and dust and rehabilitation.

6.1.1 Water Run-off from site

If sediment loads are high or if water is acidic, water run-off from dumps, stockpiles, roads and water pumped from pits has the potential to pollute local rivers, creeks and vegetation. This is managed through the use of bunds, drains and sediment ponds of sufficient size to allow small particles to settle out of the water. Regular monitoring of water discharge points is required under government regulations.

6.1.2 Noise and Dust

Noise and Dust originating from mine operations haulage and coal handling have the potential to impact the local environment, particularly if villages and local communities are located within close proximity to mining and coal handling operations. Dust is generally managed by using water trucks on haul roads, and by spraying water or dust suppressant chemicals to minimise dust being airborne and suppressing it.

6.1.3 Rehabilitation

A large area of land will be cleared as part of the KIM mining operation, although much of this area is not covered by any forest land. The disturbed area is generally rehabilitated by removing the topsoil prior to mining, storing the topsoil onsite during mining and covering the final landform with topsoil at the completion of mining. The area to be rehabilitated is then panted with suitable vegetation.

Management at the KIM Project have established procedures and a nursery in place to prepare for revegetation to take place. To prevent the dust hazard, the company is currently using dust

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suppressant and water sprinkling system. HDR Salva notes that the current approved AMDAL for the KIM concessions allows the company to mine in excess of the proposed throughput.

Mine closure plans for the updated mine plan have yet to be completed; however HDR Salva does not foresee any significant issues with this aspect of the operation. A reasonable allowance has been made in for environmental management, rehabilitation and mine closure.

6.1 Social Aspects

Maintaining a good relationship with local communities is a key requirement for the success of the KIM operation. Efforts must be continued in the ongoing community development programs in coordination with the local government. HDR Salva reviewed KIM’s Corporate Social Responsibility programs which include the following aspects: Economy and health.

6.1.1 Economy

Economic development of the local community is set to include activities to assist with the economic development of the community by providing employment and business opportunities once mining operations have finished.

Current programs include training in sewing skills and establishing aquaculture infrastructure.

6.1.2 Health

It includes programs to improve health in the local communities and to increase people’s knowledge through education in health issues.

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7 Valuation

7.1 Valuation Approaches

There are a number of methods used in valuing mineral assets. The applicability of these methods depends on project specific factors including the level of maturity of the mineral assets.

In determining the appropriate method(s) to be used for valuation of these assets, HDR Salva has taken into consideration the classification of these assets as defined in the VALMIN Code and the different methodologies that are generally accepted as industry practice for each classification. Generally there are three broad methods of valuation that are used for valuing mineral assets. These are the cost approach, income approach and market approach. The asset classifications that may be applied to a project are set out in Table 7:1 below.

Table 7:1 Typical Valuation Methods Classification General Description Key Valuation Methods

Exploration Areas Properties where mineralisation may or may not have been identified, but a Resource has not been identified.

Rule of Thumb, Geo-scientific method, Comparable Transactions.

Advanced Exploration Areas

Properties where considerable exploration has been undertaken and specific targets identified. Resource estimation may or may not have been made. Good understanding of mineralisation present.

Geo-scientific method, Appraised Value Method, Comparable Transactions.

Pre- development Projects

Properties where mineral Reserve has been identified but decision to proceed with development have not been made.

The above methods and DCF/NPV valuation.

Operating Mines Properties where mining activities are already commenced.

DCF/NPV valuation.

7.2 Valuation Approach for Assessing the KIM Project

The KIM Project is an operating mine where production has already commenced in both coal blocks. Coal Resource and Reserve has been determined in all 2 blocks. Since mining activity has commenced, therefore in HDR Salva’s opinion, it is appropriate to as DCF method to determine Net Present Value (NPV) of the whole project.

Therefore for the purpose of valuation, HDR Salva has opted to value the Coal Reserves present within the KIM concession on DCF based method. The cash flow model constructed by HDR Salva was based on the production schedules, costs and prices developed for this project. No separate value is ascribed to the exploration potential of the areas outside the blocks contained in the mine study with Coal Reserves. HDR Salva has opted to value the project on the basis of Coal Reserves only using the DCF method.

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8 Economic Parameters 8.1 Royalty and Local Government Fees

The royalty is generally levied as percentages of sale proceeds to be applied for the different types of coal depending on its Gross Calorific Value GCV and method of mining. However, different royalty rates have been adopted for different type of ownership structure including: Contract of Work holders (CoWs), Coal Contract of Work holders (CCoW), Izin Usaha Pertambangan holders (IUP), and Izin Usaha Pertambangan Khusus holders (IUPK).

At present, a range of percentage of sales proceeds is applicable for different type of coal mining arrangements as detailed in Table 8:1.

Table 8:1 Indonesian Coal Royalty Rates Concession Type Royalty Current Rates (2014)

CCoW and CoW 13.5% Royalty on HBA price for the coal type

IUP and IUPK

3% - 7% (Open Pit)

2% - 6% (Underground)

The royalty rate depends on air dried calorific value of the coal produced:

3% of HBA price for coal <5,100 kcal/kg

5% of HBA price for coal for <5,100 kcal/kg - 6,100 kcal/kg

7% of HBA price for coal for >6,100 kcal/kg

The KIM project is held under a number of IUP concessions, amenable to be exploited by open pit mining method. The royalty rate is expected to be 5% as the air dried energy of the coal product is greater than 5,100 kcal/kg and less than 6,100 kcal/kg. The revenue excluding barging and transshipping associated cost is applicable to coal sales from the KIM concession. This Government Regulation requires that all coal sales be made at a minimum (or benchmark) price that is defined by the Indonesian government on a monthly basis. The methodology for calculation of the minimum price is described in Regulation No. 515.K/32/DJB/2011 and Regulation No. 644.K/30/DJB/2013 issued by the Directorate General of Minerals and Coal (DGMC).

HDR Salva assumed that future benchmark prices for Royalty calculations will be equal to or lower than the forecast prices used in this study and thus the forecast coal price has been used for the calculating royalty payments.

8.2 Inflation Outlook

HDR Salva has developed a nominal cash flow model for calculation of NPV and assessment of mineral asset value. HDR Salva has assumed cost in US $ in real terms and converted it into US $ nominal terms based on the long term US inflation factor of 2.4%.

HDR Salva considers this to be an appropriate technique while valuing projects in high inflation, declining foreign exchange rate countries including Indonesia. This is a common approach used in most mineral asset valuation.

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8.3 Corporate Income Tax

Corporate income tax is applicable to all Indonesian registered corporations. In 2009, the tax payable was reduced from 30% to 28% of gross income less allowable deductions. From 2010 onwards, the corporate income tax rate was reduced further to 25% of net taxable profit.

The tax rates for different concession types have been shown in Table 8:2. The KIM project is held under a number of IUP concessions. Therefore, in line with the prevailing corporate income tax regulation an income tax rate of 25% is applied to the revenues from the concession.

Table 8:2 Corporate Tax Rates Concession Type Corporate Tax Reversion Rate

CCoW (First Generations) 35% 45% CCoW (Second Generations) 25% N/A

CCoW (others) 30-45% N/A IUP 25% N/A

8.4 Depreciation and Amortisation

The different rate of depreciation is applicable for different type of assets for IUP concessions like the KIM concession (Minister of Finance Decree 138/KMK.03/2002 and Amendment 520/KMK.04/2002).

Fixed assets are categorised into four different types, depending on nature of assets and its expected useful life. Assets are generally depreciated over 4, 8, 16 or 20 years and the company may opt to either apply a diminishing balance or straight line approach for each category of asset.

HDR Salva has applied different depreciation rate depending on type of asset and their useful life. HDR Salva has opted to applied straight line method to estimate depreciation.

8.5 Working Capital

Working capital has been included in the financial model has been estimated using the following assumptions:

Accounts Receivable Days 35; Inventory Days 15; and Accounts Payable Days 45.

HDR Salva has assessed these assumptions and found them to be inline with the current operating practices.

8.6 Carried Forward Tax Losses

As per existing law, the tax losses can be carried forward up to 5 years. Tax losses cannot be carried back. For the purpose of this mineral asset valuation, HDR Salva hasn’t considered any prior carried forward losses as at 31 July 2014.

8.7 Value Added Tax

The prevailing VAT law stipulates that supplies of coal and other natural resources taken directly from the source are not subjected to VAT. This means that there will not be any output VAT

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applicable to coal produced from the KIM Concession. As per prevailing VAT law, variable component of contractor cost attracts a 10% VAT. HDR Salva notes that there are uncertainties in current regulations and in the conditions of IUP/CCoWs regarding application of VAT to contractor cost.

Erring on the side of conservatism, HDR Salva has opted to be conservative and applied VAT to all variable contractor cost and therefore a VAT rate of 10% is applied on all contractor cost.

8.8 Weightage Average Cost of Capital (WACC)

Weightage Average Cost of Capital (WACC) is generally used as a discount rate for the valuation of advanced mining projects with Reserves. HDR Salva has derived the WACC (after tax basis) on the basis of Capital Asset Pricing Model (CAPM). Following is the assumptions used in calculation of WACC (Table 8:3).

Table 8:3 WACC (After Tax)

S.No. Items Value Source

1 Risk Free Rate of Return 8.05%

10 year Indonesia government bond yield (Source: AsianBondsonline.adb.org)

2 Equity Risk Premium 7.35% Indonesia Country Premium (Source: Bloomberg)

3 Relevant Beta 1.01 Unlevered beta of comparable companies, re-levered to average capital structure of comparable companies

4 Company & Project Risk 0.75% Additional company & project risk

5 Cost of Equity 16.22% Equal to (1) + (2) x (3) + (4)

6 Debt to Enterprise Ratio 40% Anticipated proportion of debt for the purpose of

WACC calculation

7 Cost of debt (after Tax) 4.39% Indonesian interbank rate (JIBOR) adjusted for corporate tax (source: Bank Indonesia, www.bi.go.id)

8 WACC (after Tax) 11.49%

Furthermore, HDR Salva has cross-checked the calculated WACC for the project with WACC of the various comparable listed mining companies of Indonesia. Table 8:4 summarises WACC of the various mining companies in Indonesia.

Table 8:4 WACC for Indonesian Coal Mining Companies

Company Value Adaro Energy 9.1% Bayan Resources 8.3% Barau Coal 10.0% Average 9.1%

Source: Bloomberg

HDR Salva concludes that the calculated WACC for the project appears to be reasonable when compared with other listed mining companies in Indonesia.

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9 Market Analysis and Coal Prices 9.1 Global Outlook

The center of gravity for imported thermal coal has shifted to Asia in the past 10 years with China and India growing more rapidly than other traditionally large importers. This has been driven by a number of factors including the rapid industrialisation of China and India, strong economic growth in the general Asian region, a lack of sufficient domestic coal supply in these countries, a strong supply response from seaborne suppliers such as Indonesia and Australia and, until mid 2012, and a buoyant pricing environment.

As a response to this, trade in the thermal coal market has increased significantly in the last five years, growing from 567 Mt in 2008 to 778 Mt in 2013 at a compound average growth rate (CAGR) of 6.53%. This growth has been driven by strong demand in Asia, predominantly China and India who have increased their combined market share of seaborne thermal coal imports from 9% (49 Mt) in 2008 to 45% (348 Mt) in 2013, accounting for over 90% of demand growth over the period. This rapid uptake in imported coal is a result of the ongoing electrification and urbanisation of these two countries which has been primarily met by coal-fired power plants.

Going forward, electrification and industrialisation will continue in Asia which is unaffected by concerns about carbon emissions and instead, is based more on lowest cost supply for power generation in which thermal coal remains the cheapest fuel source by far throughout the time horizon. Coal suppliers in the Pacific basins will benefit immediately from this high demand and ramp up production in response. Over time, current marginal supply will be required to meet growing demand. New supply basins like Indonesia’s Central Kalimantan, Jambi and South Sumatra, Australia’s Surat and Galilee basins, Mozambique, Mongolia and Russia’s Far East will become marketable – complementing expansions in the existing low-cost basins of Indonesia.

9.1 Domestic Coal Demand

Domestic demand for thermal coal in Indonesia has grown rapidly since 2008, at a CAGR of 18%, primarily driven by strong demand from the power sector. 2013 was a strong year for domestic coal consumption in Indonesia, with 86 Mt consumed as a result of continued strong demand from the growing power sector (Figure 9:1).

Figure 9:1 Indonesian Domestic Coal Demand (Mt)

Source: HDR Salva

0

20

40

60

80

100

2008 2009 2010 2011 2012 2013

Mt

Power Cement Pulp & Paper and Others

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The domestic demand for thermal coal is largely driven by government energy policy which laid out plans to boost domestic power generation by coal fired power stations in country. Subsequently, Indonesian government owned power producer PT Perusahaan Listrik Negara (“PLN”) laid out its road map to build 20 GW of power generation capacity by 2016 in two phases, each of 10 GW with the majority of them being coal based.

At the time of writing of this report an estimated 6,800 MW of capacity covered under the Fast Track-1 project has been completed and another 940 MW station will become operational by the end of 2014. Although PLN is optimistic about the completion of Fast Track-1 programme by 2014, in our opinion PLN’s fast track program will be delayed by around one year considering the fact that around 20% of the capacity is still in the construction and PLN’s projects are known to regularly miss their completion target dates.

Along with PLN, several Independent Power Producers (IPPs), such as Java Power at Paiton, are currently constructing coal fired power plants. These power producers have signed offtake agreements with PLN to supply electricity at a contracted price. The projects are mainly developed by consortiums of Chinese, Japanese and South Korean companies with a local operator.

As a result of this, domestic demand for thermal coal in Indonesia has risen at a quickening pace due in large part to the growing number of coal-fired thermal power plants now coming on-line.

In addition to the power sector, industries like Cement (PT Semen Gresik (PTSG), PT Indocement Tunggal Prakasa and PT Holcim Indonesia tbk), Pulp and Paper (Asia Pulp and Paper and Asia Pacific Resources International Holdings Limited), Metallurgy (steel-making, foundry cast iron) are the major consumers of domestic coal and their consumption is expected to increase in the future as well.

9.2 Indonesian Coal Supply

Indonesia began exporting thermal coal in 1990, and impressive growth saw it become the world’s largest thermal coal exporter by 2006. The coal industry’s strong performance is one of the key factors driving economic growth in Indonesia.

Three major factors have contributed to the strong growth of the Indonesian coal sector:

Growing domestic and international demand for lower calorific value (CV) coals;

Proximity to high growth markets of India and China; and

Low capital and operating cost structure by international standards.

Recent years have seen Indonesian production grow to record highs, assisted by the 2009 Mining Law, with more transparent licencing regulations propelling new mine development. Since 2008, Indonesian production has risen at an annual average growth rate of 16% from 237 Mt to 486 Mt in 2013. As shown in Figure 9:2 domestic consumption and exports have increased significantly, with 200 Mtpa of additional exports over this period.

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Figure 9:2 Indonesia Coal Supply

While Indonesia is a major force in the seaborne coal trade, 2013 indicated a weakening of the Indonesian coal production growth. 486 Mt was produced in 2013, with y-o-y growth of 7.3% (33.1 Mt), the lowest increment of growth in the last 5 years (Figure 9:3) but still better than any other major coal producing country in the world.

Figure 9:3 Indonesian Coal Consumption Growth Rate by Sector.

0

100

200

300

400

500

600

2008 2009 2010 2011 2012 2013

Exports Domestic

0%

5%

10%

15%

20%

25%

30%

2009 2010 2011 2012 2013

Export Growth Domestic Growth Production Growth

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Indonesian supply grew just 5.0% in 2013, compared to 8.9% in 2012 and 18.2% in 2011. Despite continued strong demand from India and China, slowing exports is primarily a result of lower export coal prices in an oversupplied market, putting pressure on margins.

Domestic demand continues its high growth mainly led by growth in the power sector. In HDR Salva’s opinion, the domestic demand in Indonesia is likely to remain strong with a majority of the Industry’s experts and brokers being in the opinion that thermal coal prices are likely to improve from the current levels as demand for thermal coal are expected to remain strong from developing countries such as India and China.

9.3 Coal Price Used for Project Assessment

The KIM Project produces coal which is sold in the domestic market. The sales price assumptions used in this study are based on domestic coal prices received for coal sold from the KIM project in the current market.

HDR Salva has reviewed the actual purchase orders and sales contracts for coal sales for the past two years. These sales’ documents covered a sales’ volume of approximately 1.5 Mt. The sales’ contracts and purchase orders specified a coal at a range of prices from 600,000 IDR to 650,000 IDR per tonne at a base CV of 4,900 kcal/kg on a gross as received basis. These sales’ contracts are linked with the fuel index in Indonesia (which is a proxy for petrol and diesel prices in Indonesia).

After weighting by contract volumes, adjusting for actual CV produced and adjustment for the prevailing exchange rates, the historical contract rates and volume, the following base rates for sales prices of the KIM coal was determined as per Table 9:1.

Table 9:1 Contracted Price - KIM Coal Year Price (IDR) 2012 600,000 2013 610,000 2014 650,000

HDR Salva does not see any reason why there will be any difficulties marketing the coal from the KIM project as a domestic thermal coal. At present, the primary markets for this coal are paper and pulp mills located in Sumatra. The users of the KIM coal in the recent past have been:

PT Lontar Papyrus Pulp and Paper Industry mill located in Jambi (LPPPI); and

PT Indah Kiat Pulp and Paper mill located in Perawang, Riau (IKPP).

However, moving forward, some of the coal produced from the KIM Project may also go into nearby power plants which are currently operating or under construction. These include:

PLTU, Ombilin (100 MW);

PLTU, Jambi (2 x 400 MW);

PLTU, Teluk Sirih & Pesisir, West Sumatra (224 MW);

PLTU, Baturaja (20 MW) and

PLTU, Muko-Muko (8 MW).

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HDR Salva also reviewed the economics for export sales from the concession. It was found that with the assumed mining costs for the operation, the margins for export sales were lower than domestic sales for current and forecast coal prices. Coal exporting was considered to be less attractive at current coal prices, although this situation may change in the future as export prices increases. Moving forward, the exports of coal from the KIM project is expected to commence only if margins for export sales are more than margins for domestic coal. In such circumstances, the price of export coal will be more than domestic coal.

The KIM project is predominately a domestic coal supply project where the price is linked with the Indonesian fuel Index (proxy for diesel prices). Price forecast is based on the actual contracts which are being realized by the company at present.

Although the Indonesian domestic coal price has increased recently, when expressed in Indonesian Rupiah (IDR) but in reality it has fallen in USD term mainly because of higher depreciation of the IDR compared to the US Dollar (USD). We have actually taken coal price towards the lower end of the recent USD prices. Below is the recent coal price when converted into USD.

Table 9:2 Contracted Price in US$

Year Average

Exchange Rate (IDR: US$)

Contracted Price (IDR) Coal Price (US $)

2014E 11,500 650,000 56.5 2013 10,318 610,000 59.1 2012 9,368 600,000 64

Average exchange rate is calculated using United Nations Treasury Operational Rates of Exchange

To determine the long term price forecast for the KIM Mine, HDR Salva has used the most recent contract price which is considered to be the most appropriate estimate of coal price.

Therefore, in HDR Salva’s opinion, for the purpose of valuation it is appropriate to use current actual contracts as the basis of coal pricing. While the current contracts are linked with the Fuel Index in Indonesia, HDR Salva has adopted a conservative approach for assessing a domestic coal price outlook for this project. The domestic coal price forecast has been assumed to stay flat in real terms (US $56.5/t) or increase at an annual rate of 2.4% over the life of mine in nominal terms. The projected price for the KIM coal has been shown in Figure 9:4 below.

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Figure 9:4 Domestic Sales Prices (in nominal terms)

0

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20

30

40

50

60

70

80

90

100

US

$/t

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10 Capital Cost The KIM project is an operating mine with most of the mine infrastructure already established and in-place. HDR Salva has assumed mining operations to be continued using contractor’s mining equipment. The capital cost and charges for these equipment have been factored in the contractor charges as operating cost. This is an industry standard practice in Indonesia and Australia.

The major capital required for the continuation of the project is linked with the land acquisition for the development of the mine over its life and the cost associated with the construction of dedicated road to link the Kim Project with the existing Jalan WKS special road.

The total capital cost estimate for KIM Project including road logistics is estimated to be US $58.4M which includes a contingency of US $7.6M. A contingency of 15% has been included in the capital cost estimate. These estimated are considered to have an accuracy of ± 15%.

In addition to the expansion capital of US $58.4M, HDR Salva has factored 3% of the invested capital apart from land purchase cost as sustaining capital per annum for asset maintenance over the life of mine.

While preparing these estimates, HDR Salva has relied on industry benchmarks, internal database, internal studies and expertise on the KIM concessions. The capital costs for road construction is considered to be relatively well understood, although a conservative approach to estimating these costs has been taken.

In line with the standard industry practice, mine closure costs have been taken as annual expense under operating cost estimates rather than as capital cost.

The Capital Cost estimates and the basis of its estimation are shown in Table 10:1. The cost estimate was prepared in Q3 2014 in US dollars ($).

Table 10:1 Capital Cost (Real Terms)

Sr. No. Particulars Direct Cost ($M)

Contingency ($M)

Total Cost ($M)

1.1 Land Compensation 18.0 2.7 20.7 1 Land Compensation 18.0 2.7 20.7

2.1 Site Infrastructure 5.0 0.8 5.8 2 Mine Infrastructure 5.0 0.8 5.8

2.1 Haul Road Construction 27.8 4.2 31.9 2 Hauling to Customers 27.8 4.2 31.9 3 Total Project Capital 50.8 7.6 58.4

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10.1 Basis of Estimation

Basis of estimation for the major cost elements have been given below.

10.1.1 Project Currency and Foreign Exchange

The project capital costs are expressed in United States dollars ($) with the following provisions:

Costs are based on current market conditions as in Q3, 2014; Costs submitted in other currencies have been converted to US $. Foreign currency

exchange rates applied to the capital cost estimate relative to the US $ are set out as US $1.00 = IDR 11,500; and

No provision has been made for variations in the currency exchange rates.

10.1.2 Duties and Taxes

Duties and taxes including VAT for the capital items are included in the estimate unless otherwise noted.

10.2 Land Acquisition

HDR Salva has been advised that most of the land over the mining area over the KIM concession is already owned by the company. Some additional land will be required to be acquired for the life of mine production.

Land acquisition cost have been estimated on the basis of US $30,000 per ha for the total requirement for the project (calculated from the mine plan). The estimates of US $30,000 per ha can be considered as a conservative estimate for this area and allows a cover for rubber and palm oil plantations. A total of approximately 600 ha of land requirement have been estimated over the life of mine Reserves covering land required for pit and dumps.

10.3 Haul Road Construction

Total Cost associated with the construction of the dedicated special road for connecting the KIM Project with the existing Jalan WKS special road is estimated at US $31.9M, including a contingency of US $4.2M. Design and construction time is estimated at 3 years. The road construction cost was estimated at US $350,000 per km with an additional allowance of US $5M for bridges. An additional contingency of 15% has been factored in the estimate of capital expenditure. This is considered appropriate for a road suitable for trucks of up to 30 tonne capacity.

10.4 Site Infrastructure

HDR Salva has factored in US $5M (+15% contingency) for upgrade to ROM stockpile and associated mine infrastructure to handle higher tonnage in the future.

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10.5 Mine Reclamation

In line with the standard industry practice, mine closure costs have been taken under operating cost estimates.

10.6 Exclusions

The following items are excluded from the capital cost estimate:

Refundable taxes and duties; Currency fluctuations; Lost time due to severe weather conditions; Lost time due to force majeure; Additional costs for accelerated or decelerated deliveries of equipment, materials and

services resultant from a change in project schedule; Any project sunk costs including this study; Community relations; and Owner’s risk and exposure.

10.7 Capital Phasing

Based on the requirement of the project, capital expenditure for the major items has been distributed over the ramp-up period. The capital expenditure over the life of mine is shown in Table 10:2 below.

Table 10:2 Capital Cost Phasing (US $M, Real Terms)

Capital Item 2014 2015 2016 2017 2018 2019 Total Land Compensation 2.1 3.1 3.1 4.1 4.1 4.1 20.7 Site Infrastructure 0.6 0.6 1.2 1.2 1.2 1.2 5.8 Haul Road Construction 3.2 9.6 9.6 9.6 31.9 Total 5.8 13.3 13.8 14.9 5.3 5.3 58.4

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11 Operating Cost 11.1 Method of Estimation

Overall operating costs are a combination of mining costs, crushing & handling costs, product transportation and general and administrative (G&A) costs.

These costs are based upon information obtained from the following sources:

Existing contracts;

Pre-feasibility studies;

Budgetary quotations;

HDR Salva projects database; and

Experience of HDR Salva staff with other similar operations in the region.

Where specific data does not exist, cost allowances have been based upon consumption and operating requirements from other similar properties for which reliable data exists. The operating costs have been estimated and presented with an added contingency allowance of 5%. All costs are presented in real terms (Q3, 2014 dollars). Costs are exclusive of taxes unless otherwise noted. For the purpose of estimation, Fuel price delivered to the site and exchanged rate assumed for the purpose of estimation is as followed:

Fuel Price US $1.20 / litre; and

Exchange Rate IDR 11,500 / US $.

In HDR Salva’s opinion, all operating cost estimates are reasonable at this stage of project assessment given the size and stage of the project.

11.2 Items included in the Operating Cost Estimates

Coal is mined at the KIM Project by conventional open pit mining method using truck and excavator combination. It is envisaged to continue the use of mining contractors to exploit coal and overburden. Following cost elements were considered by HDR Salva:

Land Clearing and Top Soil Removal: Clearing of land and removal of top soil in the process of mining, generally taken on the basis of $/ha of the area.

Mining – Waste / Overburden: Cost per BCM of waste removed; Mining – Coal: Cost per tonne of extracting coal; Labour cost: Cost per tonne towards salary and wages to the company staffs; Trucking (Haul to Stockpile): Cost per tonne km to haul to port stockpile using specialist

coal haulage trucks; Trucking (Haul to End User): Cost per tonne km to haul to end user using coal haulage

trucks;

Additional variable operational costs have also been assumed by HDR Salva which includes:

Environment and Mine Closure: Cost per tonne for all associated expenditure related to environmental approval and reclamation;

880




Royalties: Cost per tonne for royalty (5% of the sales price Local Government Tax; and Corporate Overheads.

Costs have been categorised into four different cost types

Contractor Cost;

Owner Cost;

VAT; and

Local Government cost and Royalties.

11.3 Contractor Costs

HDR Salva has assumed all contractor cost to be variable in nature. Variable contractor cost is the type of cost which typically varies with the changes in minable quantities and strip ratio. The variable contractor cost is generally based on unit contract rates where a rate is specified for a number of physical quantities which are physically measured on a periodic basis including area cleared, waste mined etc. These types of contracts are generally in practice across entire coal mining Industry.

HDR Salva has assumed a contract mining operation in all the pits. HDR Salva’s estimates are based on current contracts already in place at the mine, firm quotes, pre-feasibility studies and budget quotes.

HDR Salva notes that, there is a significant downward revision in contract mining quotes and new rates are more competitive. HDR Salva has assumed unit rates that are considered to be sustainable for both contractors and mine owners in the long term. HDR Salva has compared these against the industry benchmarks and estimated these to be reasonable. Table 11:1 below shows the contractor unit rates.

Table 11:1 Contractor Unit Rates (Real Terms)

Cost Item Unit Rate Land Clearing $/ha 1,400 Topsoil Removal $/bcm 1.80 Waste Mining $/bcm 1.80 Waste Overhaul $/bcm/km 0.25 Coal Mining $/t 1.10 Haul to ROM Stockpile $/t km 0.10 Haul to Customer $/t km 0.10

Note: All quoted cost in local currency is adjusted for fuel price and exchange rate.

881




11.4 Owner Costs

HDR Salva has assumed all owner cost to be variable in nature. Variable owner costs vary with the changes in physical quantities in the mine plan and are incurred by the company directly.

HDR Salva’s estimates are based on current costs at the mine and pre-feasibility studies. The cost was compared with actual costs from other operations and then adjusted for the conditions and processes on the site. HDR Salva has determined these to be comparable against the industry benchmarks and estimated these to be reasonable. Table 11:2 shows the owners unit rates.

Table 11:2 Owner Unit Costs (Real Terms)

Cost Item Unit Rate ROM Coal Handling $/t 0.30 Mine Closure $/ha 4,200 Environmental and Rehabilitation $/t 0.06 Salary and Wages $/t 0.25 Medical & Community Development $/t 0.05 Corporate Overheads $/t 0.50 Contingency $/t 2.35

11.5 VAT

VAT is attributable on the variable component of contractor cost only. However, HDR Salva has taken a conservative approach and assigned a 10% VAT on all contractor costs rather than variable component only.

11.6 Royalties and Government Costs

The royalty is generally levied as percentages of sale proceeds to be applied for the different types of coal depending on its GCV and method of mining. However, different royalty rates have been adopted for different types of ownership structure which include: Contract of Work holders (CoWs) Coal Contract of Work holders (CCoW) Izin Usaha Pertambangan holders (IUP) and Izin Usaha Pertambangan Khusus holders (IUPK).

Tenure for the KIM project is held under a number of IUPs which have a royalty rate that is dependent on the air dried energy of the coal as sold. In the case of this coal, the Royalty Rate is expected to be 5% of the total revenue for the average coal produced as the air dried energy is greater than 5,100 kcal/kg and less than 6,100 kcal/kg. In addition to this HDR Salva has allowed an amount of US $ 0.50 per tonne to cover local government fees and charges.

HDR Salva assumed that future benchmark prices will be equal to or lower than the forecast prices used in this study and thus the forecast coal price has been used for the calculating royalty payments.

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11.7 Overall Operating Cost

Total operating costs per tonne of coal product including royalty for the KIM Project has been estimated as US $52.08 per tonne over the life of the mine. The cost components for the different heads have been given in Table 11:3 below.

Table 11:3 Average Unit Operating Cost (Real Terms) over Life of Mine

Cost Item $/t Land Clearing $0.02 Topsoil Removal $0.05 Waste Mining $12.25 Waste Overhaul $1.00 Coal Mining $1.10 Haul to ROM Stockpile $0.45 ROM Coal Handling $0.30 Haul to Customer $26.20 Mine Closure $0.07 Environmental and Rehabilitation $0.06 Salary and Wages $0.25 Medical & Community Development $0.05 Corporate Overheads $0.50 Local Government Fees $0.50 VAT $4.11 Contingency $2.35 Operating Cost Excl. Royalty $49.25 Royalty $2.83 Operating Cost incl. Royalty $52.08

HDR Salva has compared these against the industry benchmarks and estimated these to be reasonable.

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12 Financial Analysis & Project Valuation The KIM Project as an advance stage mining project and in HDR Salva’s opinion, it is appropriate to use the discounted cash flow (DCF) method as the primary method to determine the technical value of the project. In the forming over opinion of valuation, HDR Salva has not applied any premium or discount to the technical value to determine the market value on the basis of strategic, market related or any other special factors.

12.1 Modelling Methodology & Considerations

The valuation model for the KIM Project was developed in Microsoft Excel. Valuation has been derived from analysis of cash flows calculated for the project over the life of mine. The valuation was designed so that input parameters could be varied to investigate different scenarios to determine an estimated valuation range. HDR Salva has adopted the following considerations in its financial model:

The model is developed in nominal terms. All cost and prices were considered in real terms and then converted to nominal terms;

The model assumes continuous cash in and outflows, which are reflected in mid-point discounting during a period;

Cash flows was developed on stand-alone project basis;

Sunk cost (including acquisition costs) is excluded; and

All future cash flows were discounted using WACC.

12.2 Base or Preferred Case

A base case valuation was developed using the assumptions discussed in various section of this report. Key inputs are summarised in Table 12:1 while the summery of the financial model for the base case has been presented in Table 12:2 below.

Table 12:1 Base Case – Key Input Parameters

Key Parameters Description Unit Value Peak Production capacity Maximum annual production capacity Mtpa 3 Life of Mine Considered Years of coal production years 15 Discount Rate Discount rate (nominal terms) % 11.5% Corporate Tax Rate Indonesian corporate tax rates % 25.0% Project Coal Price Aver. price for LRC Coal (real terms) $/t $56.52 Capital - Project Total project capital expenditure (real terms) $M $58.36 Capital - Sustaining Total ongoing replacement capital (real terms) $M $6.33 Coal Mined Coal mined over life of mine Mt 35.7 Stripping Ratio Aver. ratio of waste: coal bcm:t 6.8x Waste Mined Waste mined over life of mine Mbcm 242.7 Operating Cost Excl. Royalty Aver. operating cost (real terms) $/t $49.25 Royalty Aver. royalty (real terms) $/t $2.83

Operating Cost incl. Royalty Aver. operating cost including royalty (real terms) $/t $52.08

884


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2014

20

15

2016

20

17

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20

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2020

20

21

2022

20

23

2024

20

25

2026

20

27

2028

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885




12.2.1 Preferred Case Results

The results of the base case valuation scenario are shown in Table 12:3 below.

Table 12:3 Base Case – Financial Outputs & Valuation

Financial Summary (Nominal Terms) $ M Revenue $2,444 Operating Cost $2,143 Royalties Payment $122 Corporate Tax Expenses $32.9 Total Capital (including Sustaining Capital) $69.4 Cumulative Free Cash Flows $76.6 Net Present Value (NPV) $24.7 Internal Rate of Return 29%

Under preferred case, using a nominal discount rate after tax of 11.5%, the Project NPV is determined as US $24.7 M. The Internal Rate of Return (IRR) for the project has been determined as 29%.

The Project cash streams are shown in Figure 12:1 while discounted and cumulated discounted cash flows is indicated in Figure 12:2.

Figure 12:1 Cash Streams – Base Case

-300

-200

-100

0

100

200

300

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028US

$M

Revenue Capital Cost Operating Cost Taxes and Royalties Free Cash Flow

886




Figure 12:2 Discounted Cash Flow Profile – Base Case

12.2.2 Sensitivity Analysis

Sensitivity of the project was assessed for key parameters like sales price, discount rate, operating cost and capital cost. Figure 12:3 exhibits the project sensitivity under base case.

Figure 12:3 Key Project Sensitivities

Table 12:4 outlines the impact of project NPV for change in the input parameters.

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

US

$ M

illio

n

Cumulative Discounted Cash Flows Discounted Cash Flows

-150

-100

-50

0

50

100

150

200

80% 90% 100% 110% 120%

US

$ M

Change in Input Parameter

Coal Sales Price Discount Rate Capital Cost Operating Cost

$24.7M

887




Table 12:4 Project NPV Sensitivity

Key Input Variables Change in Input Parameter (%)

80% 90% 100% 110% 120% Coal Sales Price -131.0 -53.2 24.7 102.6 180.4 Discount Rate 31.3 27.8 24.7 21.9 19.3 Operating Cost 34.4 29.5 24.7 19.9 15.0 Project Capital Cost 160.2 92.5 24.7 -43.1 -110.8

As seen in the Table above, the KIM project is most sensitive to coal sales price, followed by any change in operating cost and then capital cost and discount rate.

12.3 Valuation Range

In order to determine the range of valuation estimates (low and high scenarios), a range of key inputs to the financial model were selected to reflect upper and lower values that are considered reasonable by HDR Salva for key input assumptions. Following assumptions were applied for development of low and high scenario:

Low Case: While the KIM Mine complies with the logistics regulations. Mine can be shut if permission to haul coal on public road is not allowed along with management decision not to constructs special dedicated road.

High Case: Price increases by 5% while operating cost decreases by 3%.

The results of the analysis for the low and high cases are shown in Table 12.5 below.

Table 12:5 Valuation Range

Key Outcomes Unit Valuation Range (US $M)

Low High Net Present Value (after Tax) $M 0.0 84.0

12.4 Valuation Summary

HDR Salva has estimated the valuation of the KIM concession using the assumptions and inputs detailed in this report. HDR Salva’s opinion of the project value as at 31 July 2014 is shown in Table 12:6 below, which takes into account the high and low cases and the sensitivity of the project.

Table 12:6 Valuation Summary

Key Outcomes Unit Valuation Range (US $M)

Low Preferred High Net Present Value (after Tax) $M 0.0 24.7 84.0

12.4.1 Previous Valuation

HDR Salva is not aware of any valuations being publically released for the KIM concession in the past.

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13 Risk Factors & Opportunities HDR Salva has identified a range of risk elements or risk factor which may affect the future operations and financial performance of the KIM Project. Some of the risk factors are completely external, which is beyond the control of management. However the project specific risk can be mitigated by taking proper measure in advance. Key Project risks that have been identified are discussed below.

13.1 Risk Factors

13.1.1 Resources And Reserves

Although the majority of coal included in the Life of Mine Plan contains Proved and Probable Reserves which was modelled from Measured and Indicated Resources respectively, a total of 32.5% of the coal in the pit shell is classified as Inferred Resources due to the lack of core samples and quality analysis.

Therefore, to mitigate the risk associated with the inclusion of the Inferred Resources and to be on conservative side, HDR Salva has scheduled total minable tonnes to be equal to the quantity of Proved and Probable Reserves only. In HDR Salva’s schedule, the cumulative tonnes to be mined over the life of mine do not exceed the total Coal Reserves.

However, it is still considered possible that further exploration and technical studies may result in a reduction or an increase of Reserves which would have some impact on the value of the concession.

13.1.2 Geotechnical Risk

Although the design of pit slop angles have been based on Geotechnical studies that undertaken for the blocks in the KIM concession, but these studies are considered to be preliminary in nature. These studies were used to assess the general relationship between pit depth and overall slope angles for pit high walls.

Although HDR Salva has taken an appropriate factor of safety by maintaining large offset in the pit design, but further detailed geotechnical analysis is recommended for the final pit designs to ensure that there is an adequate factor of safety for the actual pit designs.

13.1.3 Coal Price Risk

Coal prices and the demand for coal are cyclical in nature and subject to significant fluctuations, and any significant decline in the prices of coal or demand for coal could materially and adversely affect the Company’s business and financial condition results of operations and prospects. Coal markets are highly competitive and are affected by factors beyond the Company’s control which include but not limited to:

Economic conditions in Indonesia and globally;

Government actions; and

Fluctuations in industries with high coal demand such as Power Sector and other industries using thermal coal.

889




Although sufficient analysis and studies have conducted to ascertain future long term forecast, however, if there is a fall in long term prices, there would be a substantial reduction in the value of the project.

13.1.4 Impact on Weather on Production

Jambi has tropical climate with a high rainfall. During rain season, weather is expected to impact on the mining production due to the project being an open pit mining operation. The Company has mitigated this by allowing sufficient weather related non production days in mine schedule and by having sufficiently large coal stockpiles.

13.1.5 Mining Approvals, Tenure and Permits

A number of government permits and approvals are required to facilitate expansions of the KIM Mines and the associated infrastructure facilities. Any delays in obtaining the required approvals may affect the production expansion and the mine plan. This may likely to cause the project to overrun which may significantly affect project capital and operating costs.

The risk associated with the tenure of concession is considered to be significantly lower than many other nearby mines, as the tenure is held under a 2nd generation PKP2B that is valid for close to the entire planned mine life. The company must be studious in complying with all conditions of the contract to ensure that they maintain tenure and a good relationship with regulatory organisations.

13.1.6 Land Acquisition

Most mining operations in Indonesia are facing issues in acquiring land for their projects. Acquiring land and compensating land owners is considered to be a significant issue, especially in areas which are densely populated.

In order to achieve the value estimated in this study, KIM will need to identify key land owners in advance so that an appropriate settlement can be reached and no interruptions to the development of the project will occur. Land compensation will be required for mining areas, dumping areas and infrastructure construction. HDR Salva is not aware of any specific land compensation issues with the KIM concession at the current time that may affect this valuation. However, it is considered possible that delays to land compensation and associated interruptions to the project may occur in the future and that this may have a material impact on the value of the concession.

13.1.7 Environmental and Social Risks

While environmental and social risks have been identified and management plans are in place, it is possible that failure to comply with the environment criteria or failure to maintain good relationships with the local community will have an impact on project value. These risks are not considered to be greater for the KIM Project than for other operating coal mines operating in Indonesia.

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13.1.8 Operational and Mine Safety

The Company reportedly operates in accordance with applicable laws and currently acceptable industrial practices. In addition, it conducts its operations in a responsible manner with regard to occupational and mine safety.

The project is subject to Indonesian laws and regulations regarding occupational and mine safety, which means that there are potential liability risks. Coal producers who fail to comply with safety regulations will be subject to penalties, including fines and suspension of the mining permit for the mine.

The proposed coal mining operations will be subject to several operational risks such as contractor performance, poor mining practice which may increase strip ratio, equipment failure, accidents etc. These unforeseen events have the potential to result in being unable to meet production targets and it can potentially increase cost of production.

13.1.9 Operating and Capital Costs Estimates

Some of the operating cost items considered for economic assessment is not based on the quotes from the actual contractor and these may change. However, in HDR Salva’s opinion the upward escalation of these rates are unlikely in current circumstances. Since 2012, many contracts have been renegotiated at much lower rates and new contracts are more competitive. While HDR Salva has assumed unit rates that are considered to be sustainable for both contractors and mine owners in the long term, any occurrence of operating costs higher than the forecast costs would have a significant impact on the value of the KIM Project. To mitigate the risk associated with future price escalation, HDR Salva has allowed a suitable contingency in preparing the estimates.

Capital expenditure estimates are considered to be preliminary estimates based and is not based on detailed engineering design. These estimates depend on many factors and can be affected by a wide range of changing circumstances. These can vary from the worldwide demand for specific materials and components like steel, rubber, parts manufactured predominantly in certain parts of the world.

While the estimates are considered to be conservative, HDR Salva has factored a contingency of 15% to its capital estimate. Any increase in actual capital costs will have a significant impact on project value.

13.1.10 Political and Regulatory Risk

Since 2009, Indonesian mining has been governed by the Central Government’s “New Mining Law”, enacted to provide greater opportunity for the industry to expand to meet growing Asian demand. The Mining Law aimed to reflect the Government of Indonesia’s (GoI) desire to recognise the financial benefits of its own natural resources, by ensuring that the GoI had greater input into resource extraction. The major developments from the 2009 Mining Law have been the Domestic Market Obligation (DMO) and Export Benchmark Pricing (HBA).

Some future regulations may include a coal export tax or ban on certain qualities, stricter coal road transportation rules and alignment of IUP and CCOW royalty rates. The actual implementation of these new aspects of the law is still unclear and many holders of these contracts are currently in negotiation with the Indonesian government regarding this issue. Issues

891




likes DMO, Coal upgrading requirements, Export taxes, Minimum Pricing Regulations and Foreign Ownership Restriction of the new law may affect the valuation of the KIM concession.

In our view, the likelihood of these being implemented is minimal. The value-adding requirement for mineral exports in Indonesia, enacted on 1 January 2014, which has had broad implications for the metals sector, is not applicable to the coal sector and so has had no apparent effect on coal industry.

13.1.11 Coal Haulage on Public Road

The Jambi provincial government in conjunction with regency governments from Jambi’s major coal producing regions has agreed on a suspension of coal trucks using public roads, starting from 31 December 2012 (Jambi Province Regulation No 13 Year 2012). The provincial government is planning to construct an alternative route for coal trucks, in order to avoid resistance from coal producers in the area.

The Article 6, paragraph 1 and 2 of the Jambi Province Regulation number 13, year 2012, stipulates that “in the event Special Road (dedicated haul road) is yet to develop or still unavailable to be utilised then hauling may be allowed through specific public road”.

Although the interpretation of this regulation is little ambiguous in nature, the government is likely to continue allowing hauling by public road where a coal company is developing an own dedicated haul road. If haulage is not allowed while the dedicated road is being developed, then this will have significant impact on the project and the project may have to be put on care & maintenance (Valuation – low case).

13.2 Opportunities

There are a number of options that the KIM Project may consider to reduce expenses and improve overall cost economics. These have not been incorporated into this study as there is insufficient engineering design and confidence in the suitability, operational and capital costs for such options. Further investigation and technical work on these options is currently underway and may allow for their inclusion in future valuations. Potential opportunities for improvement include:

Additional uses of dozer push to dispose waste within the mined area itself. This could reduce excavation and haulage cost significantly;

Deployment of large sized excavators and trucks with matching size to improve productivity;

Dedicated trucks when dedicated haul road is commissioned;

Investigation for the construction of mine mouth power plants;

Detail Study to use Port Nilau to cater for export market; and

Use of selective mining techniques.

892




References Bloomberg Bond Yield, June 2014, [viewed 15 July 2014], <http://www.bloomberg.com/news/2014-01-07/indonesia-markets-dollar-bonds-at-yields-above-existing-notes.html>.

Indonesia Interbank Call Rate, June 2014, [viewed 15 July 2014], <http://www.tradingeconomics.com/indonesia/interbank-rate>.

PT SMG Consultants, “JORC Resource Statement, KIM Project, Prepared for United Fiber System Limited”, 21October 2013 PT SMG Consultants, “JORC Reserve Statement, KIM Project, Prepared for United Fiber System Limited”, 21October 2013

VALMIN, 2005. Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (VALMIN Code) Available from: https://www.ausimm.com.au/content/docs/valmin_2005.pdf [Accessed: 15 May 2014].

JORC, 2012. Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves – The JORC Code – 2012 Edition [online], The Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia. Available from: http://www.jorc.org/docs/jorc_code2012.pdf [Accessed: 15 May 2014].

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Appendix A – CVs Person Role

Manish Garg (Director - Consulting) / Partner

Qualification B. Eng. (Hons), MAppFin

Prof. Membership MAusIMM; MAICD

Contribution Overall Supervision, Valuation (VALMIN 2005)

Experience

Manish has more than 25 years’ experience in mining Industry. Manish have worked for mining majors including Vedanta, Pasminco, WMC Resources, Oceanagold, BHP Billiton - Illawarra Coal and Rio Tinto Coal. Manish has been in consulting roles for past 5 years predominately focusing on due diligence, valuations and M&A area. A trusted advisor, Manish has qualifications and wide experience in delivering due diligences, feasibility studies and project valuations for banks, financial investors and mining companies on global projects, some of these deals are valued at over US$5 billion.

Craig Williams (Principal Consultant - Geology)

Qualification B. Sc. (Hons), M.Sc. (Geology) Prof. Membership MAusIMM Contribution Resource (JORC 2012) Experience Craig is a geologist with 19 years’ experience in the mining industry. He has

worked at De Beers, Anglo Coal and Vale along with significant consulting experience. Craig’s experience covers mineral exploration, underground coal mine production, technical management, and resource estimation, together with due diligence, mineral audits and review, coal quality and exploration. To date, Craig has worked on over 30 coal projects around the world, inclusive of both thermal and coking coal, in the Bowen, Hunter, Surat, Galilee and Collie Basins of Australia, as well as in Africa, Madagascar, Mongolia and Indonesia.

Sunil Kumar (Principal Consultant - Mining)

Qualification B. Eng. (Mining) Prof. Membership MAusIMM Contribution Reserve (JORC 2012) Experience Sunil is a mining engineer with 25 years’ experience in the mining industry

across operations and consulting. His career spans 4 years in working in mining operations and about 21 years as a mining consultant primarily in the mine planning & design role which included estimation of coal reserves, DFS/FS, due diligence studies, techno-commercial evaluations and technical inputs for mining contracts. Prior to joining HDR Salva, Sunil was working as Principal Mining Engineer at Xstrata Coal. To date Sunil has worked on over 25 coal projects around the world, inclusive of thermal and coking coal projects in Australia, as well as in major coalfields in India, Indonesia, Mongolia and Mozambique.

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Appendix B: SGX Mainboard Appendix 7.5 Cross-referenced from Rules 705(7), 1207(21) and Practice Note 6.3

Summary of Mineral Reserves and Resources

Name of Asset / Country: Kuansing Inti Makmur / Indonesia

Category Mineral Type

Gross (100% Project) Net Attributable to GEMS Remarks

Tonnes (millions) Grade Tonnes

(millions) Grade

Reserves

Proved Coal 28 Subbituminous B 28 Subbituminous B

Probable Coal 8 Subbituminous B 8 Subbituminous B

Total Coal 36 Subbituminous B 36 Subbituminous B

Resources*

Measured Coal 115 Subbituminous B 115 Subbituminous B

Indicated Coal 60 Subbituminous B 60 Subbituminous B

Inferred Coal 85 Subbituminous B 85 Subbituminous B

Total Coal 260 Subbituminous B 260 Subbituminous B

* Mineral Resources are reported inclusive of the Mineral Reserves.

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Appendix C: Resource & Reserve Report

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Appendix C to the Independent Qualified Persons Report

Independent Resource & Reserve Report

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Independent Resource & Reserve Report Salva Resources Pty Ltd Level 11, 82 Eagle Street, Brisbane, QLD 4000, Australia PO Box 10791, Adelaide Street, Brisbane, QLD 4000, Australia Email: [email protected] Website: www.hdrinc.com

www.hdrsalva.com Phone: +61 (0) 7 3211 9911 Fax: +61 (0) 7 3221 5725

Effective Date: 31 July 2014

Independent Expert Person:

Manish Garg Director - Consulting / Partner HDR Salva

Subject Specialists:

Craig Williams Sunil Kumar Principal Consultant – Geology Principal Consultant – Mining HDR Salva- Brisbane Office HDR Salva- Brisbane Office

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Table of Contents Executive Summary ............................................................................................... 9

1 Introduction ................................................................................................. 13

1.1 Approach ...........................................................................................................13

1.2 Data sources .....................................................................................................14

1.3 Limitations .........................................................................................................14

1.4 Disclaimer and warranty ..................................................................................15

2 Independent Competent Persons and Experts Statement ....................... 16

2.1 Statement of Independence ...............................................................................16

3 Project Description ..................................................................................... 17

3.1 Property Description and Access ...................................................................17

3.2 Ownership and Concession ............................................................................19

4 Geology ....................................................................................................... 20

4.1 Regional Geology .............................................................................................20

4.2 Local Geology ...................................................................................................22

Coal Seams .............................................................................................23 4.2.1

4.3 Exploration ........................................................................................................24

Exploration History ...................................................................................24 4.3.1

5 Geological Data and QAQC ........................................................................ 25

5.1 Data Supplied ....................................................................................................25

5.2 Lithological Data ...............................................................................................25

5.3 Topographic Survey and base of weathering (BOW) ...................................26

5.4 Data Quality Assurance and Quality Control (QAQC) Measures .................26

Core Sampling ..........................................................................................26 5.4.1

Down-hole Geophysics and Seam Picks .................................................27 5.4.2

Coal Quality ..............................................................................................28 5.4.3

Data validation by HDR Salva prior to geological model construction .....28 5.4.4

5.5 Coal Density ......................................................................................................29

5.6 Coal Quality Data ..............................................................................................29

6 Resource Model Construction ................................................................... 32

Structural Model .......................................................................................32 6.1.1

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Structural Model Validation ......................................................................32 6.1.2

6.2 Coal Quality Model ...........................................................................................33

Quality Model Validation...........................................................................33 6.2.1

7 Coal Resources ........................................................................................... 34

7.1 Prospects for Eventual Economic Extraction and Resource Classification34

7.2 Coal Resource Statement ................................................................................35

7.3 Comparison with Previous Estimates ............................................................35

8 Reserve Estimation ..................................................................................... 36

8.1 Estimation Methodology ..................................................................................36

8.2 Modifying Factors .............................................................................................36

8.3 Notes on Modifying Factors ............................................................................37

Mining Factors ..........................................................................................37 8.3.1

Optimisation Result ..................................................................................38 8.3.2

Selection of Pit Shell ................................................................................39 8.3.3

Geotechnical Factors ...............................................................................40 8.3.4

Surface Water Management ....................................................................41 8.3.5

Mining Method & Operations ....................................................................41 8.3.6

Processing Factors & Product Quality .....................................................41 8.3.7

Mine Logistics Factors ..............................................................................42 8.3.8

Permits and Approvals .............................................................................43 8.3.9

Environment and Community Relations ...................................................44 8.3.10

Social Aspects ..........................................................................................45 8.3.11

Cost and Revenue Factors.......................................................................45 8.3.12

Marketing Factors .....................................................................................47 8.3.13

Product Quality .........................................................................................47 8.3.14

Other Factors ...........................................................................................48 8.3.15

8.4 Final Pit Design .................................................................................................48

Cut-off Parameters and Pit Limit ..............................................................49 8.4.1

Pit Design .................................................................................................49 8.4.2

Mining Schedule .......................................................................................52 8.4.3

8.5 Audits and Reviews ..........................................................................................53

8.6 Discussion of Relative Accuracy and Confidence ........................................54

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8.7 Reserves Classification ...................................................................................54

9 Statement of Coal Reserves ....................................................................... 56

10 JORC Table 1 .............................................................................................. 57

References ........................................................................................................... 58

Appendix A: CVs .................................................................................................. 59

Appendix B: JORC Table 1 .................................................................................. 60

Appendix C: Raw Coal Quality Histograms per Seam ...................................... 70

Appendix D: Cross-Sections ............................................................................... 73

List of Figures Figure 3:1 General Location Plan ........................................................................... 17

Figure 3:2 General Location Plan – Satellite Image ............................................... 18

Figure 3:3 IUP Boundary and Location of Individual Coal Blocks ........................... 18

Figure 4:1 Generalised Stratigraphy of the South Sumatra Basin........................... 21

Figure 4:2 Regional Geological Setting .................................................................. 22

Figure 4:3 Local geological map of the KIM concession area ................................. 23

Figure 8:1 Soil & Rock lithology – KIM Project ....................................................... 40

Figure 8:2 Geotech Recommendations .................................................................. 41

Figure 8:3 Current and Proposed Coal Logistics, KIM Project ................................ 43

Figure 8:4 Selected Optimiser Pit shell & Final Pit Design - KIM West ................... 50

Figure 8:5 Selected Optimiser Pit shell & Final Pit Design- KIM East ..................... 50

Figure 8:6 Final Pit Design - KIM West .................................................................. 51

Figure 8:7 Representative Cross Section- KIM West.............................................. 51

Figure 8:8 Representative Cross Section - KIM East.............................................. 52

Figure 8:10 KIM West Pit ....................................................................................... 53

Figure 8:11 KIM East Pit ........................................................................................ 53

Figure 8:12 Relationships between Mineral Resources & Ore Reserves ................ 55

List of Tables Table 4:1 KIM East - Seam Splitting Relationships ................................................ 24

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Table 4:2 KIM West - Seam Splitting Relationships ............................................... 24

Table 5:1 KIM East - Drill hole Coal Seam Intercept Statistics .............................. 26

Table 5:2 KIM West - Drill hole Coal Seam Intercept Statistics ............................. 26

Table 5:3 KIM East - Summary of Drill Hole Raw Coal Quality by Seam ................ 30

Table 5:4 KIM West - Summary of Drill hole raw coal quality by seam ................... 31

Table 6:1 Model Schema Settings and Parameters ............................................... 32

Table 6:2 Quality Model Parameters ...................................................................... 33

Table 7:1 Coal Resource Estimate for KIM Coal concession as at 31 July 2014 .... 35

Table 7:2 Coal Resources - Comparison with Previous Estimate ........................... 35

Table 8:1 Modifying & Mine Optimisation Factors .................................................. 36

Table 8:2 Contractor Unit Rates (Real Terms) ....................................................... 37

Table 8:3 Owner Unit Costs (Real Terms) .............................................................. 38

Table 8:4 Block wise Optimiser Base Pit limits ....................................................... 38

Table 8:5 Break-even Stripping Ratio (BESR) ........................................................ 39

Table 8:6 Average Unit Operating Cost (Real Terms) over Life of Mine ................. 46

Table 8:7 Capital Cost (Real Terms) ...................................................................... 47

Table 8:8 Product Coal Quality .............................................................................. 47

Table 8:9 Pit Design Parameters for KIM Project ................................................... 49

Table 8:10 Historical Production from KIM Mines ................................................... 52

Table 8:11 Production Reconciliation ..................................................................... 54

Table 9:1 ROM Coal Reserves for KIM Coal Concession as at 31 July 2014 ......... 56

Table 9:2 ROM Coal Reserves for KIM West as at 31 July 2014 ........................... 56

Table 9:3 ROM Coal Reserves for KIM East as at 31 July 2014 ............................ 56

Key abbreviations $ or USD United States Dollar Adb Air dried basis, a basis on which coal quality is measured AMSL Above Mean Sea Level AMDAL Analisis Mengenai Dampak Lingkungan Hidup- Environmental Impact

Assessment (EIA), which contains three sections, the ANDAL, the RKL and the RPL

ANDAL Analisis Dampak Lingkungan Hidup, component of the AMDAL that reports the significant environmental impacts of the proposed mining activity

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Ar As received basis ASR Average stripping ratio AusIMM Australasian Institute of Mining and Metallurgy Batter Slope of Advancing Mine Strip bcm bank cubic meter Cc Cubic Centimeter BD bulk density CCoW Coal Contract of Work CHPP Coal Handling and Processing Plant CV Calorific value Capex Capital Expenditure Coal Resource

A ‘Coal Resource’ is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, quality, and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, quality, continuity and other geological characteristics of a Coal Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling. Coal Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories.

Coal Reserve A ‘Coal Reserve’ is the economically mineable part of a Measured and/or Indicated Coal Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The reference point at which Reserves are defined, usually the point where the Coal is delivered to the processing plant, must be stated. It is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what is being reported.

DGMC Directorate General of Minerals and Coal FC Fixed Carbon gar gross as received, a basis on which coal quality is measured GEMS PT Golden Energy Mines Tbk gm Gram ha Hectare(s) HDR Salva Salva Resources Pty Ltd IM Inherent Moisture IPPKH ‘Izin Pinjam Pakai Kawasan Hutan’ which translates to a borrow to use

permit in a production forest IUP ‘Izin Usaha Pertambangan’ which translates to ‘Mining Business Licence’ JORC 2012 Edition of the Australasian Code for Reporting of Exploration Results,

Mineral Resources and Ore Reserves, Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia

k thousand kcal/kg Unit of energy (kilocalorie) per kilogram

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kg kilogram km Kilometers(s) km2 Square kilometre(s)

kt kilo tonne (one thousand tonne) L Litre m Meter lcm loose cubic metre LOM Life of Mine lcm lcm loose cubic metre M Million Mbcm Million bank cubic metres Mbcmpa Million bank cubic metres per annum MEMR Ministry of Energy and Mineral Resources within the central government m RL metres reduced level m3 cubic metre m/s metres per second Mt Millions of tonnes Mtpa Millions of tonnes per annum NAR Net as received Opex operating expenditure PKP2B ‘Perjanjian Kerjasama Pengusahaan Pertambangan Batubara’ – same as

CCoW RD Relative density RKL ‘Rencana Pengelolaan Lingkungan’ - environmental management plan ROM Run of Mine RKL Relative Level - survey reference for height of landforms above a datum

level RPL ‘Rencana Pemantauan Lingkungan’ - environmental monitoring plan SE Specific Energy SMGC PT SMGC Consultants SR Strip ratio (of waste to ROM coal) expressed as bcm per tonne t Tonne tkm Tonne kilometer tpa Tonnes per annum TM Total Moisture (%) TS Total Sulphur (%) United Fiber United Fiber System Limited VALMIN 2005 Edition of the Code for the Technical Assessment and Valuation of

Mineral and Petroleum Assets and Securities for Independent Expert Reports

VM VM Volatile Matter (%)

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Executive Summary United Fiber Systems Limited (“United Fiber” or “Client”) commissioned HDR Salva to prepare an independent estimate of Open Cut Coal Resources and Reserves for the PT Kuansing Inti Makmur coal deposits (“KIM”). HDR Salva understands that this report will be relied on by United Fiber as part of the proposed acquisition of PT Golden Energy Mines Tbk. The estimate of Coal Resources and Reserves as at the 31 July 2014 contained within this Report has been reported in compliance with the requirements of the reporting guidelines of the 2012 Editon of the Australasian Code for the Reporting of exploration results, Mineral Resources and Ore Reserves prepared by the Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australasian Institute of Geoscientists and Minerals Council of Australia (“The JORC Code”).

KIM (PT Kuansing Inti Makmur) Projects in Indonesia

The KIM Project is located in the Bungo Regency of Jambi Province on Sumatra Island, Indonesia. The KIM Project is located ~300 km to the South East of the Padang Port in West Sumatra. The KIM Project consists of 2 coal pits namely, KIM East Pit (“KIM East”) and KIM West Pit (“KIM West”). Conventional open-pit coal mining operations was commenced in the KIM East pit in 2007, which was followed by opening of the KIM West pit in 2010. Approximately 9 Mt of coal has already been mined from these pits until 31 July 2014.

Geology

The KIM concession area is found on the northern edge of the South Sumatra Basin. This basin was formed by back-arc extension and is filled with Eocene to Pliocene aged terrestrial and marine sediments. Two phases of coal seam accumulation are found within this sequence, the first is an older Oligocene phase related to fluvio-deltaic sedimentation (Talang Akar Formation) during initial rifting and deposition of a transgressive sedimentary sequence. After the mid-Miocene plate collision and commencement of subduction off the west Sumatra coast, a regressive sedimentary sequence commenced from mid-Miocene to Pliocene times. This resulted in a return to a fluvio-deltaic environment, from the previously dominant deep marine sedimentation. This gave rise to the Muara Enim Formation, the dominant coal bearing unit within the South Sumatra Basin.

Coals found within the KIM concession are however of Oligocene age and hence form part of the older phase of coal accumulation within the South Sumatra Basin. Seams within the concession are generally shallow to moderate dipping (less than 10 degrees in most of the area) to the north-northeast. The Oligocene coal bearing unit is unconformably overlain by ignimbrites of Miocene age, related to vulcanism within the basin, associated with to the onset of subduction.

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Resource

HDR Salva have estimated total Coal Resources of 260 million tonnes (Mt) on an in situ air dried moisture basis, to a maximum depth of 250 m. The total tonnes are comprised of 115 Mt of Measured, 60 Mt of Indicated and 85 Mt of Inferred category Resources.

Coal Resource Estimate for KIM Coal concession as at 31 July 2014

Coal Resources (Mt)

Pit Measured Ash% adb

CV adb

kcal/kg Indicated Ash%

adb

CV adb

kcal/kg Inferred Ash%

adb

CV adb

kcal/kg Total

KIM East 57 18.05 5,286 37 18.49 5,211 75 18.51 5,212 168

KIM West 58 16.72 5,445 23 17.51 5,340 10 15.73 5,228 91

Total 115 60 85 260 Mineral Resources are reported inclusive of the Mineral Reserves

Final Inferred Resource rounded to nearest 5 Mt (Note; individual totals may differ due to rounding)

Mining Method

Mining operation commenced in 2007 in KIM East and in 2010 in KIM West Pit. The mining operation in KIM Pits is an open pit mine using standard truck and excavator methods which are a common practice in Indonesia. Waste material is mined using hydraulic excavators and loaded into standard rear tipping off-highway trucks and hauled to dumps in close proximity to the pits or to in-pit dumps where possible. For the purpose of this Reserve Statement, it is proposed that contractors will continue to be used for mining and haulage operations over the life of mine, and the unit costs used for the Reserve estimate reflect this style of mining. The mining method can be described as a multi seam, moderate dip, open cut coal mine using truck and shovel equipment in a combination of strip and haul back operations.

Mining Modification factors – Resource to Reserve

This Coal Reserve estimate uses the most recent geological model and Coal Resources estimate prepared by HDR Salva as of 31 July 2014.

Potential open cut reserves inside different blocks of the Project Area were identified with pit optimisation software utilising the Lerchs Grossman algorithm. By generating the financial value (positive or negative) for each mining block within a deposit and then applying the physical relationship between the blocks, the optimal economic pit can be determined. The optimiser was run across a wide range of coal prices using a set of site specific costs (waste removal, land compensation, coal removal, haulage costs, etc.). These costs were adjusted to suit the conditions for this project.

An economic model was prepared for the mining operation from each of the KIM coal concessions to determine the project breakeven or incremental stripping ratio. The pit optimisation results were examined and pit shells selected where the incremental stripping ratios were less than or equal to break even strip ratio determined at a point where the costs for mining and handling the coal equalled the revenue generated by the coal.

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An independent life of mine plan was prepared based on the final pit design. This was developed to ensure that the proposed mining method would be practical and achievable and that the proposed dumping strategy would be able to contain the waste mined in the final pit design. The mining schedule targets production of 0.4 Mt in year 1 (2014), 2 Mt by year 4 (2017) and ramping up to 3 Mt from year 5 (2018) onwards.

The coal price estimate was based on HDR Salva’s view on the outlook for global thermal coal fundamentals and including the demand and supply outlook for the sector. Capital and operating costs were estimated by HDR Salva for the KIM project based on the existing contracts and HDR Salva in house knowledge database about Indonesian operations. These are considered to be reasonable and suitable for the purpose of this study. Capital requirement have been identified for the 90km dedicated haul road and land development for this project.

The KIM Mine is an operating mine since 2007 (KIM East pit commenced production in 2007 while the KIM West pit started in 2010). The KIM Mine is operated as single mining operation; even though the production from the Kim West pit has been temporarily suspended as part of normal operation control. It is planned to resume production from the KIM West pit by Q1, 2016.


Therefore, it is considered valid to use Modifying Factors from the operating KIM mine to satisfy clause 29 of the JORC Code. While JORC 2012 in not explicit with reference to operating mines, the guidance given in ASX FAQ no. 9 is considered relevant in this regard.

Further, HDR Salva has carried out independent life of Mine (LOM) Study to develop the mining schedule and its economic evaluation of the Mine.

Coal Reserves

Coal Reserves were calculated by applying appropriate modifying factors and exclusion criteria to the Coal Resources. Surface water management, infrastructure and the location of the IUP boundary were considered when determining the surface constraints for the mining operation. Coal Reserves were calculated by applying appropriate density adjustment and mining loss and dilution parameters to the Measured and Indicated Coal Resources inside the final pit design. All the final pits used for the Reserve estimate were designed following the existing geotechnical recommendations for the KIM Expansion area. In opinion of HDR Salva, the current geotechnical study for KIM Pits adequately covers for the type of lithology and hydrogeological issues.

Coal Reserves have been reported in Proved and Probable categories to reflect the reliability of the estimate. No Inferred Coal Resources are included in the reported Coal Reserves. The final coal Reserve for PT Kuansing Inti Makmur coal deposit (“KIM”) as of 31 July 2014 is 35.6 Mt comprising of 27.5 Mt Proved and 8.0 Mt Probable categories. No beneficiation of coal product is planned other than crushing to a nominal top size (50mm). ROM Coal Reserves for KIM coal deposit is presented along with the estimated quality in Table below.

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Coal Reserves Estimate for KIM Coal concession as at 31 July 2014

Pit Reserve (Mt) RD

TM arb %

IM adb %

Ash adb %

CV arb Kcal/kg

TS adb %

Proved Probable Total adb t/m3

KIM West 24.4 6.0 30.5 1.40 22.29 11.49 16.90 4,995 1.07 KIM East 3.1 2.0 5.1 1.39 23.05 11.91 16.67 4,967 1.18

Total 27.5 8.0 35.6 1.40 22.40 11.55 16.87 4,991 1.09 *This table must be presented with the entire JORC Reserve Statement of PT Kuansing Inti Makmur

Coal Resources are reported inclusive of Coal Reserves (that is, Coal Reserves are not additional to Coal Resources). The coal will be sold as a run of mine (ROM) product; hence Marketable Reserves will be equal to Coal Reserves.

There are a number of planning & operational issues which may impact on the stated mining reserves. These include:

detailed geotechnical studies to confirm the overall slope angles and other parameters in deeper pit area;

detailed hydrogeological studies to know the water flow gradient and dewatering arrangement;

more quality data as well as detailed drilling and updates to the geological model; land compensation issues; and changes in life of mine schedule, infrastructure constraints, coal transportation issues and

due to changes in marketing and costing during the mining operation.

These issues may cause the pit shell and mining quantities to change in future JORC code compliant Reserve Statements.

HDR Salva is not aware of any other environmental, legal, marketing, social or government factors which may hinder the economic extraction of the Coal Reserves other than those disclosed in this report.

This report may only be presented in its entirety. Parties wishing to publish or edit selected parts of the text, or use the Statement for public reporting, must obtain prior written approval from Salva and the signatories of this report.

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1 Introduction United Fiber System Limited (“United Fiber”) commissioned Salva Resources Pty Ltd (“HDR Salva”) to prepare an independent estimate (“Statement”) of the Coal Resources and Reserves for the Kuansing Inti Makmur coal deposit (“KIM”) located in the Bungo Regency of Jambi Province, Indonesia. HDR Salva understands that this report will be relied on within the United Fiber Independent Expert’s Report as part of the proposed acquisition of PT Golden Energy Mines Tbk by United Fiber. The purpose of this report is to provide an assessment of the Coal Resources and Reserves and report these in accordance with the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”, (the “JORC Code”) December 2012, prepared by the Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy (“AusIMM”), the Australasian Institute of Geoscientists (“AIG”) and Minerals Council of Australia.

1.1 Approach

The principal data used in the preparation of this report included:

A JORC Resource Report titled “JORC Resource Statement, KIM Project, 21st October 2013, Prepared for: United Fiber System Limited” by PT SMG Consultants;

PT Ground Risk management (GRM), “Engineering Report for KIM Mine Geo-technical Work East and West Expansion areas, Sumatera, Indonesia”; 28 February 2011;

Capex and Opex data supplied by GEMS (PT Golden Energy Mines Tbk) and also derived from HDR Salva’s cost database of typical Indonesian operations;

Resource Management International Pty Ltd (RMI), “Independent Coal Price Forecast Report for HDR Salva”, 10 September 2013;

Coal price outlook by HDR Salva’s in-house study ( Salva Report) on Indonesian thermal coal;

The following approach was undertaken by HDR Salva to estimate Coal Reserves:

HDR Salva has reviewed the geological data set provided by United Fiber for the coal block covered under scope of report;

Using the existing bore hole information provided to HDR Salva by United Fiber, a geological model was created using Minescape stratigraphic modelling software. While creating the model, a thickness cut off limit of 0.1m was applied and is termed as an “in situ” model;

This model and the underlying raw data such as Drill hole logs, coal quality reports and geophysical logs were reviewed by HDR Salva’s team of geologists headed by Mr Williams;

On the basis of confidence limits (as described in the Resource Classification Section), the in-situ geological model was then categorised into Measured, Indicated and Inferred categories according to the guidelines provided by the JORC Code (2012). Once these categories were ascertained, coal volume, tonnage and qualities were estimated;

Cross sections, plans and deposit characteristics such as structure, number and thickness of seams were examined in conjunction with the proposed equipment and mining method to decide on minimum mining thickness, coal losses and dilution factors. These factors were then used to convert the in situ geological model to a ROM model;

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Physical surface constraints were studied and consideration was made for surface water runoff and management, as well as the location of significant infrastructure and communities inside the potential mining area. Appropriate mining limits were then determined based on this data;

Indicative cost and revenue factors were reviewed with United Fiber and checked for reasonableness by HDR Salva. Optimiser software was used to incorporate other criteria such as depth constraints, geotechnical criteria and minimum mining thickness. In this way a series of different pit shells were derived for varying cost and revenue inputs;

Optimised Pit Shell selected where the incremental stripping ratio were less than or equal to break even strip ratio and minor adjustments made (as necessary) to form a practical pit design (Mineable Pit Shell). This pit shell formed the basis of the subsequent reserves estimate;

The Measured and Indicated confidence limits were overlaid on the main pit shell and any Inferred tonnes were excluded from the estimate;

Based on Resource confidence and present mine planning detail, the reserves were categorised into Proved and Probable categories;

All of the modifying factors and checks adopted to ascertain the estimate have been provided in the respective section of this report.

1.2 Data sources

This review is based on the information provided by GEMS, the technical reports of consultants and previous explorers, as well as other published and unpublished data relevant to the area. HDR Salva has carried out, to a limited extent, its own independent assessment of the quality of the geological data. The status of agreements, royalties or concession standing pertaining to the assets was investigated by an independent solicitor Lasutlay& Pane Advocates and HDR Salva has relied on the independent enquiry conducted by them.

In developing our assumptions for this Statement, HDR Salva has relied upon information provided by the company and information available in the public domain. Key sources are outlined in this Report and all data included in the preparation of this Report has been detailed in the references section of this report. HDR Salva has accepted all information supplied to it in good faith as being true, accurate and complete, after having made due enquiry as of July 2014.

1.3 Limitations

After due enquiry in accordance with the scope of work and subject to the limitations of the Report hereunder, HDR Salva confirms that:

The input, handling, computation and output of the geological data and Coal Resource and Reserve information has been conducted in a professional and accurate manner, to the high standards commonly expected within the mining professions;

The interpretation, estimation and reporting of the Coal Reserve Statement has been conducted in a professional and competent manner, to the high standards commonly expected within the Geosciences and mining professions, and in accordance with the principles and definitions of the JORC Code (2012);

In conducting this assessment, HDR Salva has addressed and assessed all activities and technical matters that might reasonably be considered relevant and material to such an assessment conducted to internationally accepted standards. Based on observations

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and a review of available documentation, HDR Salva has, after reasonable enquiry, been satisfied that there are no other relevant material issues outstanding;

The conclusions presented in this report are professional opinions based solely upon HDR Salva’s interpretations of the documentation received and other available information, as referenced in this Report. These conclusions are intended exclusively for the purposes stated herein;

For these reasons, prospective investors must make their own assumptions and their own assessments of the subject matter of this Report.

Opinions presented in this report apply to the conditions and features as noted in the documentation, and those reasonably foreseeable. These opinions cannot necessarily apply to conditions and features that may arise after the date of this report, about which HDR Salva have had no prior knowledge nor had the opportunity to evaluate.

1.4 Disclaimer and warranty

This Report was commissioned by United Fiber on a fee-for-service basis according to HDR Salva’s schedule of rates. HDR Salva’s fee is not contingent on the outcome of its Statement or the success or failure for the purpose for which the report was prepared. Neither Mr. Craig Williams, Mr. Sunil Kumar nor any of the HDR Salva’s partners (including Mr. Garg), directors, substantial shareholders and their associates have (or had) a pecuniary or beneficial interest in/or association with any of the United Fiber, GEMS or their directors, substantial shareholders, subsidiaries, associated companies, advisors and their associates prior to or during the preparation of this report.

Mr. Craig Williams, Mr. Sunil Kumar, HDR Salva’s partners (including Mr. Garg), directors, substantial shareholders and their associates are independent of United Fiber, GEMS, its directors, substantial shareholders, advisers and their associates.

A draft version of this Statement was provided to the directors of United Fiber for comment in respect of omissions and factual accuracy. As recommended in Section 39 of the VALMIN Code, United Fiber has provided HDR Salva with an indemnity under which HDR Salva is to be compensated for any liability and/or any additional work or expenditure, which:

Results from HDR Salva’s reliance on information provided by United Fiber and/or Independent consultants that is materially inaccurate or incomplete, or

Relates to any consequential extension of workload through queries, questions or public hearings arising from this report.

The conclusions expressed in this Statement are appropriate as at July 2014. The report is only appropriate for this date and may change in time in response to variations in economic, market, legal or political factors, in addition to ongoing exploration results. All monetary values outlined in this report are expressed in United States dollars ($) unless otherwise stated. HDR Salva services exclude any commentary on the fairness or reasonableness of any consideration in relation to this acquisition.

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2 Independent Competent Persons and Experts Statement This Resource and Reserve report has been written following the guidelines contained within the 2005 Edition of the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Experts Reports (“the VALMIN Code”) and the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“the JORC Code”). It has been prepared under the supervision of Mr Manish Garg (Director – Consulting / Partner, HDR Salva) who takes overall responsibility for the report and is an Independent Expert as defined by the VALMIN Code.

Sections of the report which pertain to Coal Resources have been prepared by Mr Craig Williams (Principal Consultant, HDR Salva) who is a subject specialist and a Competent Person as defined by the JORC Code. Sections of the report which pertain to Coal Reserves have been prepared by Mr Sunil Kumar (Principal Consultant, HDR Salva) who is a subject specialist and a Competent Person as defined by the JORC Code.

This report was prepared on behalf of HDR Salva by the signatory to this report, assisted by the subject specialists’ competent persons whose qualifications and experience are set out in Appendix A of this report.

Mr. Manish Garg Director – Consulting / Partner HDR Salva

2.1 Statement of Independence

This Report was commissioned by United Fiber on a fee-for-service basis according to HDR Salva’s schedule of rates. HDR Salva’s fee is not contingent on the outcome of this report. The above mentioned person(s) have no interest whatsoever in the mining assets reviewed and will gain no reward for the provision of this report.

Mr. Craig Williams, Mr. Sunil Kumar, HDR Salva’s partners (including Mr. Garg), directors, substantial shareholders and their associates are independent of United Fiber, GEMS, its directors, substantial shareholders, advisers and their associates.

Neither Mr. Craig Williams, Mr. Sunil Kumar nor any of the HDR Salva’s partners (including Mr. Garg), directors, substantial shareholders and their associates have (or had) a pecuniary or beneficial interest in/or association with any of the United Fiber, GEMS or their directors, substantial shareholders, subsidiaries, associated companies, advisors and their associates prior to or during the preparation of this report.

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3 Project Description 3.1 Property Description and Access

The KIM Project is located in the Bungo Regency of Jambi Province on Sumatra Island, Indonesia (Figure 3:1 and Figure 3:2). The KIM Project is located ~300 km to the South East of the Padang Port in West Sumatra. Access to the site is via a 2 hour plane flight from Jakarta to Padang followed by a either an 6 hour car journey or via a 1.5 hour plane flight from Jakarta to Jambi followed by a 7 hour car trip.

The tenure for the KIM Project is covered by 8 Izin Usaha Pertambangan Produksi (“IUP Production”) and covers a 2,610 ha area of coal concession. The KIM project consists of following 2 coal Pits:

• KIM East Pit (“KIM East Pit” or “KIM East Block”);

• KIM West Pit (“KIM West Pit” or KIM West Blcok”).

Conventional open-pit coal mining operations was commenced in the KIM East pit in 2007, which was followed by opening of the KIM West pit in 2010. Approximately 9 Mt of coal has already been mined from these pits until 31 July 2014.

Figure 3:1 General Location Plan

KIM Project

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Figure 3:2 General Location Plan – Satellite Image

Figure 3:3 IUP Boundary and Location of Individual Coal Blocks

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3.2 Ownership and Concession

Eight (8) of the IUPs with a total area of 2,610 ha are owned directly and in-directly by subsidiaries of GEMS. Tenure at the KIM concession is held under the ‘Izin Usaha Pertambangan’ which translates to ‘Mining Business License’ (IUP) system of ownership. The ownership details of these IUPs are given in Table 3:1 below.

Table 3:1 KIM Concession Details

Company IUP Number Area (ha) Granted Expiry

PT Bungo Bara Utama 341/DESDMTAHUN 2009 1,301 9-Jul-09 20 years

PT Bungo Bara Utama 250/DESDM TAHUN 2010 199 23-Apr-10 8 years

PT Bara Barmonis Batang Asam 247/DESDM TAHUN 2010 172 23-Apr-10 6 years

PT Karya Cemerlang Persada 350/DESDM TAHUN 2009 143 22-Jul-09 10 years

PT Tanjung Belit Bara Utama 249/DESDM TAHUN 2010 198 23-Apr-10 8 years

PT Kuansing Inti Makmur 252/DESDM TAHUN 2010 199 23-Apr-10 8 years

PT Kuansing Inti Makmur 166/DESDM TAHUN 2012 199 5-Apr-12 10 years

PT Berkat usantara Permai 545/DESDM TAHUN 2010 199 15-Dec-10 10 years

All IUP’s have a provision for 2 x 10 years extensions.

A possible issue with tenure for the project is that there are a number of gaps between the IUPs that cover the project area. The gaps are for a maximum of 150 m in width (Figure 3:3). HDR Salva has been informed that no other party holds tenure over the land in these gaps and that application is currently underway to change the coordinates of the current IUPs to ensure that there is no gap between them. This type of issue is not uncommon in Indonesia and there is no known reason why it could not be resolved. HDR Salva is not aware of any disruptions to operations at the KIM project that have occurred due to this issue. All of the land inside the KIM project area is designated ‘Area Pengunaan Lain’ (Other Purpose) by the Forestry Department, and thus no borrow to use permit (Izin Pinjam Pakai Kawasan Hutan) is required for mining operations in this area. GEMS informed HDR Salva that permits are in place for the current operation. These permits will need to be maintained in order to continue mining operations within the KIM project. HDR Salva is not aware of any reason why it will not be possible to maintain these permits.

HDR Salva makes no warranty or representation to United Fiber or third parties (express or implied) in regard to the validity of the IUP and documentation and this Reserve Statement does not constitute a legal due diligence of the concession. HDR Salva has relied on its independent verification by LasutLay and Pane Advocates in Indonesia (“LLP”).

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4 Geology 4.1 Regional Geology

The KIM concession area is found on the northern edge of the South Sumatra Basin (Figure 4:2). The South Sumatra Basin was formed due to back-arc extension which began in the late Paleocene. This extension resulted in an approximately north trending graben structure which is filled with an Eocene to mid-Miocene age transgressive sedimentary sequence culminating in the deep water sediments of the Gumai Shales in the mid-Miocene. This was followed by the mid- Miocene orogenic event, resulting from the collision of the Sunda Shelf plate with the Indo-Australian plate, which resulted in a subduction zone forming off the west coast of Sumatra and gave raise to the orogenic uplift of older pre-tertiary rocks to form the Barisan Mountains during late Miocene time. This mid-Miocene plate collision marked the transition form extension tectonics and a transgressive sedimentary sequence to compression tectonics and a transition back to shallow water terrestrial sedimentation (regressive sequence). The onset of the regressive phase of sedimentation is marked by the Air Benekat Formation (Figure 4:1)

The following is a general description of the main Eocene to Pliocene age sedimentary units recognised across the South Sumatra basin, from oldest to youngest;

The Lahat Formation is comprised of brown to grey shales interbedded with tuffaceous shales and siltstones. These sediments rest unconformably on the pre-Tertiary basement. The thickness of this formation is strongly controlled by the basement topography and this formation is not developed around some pre-Tertiary basement highs.

The Oligocene age Talang Akar Formation is comprised of thickly bedded sandstones alternating with thin shale bands and coal seams in places. This sedimentary unit is of terrestrial fluviatile origin, grading into a deltaic environment.

The Baturaja Formation is only locally developed and consists of a lower bedded unit and an upper massive unit. The bedded unit consists of lime mudstones and lime wackstones, intercalated with marls, whilst the massive unit consists of mudstones, wackstones/packstones and boundstones.

The Gumai Formation is one of the most widely occurring units seen in the basin and is comprised of deep water marine shales with minor interbeds of limestone and sandstone.

The transition from deep water marine sedimentation to a regressive sequence is marked by the Air Benekat Formation which consists of shales and glauconitic sandstones.

The middle to late Miocene aged Muara Enim Formation conformably overlies the Gumai Formation, the transition marked by the top of the last marine shale layer. The Muara Enim Formation consists of interbedded sandstones, claystones and coal seams. The majority of the coal mined from the South Sumatra Basin is derived from this unit; however these coals are younger than the Oligocene aged coal seams seen within the KIM concession area.

The Kasai Formation conformably overlies the Muara Enim Formation and consists of bedded tuffaceous sands and gravels, occasionally interbedded with minor coal seams.

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Figure 4:1 Generalised Stratigraphy of the South Sumatra Basin

After Tamtomo (1997)

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Figure 4:2 Regional Geological Setting

(After Bishop, 2001)

4.2 Local Geology

The local geology of the area is comprised of a Miocene aged ignimbrite unit (Tmr) which unconformably overlies the Oligocene aged coal bearing sediments belonging to the Sinamar Formation (Tos) Figure 4:3. The Sinamar Formation is of equivalent age and sedimentary setting to the Oligocene Talang Akar Formation, seen elsewhere in the basin. The ignimbrite unit varies in thickness between 50 m and 60 m and appears to have been deposited on an erosive paleo-surface which has been incised into the coal bearing sediments of the Sinamar Formation

KIM Concession

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Figure 4:3 Local geological map of the KIM concession area

.

Coal Seams 4.2.1

The coal bearing sediments dip gently (less than 10 degrees) to the north-northeast. The area appears to be structurally relatively benign, with no evidence of significant displacement of the coal seams in the area. The splitting relationships for the coal seams identified within the concession are shown below in Table 4:1 and Table 4:2.

The S100U and S100L seams are present throughout and the parent seam (S100) has not been logged in any of the drill holes in the KIM concession. The interburden between these seams ranges from 0.1 m to 0.9 m and averages 0.5 m. The S100U seam ranges from 0.03 to 2.9 m and S100L seam ranges from 0.20 m to 2.0 m in thickness. The S200U and S200L seams exist at 1.4 m to 17.4 m (mean interburden – 5.6 m) below the overlying S100L seam. The S200U seam ranges from 0.09 m to 2.35 m and the S200L seam ranges from 0.2 to 2.9 m in thickness. The parent seam (S200) is present in places, where it ranges in thickness from 0.38 m to 4.6m in thickness.

The S300 seam exists approximately 14 m below the S200L seam. The S300 parent seam has not been modelled in the KIM concession, only it’s two recognised plies the S300U and the S300L seams, however there are areas where the interburden between these two plies is zero, which effectively means that this is the parent seam in such instances. The interburden between the two S300 plies ranges from 0.0 m to 6.9 m with an average interburden of 0.9 m at KIM East and 1.3 m at KIM East.

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The S300 plies mean thickness varies between the KIM East and KIM West concession areas. In KIM East S300U has a mean thickness of 5.0 m and 9.0 m in the KIM West concession. The S300L has a mean thickness of 1.1 m at KIM East and 2.1 m at KIM West.

Table 4:1 KIM East - Seam Splitting Relationships Master Seam 1st phase Splitting

S100 S100U S100L

S200 S200U S200L

S300 S300U S300L

Table 4:2 KIM West - Seam Splitting Relationships

Master Seam 1st phase Splitting

S100 S100U S100L

S200 S200U S200L

S300 S300U S300L

4.3 Exploration

Exploration History 4.3.1

The geology of South Sumatra has been studied by various authors, particularly deep stratigraphic profiles in the search for oil reservoirs. In the local area there are no documented records of previous exploration for coal. There are previous unpublished reports that have been viewed. This area was reviewed by PT SMG Consultants in October, 2010 and in October 2012 to determine what Resources may be contained in the area and what additional drilling was necessary to raise the Resource confidence.

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5 Geological Data and QAQC 5.1 Data Supplied

The geological data provided by GEMS for the KIM concession area was independently reviewed by HDR Salva’s geologists and is considered appropriate and reasonable for the purpose of estimating Coal Resources.

This data, used by HDR Salva for the purpose of resource estimation, includes but is not limited to:

Drill hole collar information inclusive of total depth drilled per hole;

Drill hole lithological data inclusive of seam picks identified and correlated on the basis of down-hole geophysics;

Coal sample table and associated raw coal qualities per sample;

Drill hole completion reports for most of the holes drilled containing details of core recoveries achieved;

Scanned copies of original laboratory analysis reports of coal quality for samples analysed;

Down-hole geophysical data in the form of both LAS files and Minex drill hole databases;

Minex geological models for the KIM EAST, and KIM WEST areas constructed by PT SMG Consultants in mid - 2013, which contains a complete drill hole database as well has grids of seam roofs, floors, the topographic surface and the base of the weathered horizon surface.

5.2 Lithological Data

A total of 428 drill holes were used to construct five geological models in the KIM East and KIM West coal concession area comprising:

• KIM East - 270 drill holes;

• KIM West - 95 drill holes.

Of these holes, a small percentage are barren, i.e. no coal intersected; this is due to drill-rig limitations (maximum 60 m depth). Barren holes are never the less useful for geological modelling purposes as they prevent coal from being modelled where it is not present. In other cases no seam picks were supplied for a number of holes. In these instances the hole is marked as ‘not logged’ and the model is allowed to project seams through these holes if warranted by surrounding holes.

Approximately 77% of the drillholes used in the structural model have been logged using down-hole geophysics. Down-hole geophysical data acquired by GEMS is predominantly comprised of gamma, density and calliper logs and has allowed for accurate identification of coal seams in each hole (seam picks) and the correlation of coal seams between holes.

Drill hole locations for the two resource areas can be seen in Appendix E and coal intercept statistics for the two resource areas can be seen in Table 5:1 and Table 5:2.

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Table 5:1 KIM East - Drill hole Coal Seam Intercept Statistics

Interval Number Minimum Maximum Mean S.D.

Hole no. Thickness Hole no. Thickness Thickness

S100U 88 KEN_81 0.03 CW_A06 2.9 0.757 0.359 S100L 85 GAD_025 0.2 BBU_10 1.5 0.812 0.276 S200U 68 KEN_85 0.09 KECS_44 2.1 0.864 0.488 S200L 70 CW_08R 0.2 CW_E03R 1.3 0.577 0.225 S300U 187 KEN_68R 0.42 KEN_08 8.95 5.001 1.572 S300L 155 CW_06R 0.4 CW_K01R 3.3 1.147 0.286 S200 43 KEN_28 0.38 CW_A10 2.4 1.635 0.533

Table 5:2 KIM West - Drill hole Coal Seam Intercept Statistics

Interval Number Minimum Maximum Mean S.D.

Hole no. Thickness Hole no. Thickness Thickness

S100U 46 KWN_29 0.16 KWN_28 1.97 0.843 0.317 S100L 47 KWN_20 0.31 KWN_24 2.03 1.313 0.416 S200U 24 KWN_50R 0.19 CTBBU_21RR 2.35 1.509 0.516 S200L 25 CTB_05 0.46 KWN_18 2.88 1.174 0.726 S300U 77 CTB_18 2.9 GT_06 11.45 9.012 1.44 S300L 78 CTB_18 0.4 RTB_03 3.5 2.119 0.689 S200 28 CTBBU_09 1.5 CTBBU_20R 4.6 2.84 0.726

5.3 Topographic Survey and base of weathering (BOW)

Topography data used in the two KIM geological models has been derived from Light Detecting and Ranging (LIDAR) remote sensing surveys conducted. During this survey GPS ground control points were combined with flight trajectories and LIDAR scanning equipment to produce an accurate dataset of XYZ topographic coordinate points for the KIM East and KIM West area.

A ‘non-conformable’ base of weathering (BOW) surface was generated for the geological models by translating the topographic surface down by 4 m in the Z direction. This is based on the observation that the average weathered horizon thickness, where it has been logged, is approximately 4 m.

5.4 Data Quality Assurance and Quality Control (QAQC) Measures

Core Sampling 5.4.1

At the completion of each run, core lengths were checked in the splits for recovery to ensure coal seams have been recovered as required. A target core recovery of 90% has been applied throughout all drilling phases. If core recovery was found to be less than 90% within the coal seam, the hole was re-drilled to collect a sample with 90% recovery. The core was also photographed routinely and logged in the splits by a geologist before being sampled. For open holes, chip samples were collected at 1 m intervals for lithological logging purposes.

Sampling of the coal seams was conducted by the rig geologist on duty and was conducted in accordance with the following sampling procedure supplied to rig geologists:

• Open core barrel inner split tube and remove sample from the barrel;

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• Transfer the core to the PVC split or core box;

• Determine the core depth (“From” and “To”) from the drill depth;

• Reconstruct the core in the split to allow for any gaps;

• Determine the core recovery;

• Wash down using water and a cloth and/or brush prior to logging if covered by mud or oil;

• Complete geological logging and photograph structure or any abnormal features. The photograph should show information of drill hole number and from and to depths;

• The division of samples follows the simple scheme of sample all coal, sample separately any contained bands (plies) and take 10 cm roof and floor non-coal samples;

• Place samples into plastic bags which should be doubled to minimise moisture loss. Insert one bag inside another so that they are doubled;

• Label the sample by ID card, the label should give information about the sample number, hole number, from/to depth, and Project Code. Place the label ID card inside the small re-sealable plastic bag before putting it into the sample bag;

• Seal the sample bag with tape and write the sample number on the plastic bag; and

• Dispatch sample to an accredited laboratory.

The coal quality sampling technique detailed above is considered by HDR Salva to adequately address the QAQC requirements of coal sampling. As a further coal quality validation step prior to importing coal quality sample results for coal quality modelling purposes, HDR Salva constructed spreadsheets which compare the sampled intervals against the logged seam intervals in order to ensure that sampled intervals match the seam pick intervals.

Down-hole Geophysics and Seam Picks 5.4.2

Down-hole geophysical logs were completed during each drilling program by PT Surtech Indonesia. Geophysical logging was conducted following the completion of a drill hole. After drilling is complete the logging unit deploys down-hole geophysical sondes, including gamma ray, calliper and density tools to assist with characterising the down-hole formation and its geological properties. Stratigraphic information, intercepted along the entire length of the drill hole (collar to total depth), is recorded and plotted in acrobat pdf format. A digital copy of the data is stored in LAS file format.

Logging was performed on the majority of drill holes (including cored and open holes) and all these holes have geophysical data. Seam picks and lithologies have all been corrected for geophysics.

Geophysical logging provides information on the coal seams intersected and aids in the definition of horizon boundaries and marker horizons, used to correlate the subsurface geology. The presence or absence of geophysical logging is one of the criteria used in the determination of points of observation for resource classification purposes. Under normal conditions coal-bearing sections of each drill hole were geophysically logged at the completion of drilling. In some instances, poor ground conditions restricted the ability to geophysically log the entire hole upon completion. In these cases, collapsed portions of holes were re-drilled in order to allow for density

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and gamma logging to be accomplished by lowering the geophysical probe through the drill string.

Coal Quality 5.4.3

Coal quality sampling was undertaken by GEMS and contract geologists, with the analysis testing being completed by PT Geoservices Coal Laboratories in Padang. PT Geoservices laboratories are accredited to ISO 17025 standards and quality control is maintained by daily analysis of standard samples and by participation in regular "round robin" testing programs.

American Society for Testing and Materials (ASTM) methods has been used for all quality variables. Reporting was done on an air dried and as received basis

The following tests were undertaken as standard on all coal samples:

• Total Moisture (as received basis only);

• Inherent Moisture (IM);

• Ash Content (Ash);

• Volatile Matter (VM);

• Fixed Carbon (FC);

• Total Sulphur (TS);

• Calorific Value-air dried basis (CV adb); and

• Relative Density (RD).

Data validation by HDR Salva prior to geological model construction 5.4.4

Prior to using the lithological (seam pick) and coal quality data for geological model construction purposes, HDR Salva performed the following data validation and verification checks on the data;

Checking of seam picks against the down-hole geophysics in selected instances in order to validate seam pinch outs or correlations during structural model construction;

Validation of coal quality sample intervals against seam pick intervals;

Scatter plots of raw coal quality data pairs were constructed in order to determine outliers. In a few cases spurious data values were identified and removed from the quality data set prior to importing the data into Minescape;

In cases where RD (adb) data was not determined for a sample, linear regression equations determined from the RD-ash scatter plot constructed from the rest of the raw coal quality data set were used to determine the RD value for the sample concerned from the ash value for that sample;

Core recovery percentages per core run were compiled and merged with the coal quality sample data set in order to determine if any samples in the coal quality data set are from coal seam intersections with less than 90% core recovery over the seam width. No instances of this were identified as core recovery was observed to be generally good within the coal horizon itself although less than 90% recovery is often seen in the immediate roof or floor to the coal seam.

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After compositing the coal quality samples over the seam width on a seam by seam basis, histograms were constructed of the composited raw coal quality for each seam, in each of the two resource areas (Appendix D). Analysis of these histograms shows that in a few instances, raw ash% outliers are present as a result of excessive overlap of the coal quality sample into the seam roof or floor. In all but one such instance, the proportion of outlier composite samples is very small compared to the total number of samples per seam and hence the presence of these outliers has no material impact on the modelled raw coal quality for affected seams. In the case of S200U for KIM West, the low number of samples for this minor seam has resulted in the fact that the single outlier sample has affected the overall coal quality estimate for this seam (biased to the high ash side). However this seam represents around 5% of the total resource, of which the majority is inferred. Therefore this is not considered to have a material impact on the coal quality of the KIM West resource as a whole.

5.5 Coal Density

No information on in situ moisture was requested or obtained from the laboratory, resulting in the fact that the Preston and Sanders equation could not be applied to obtain in situ relative densities. As a result all resource tonnages are quoted on an air dried density basis. as volumes are calculated on an in situ basis and density on an air dried basis. However the density of in situ coal is in reality not at an air dried basis but at a higher moisture in situ moisture basis. The estimate of resources on an air dried basis will therefore result in a higher tonnage as compared to the equivalent in situ moisture basis calculation. This effect has been accounted for to a large extent in the reserving process, where the total moisture as been used as proxy for the in-situ moisture and a Preston Sanders calculation has been made on this basis. However, given the unknown accuracy of this approximation, this calculation was not done at the resource stage, preferring rather to use the more accurately known air dried density and state the moisture basis used in the resource.

5.6 Coal Quality Data

Raw coal quality composite sample statistics for all seams in each resource area are given in Table 5:3 and Table 5:4. The coal quality in the KIM concession area can be summarised as moderate total moisture and moderate ash. The KIM East mean Calorific Value (adb) is 4,978 kcal/kg and has high sulphur. The KIM West mean Calorific Value (adb) is 5,161 kcal/kg and has low sulphur coal.

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Table 5:3 KIM East - Summary of Drill Hole Raw Coal Quality by Seam SEAM ASH % adb CV adb FC % adb IM % adb RD adb TM % ar TS % adb VM % adb

S100U

Number of Values 10 10 10 10 10 10 10 10

Min Value 15.4 2,353 13.0 6.9 1.4 14.8 1.3 27.5

Max Value 47.0 5,628 35.1 14.9 1.9 28.0 3.8 39.4

Mean 25.7 4,557 28.6 11.1 1.5 22.5 2.4 34.5

S100L

Number of Values 18 18 18 18 18 18 18 18

Min Value 13.2 2,943 16.4 5.9 1.4 10.1 0.8 25.0

Max Value 48.0 5,535 34.6 16.0 1.7 32.7 3.6 45.9

Mean 26.5 4,730 26.4 11.2 1.5 21.8 2.3 35.9

S200U

Number of Values 18 20 18 20 20 18 18 18 Min Value 6.9 4,334 16.1 9.5 1.3 18.6 1.1 30.7 Max Value 34.1 5,948 40.5 20.5 1.5 37.2 3.5 44.0

Mean 17.5 5,112 34.3 13.4 1.4 28.2 2.1 35.1

S200

Number of Values 22 22 22 22 22 22 22 22

Min Value 6.7 3,746 26.4 9.2 1.3 19.5 0.5 25.6

Max Value 38.8 5,622 41.5 18.6 1.5 32.0 2.7 38.7

Mean 17.0 5,036 35.2 13.8 1.4 26.3 1.8 33.9

S200L

Number of Values 18 20 18 20 20 18 18 18

Min Value 5.7 4,007 16.1 10.0 1.3 18.6 0.5 30.6

Max Value 34.1 5,978 45.3 18.8 1.5 35.8 2.8 39.8

Mean 16.1 5,100 34.7 14.3 1.4 29.0 1.7 34.8

S300U

Number of Values 116 116 116 116 116 116 116 116

Min Value 6.0 4,369 19.4 7.5 1.3 15.6 0.6 27.2

Max Value 30.4 6,398 43.2 18.4 1.5 32.3 2.1 51.1

Mean 15.9 5,554 31.1 11.7 1.4 23.4 1.2 41.3

S300L

Number of Values 97 97 97 97 97 97 97 97

Min Value 9.0 1,680 8.2 7.2 1.3 15.4 0.3 27.0

Max Value 57.8 5,932 43.7 20.5 2.0 34.0 0.9 47.3

Mean 22.0 4,759 33.0 12.8 1.5 26.2 0.5 32.2

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Table 5:4 KIM West - Summary of Drill hole raw coal quality by seam

SEAM ASH % adb CV adb FC % adb IM % adb RD adb TM % ar TS % adb VM % adb

S100U

Number of Values 10 10 10 10 10 10 10 10

Min Value 11.0 3,230 21.5 8.6 1.4 17.1 2.0 21.6

Max Value 45.8 5,694 39.6 15.1 1.7 28.7 3.8 37.9

Mean 21.4 4,939 33.0 11.6 1.5 21.6 2.9 34.0

S100L

Number of Values 17 17 17 17 17 17 17 17

Min Value 15.5 3,607 15.6 5.8 1.4 7.8 1.1 32.4

Max Value 35.2 5,551 38.5 13.3 1.6 24.9 3.0 46.6

Mean 27.3 4,807 26.5 9.4 1.5 18.5 2.0 36.7

S200U

Number of Values 9 9 9 9 9 9 9 9 Min Value 6.0 4,306 11.2 10.6 1.3 13.9 1.1 17.1 Max Value 65.5 5,903 45.3 18.7 1.6 28.8 2.8 38.2

Mean 16.8 5,282 36.3 14.7 1.4 24.6 1.7 32.7

S200

Number of Values 20 20 20 20 20 20 20 20

Min Value 7.1 4,588 33.2 9.7 1.3 22.4 1.0 30.0

Max Value 25.1 5,741 42.1 18.5 1.5 31.0 1.7 37.6

Mean 13.9 5,337 38.3 13.4 1.4 27.0 1.3 34.4

S200L

Number of Values 9 10 9 10 10 9 9 9

Min Value 2.8 4,902 33.0 11.3 1.3 22.1 0.6 31.5

Max Value 19.9 5,798 46.5 18.7 1.4 28.5 1.7 35.8

Mean 11.4 5,350 39.2 15.2 1.4 25.4 1.1 33.8

S300U

Number of Values 55 55 55 55 55 55 55 55

Min Value 9.7 5,303 29.3 9.6 1.3 18.3 0.4 36.0

Max Value 18.1 6,016 40.9 14.9 1.4 27.8 1.8 43.7

Mean 13.1 5,760 33.5 12.1 1.4 21.8 1.0 41.3

S300L

Number of Values 53 53 53 53 53 53 53 53

Min Value 11.0 3,692 23.4 7.9 1.4 18.8 0.3 27.1

Max Value 38.0 5,780 41.3 16.6 1.6 25.9 3.8 40.7

Mean 24.9 4,654 31.4 11.7 1.5 22.5 0.5 32.1

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6 Resource Model Construction Structural Model 6.1.1

After completion of the previously detailed QA/QC processes, the available valid lithological and coal quality data was then imported into the MineScape software (Version 5.7) to generate both a structural model and a coal quality model for each of the two resource areas.

The topographic model for each deposit was constructed by importing the Minex topography grid models for each area used previously by PT SMG Consultants. These topography models describe both virgin topography and mined voids within the concession as at 28 July 2013.

The lithological data was then modelled to create structural grids. The schema, stored within the Stratmodel module of the MineScape software controls the modelling of seam elements and their structural relationships, grid model cell size, interpolators and other parameters. The details of these parameters stored in the applied schemas used in the structural modelling process are listed in Table 6:1.

Within the modelling schema, all of the stratigraphic intervals were modelled with pinched continuity. This is applied in areas where intervals are missing in a drill hole. In this situation, the modelling algorithm stops the interpolation of the missing interval halfway between the two drill holes between which it ceases to be present.

Structural Model Validation 6.1.2

Structural and thickness contours were generated and inspected to identify any irregularities, bulls-eyes, unexpected discontinuities etc. Cross-sections were also generated to identify any further structures such as faulting and any areas where seams were modelled as being discontinuous due to short drilling. Selected cross-sections from each resource area are shown in Appendix D.

Table 6:1 Model Schema Settings and Parameters

Model Component Details Modelling Software Ventyx MineScape - Stratmodel module

Schema kime014,kimw2014

Topography Model TOPE (KIM East), TOPW (KIM West)

Topography Model Cell Size 20 m

Structural Model Cell Size 20 m

Interpolator (thickness)/order Finite Element Method (FEM)/0

Interpolator (surface)/order Finite Element Method (FEM)/1

Interpolator (trend)/order Finite Element Method (FEM)/0

Extrapolation Distance 2500 KIM West

Parting Modelled No

Minimum Ply Thickness 10 cm

Minimum Coal Parting 30 cm (PP) otherwise not defined

Conformable Sequences Weathered, Fresh

Upper Limit for Seams Base of Weathering (BOW)

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Model Component Details Control Points Yes Constraint File No Penetration File Yes Model Faults No Maximum Strip Ratio - Maximum Resource Depth 250 m Tonnage Calculations Based on volumes using relative density on an air dried basis

6.2 Coal Quality Model

Coal quality data has been composited on a seam basis. The Inverse distance interpolator was selected for modelling coal quality as it has been shown to perform adequately for most coal quality attributes and it is also less likely to introduce spurious trends into the data. Testing indicated that a power value of two and a search radius of 2500 metres are the most suitable inverse distance interpolation parameters for modelling of the KIM coal deposits. Parameters used for quality modelling are summarized in Table 6:2.

Table 6:2 Quality Model Parameters Model Component Details Coal Quality Data Type Raw Model Type MineScape Table Interpolator Inverse distance Power 2 Search Radius 2500 metres

Quality Model Validation 6.2.1

After the completion of quality model gridding, selected qualities for selected seams were contoured and contours inspected to ensure that quality models had been gridded correctly. As a second validation measure, average qualities reported during resource reporting for all seams were compared against the average qualities of the input data to ensure consistency between input and output data sets.

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7 Coal Resources 7.1 Prospects for Eventual Economic Extraction and Resource

Classification

Coal Resources present in the KIM concession have been reported in accordance with the JORC Code, 2012. The JORC Code identifies three levels of confidence in the reporting of resource categories. These categories are briefly explained below.

Measured – “..That part of a Mineral Resources for which quantity, grade (or quality), densities, shape and physical characteristics are estimated with confidence sufficient to allow for the application of Modifying Factors to support detailed mine planning and financial evaluation”;

Indicated – “…That part of a Mineral Resources for which quantity, grade (or quality), densities, shape and physical characteristics are estimated with confidence sufficient to allow for the application of Modifying Factors in sufficient detail to support mine planning and evaluation”; and

Inferred – “…That part of a Mineral Resources for which quantity and grade (or quality) are estimated on the basis of limited geological evidence and sampling.”.

For the purpose of coal resource classification according to JORC Code (2012) , HDR Salva has considered a drill hole with a coal quality sample intersection and core recovery above 90% over the sampled interval as a valid point of observation.

In terms of Coal Resource classification, HDR Salva is also guided by the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (2003) (The Coal Guidelines) specifically referred to under clause 37 of the JORC Code (2012). According to the Coal Guidelines, maximum spacing’s between points of observation for both structural and coal quality points of observation for Measured, Indicated and Inferred resources are 500 m, 1000 m and 4000 m respectively.

Based on due consideration of the continuity of the coal seams as observed in the geological models for each of the two resource areas, the relative lack of evidence for significant faulting and the population statistics of the coal quality composites per seam, HDR Salva has sub-divided Coal Resources within the KIM concession into resource classification categories based on the following spacing’s (expressed as a radius of influence around points of observation which is half of the spacing between points of observation):

Measured 250m radius of influence;

Indicated 500m radius of influence; and

Inferred 2000m radius of influence

Resource polygons for the main seams from each resource area are shown in Appendix E. It is furthermore a requirement of the JORC Code (2012) that the likelihood of eventual economic extraction be considered prior to the classification of coal resources. Therefore, given the average coal quality attributes of the coal seams considered, which makes it amenable to be marketed as a thermal coal for power generation purposes, HDR Salva considers that it is reasonable to

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define all coal seams within the classification distances discussed above, to a depth of 250m below the topographic surface, as potential open cut coal resources.

7.2 Coal Resource Statement

The Coal Resources which have been estimated, have been classified and reported according to the JORC Code (2012) and the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (2003) as at 31 July 2014 are detailed in Table 7:1.

Topographic surfaces valid as at 28 July 2013 were used in all resource models. As no more current mined void information was available at the time of model construction, adjustments for mine production between 28 July 2013 and the date of this resource statement (31 July 2014) have been made.

Table 7:1 Coal Resource Estimate for KIM Coal concession as at 31 July 2014 Coal Resources (Mt)

Pit Measured Ash% adb

CV adb

kcal/kg Indicated Ash%

adb

CV adb

kcal/kg Inferred Ash%

adb

CV adb

kcal/kg Total

KIM East 57 18.05 5,286 37 18.49 5,211 75 18.51 5,212 168

KIM West 58 16.72 5,445 23 17.51 5,340 10 15.73 5,228 91

Total 115 60 85 260 Mineral Resources are reported inclusive of the Mineral Reserves. (Note: Final Inferred Resource rounded to nearest 5 Mt. Individual totals may differ due to rounding)

7.3 Comparison with Previous Estimates

Previous resource estimate exists for the KIM deposit. In July 2013 PT SMG Consultants estimated a total resource of 212 million tonnes (Table 7:2). This latest (31 July 2014) Resource Estimate of 260 million tonnes differs from this previous PT SMG Consultants estimate for a number of reasons, namely;

Total Measured and Indicated tonnes estimated by HDR Salva are within the 10% margin of error which is expected given that two different stratigraphic modelling software packages have been used by HDR Salva and PT SMGC (Minescape and Minex for HDR Salva and PT SMGC respectively).

There is a 93% increase in Inferred tonnes due to an increase in the classification distance from 2000 m between holes to 4000 m between holes from the previous to the latest estimate.

Table 7:2 Coal Resources - Comparison with Previous Estimate

Resource Category HDR Salva 2014 (Mt)

PT SMGC 2013 (Mt)

Measured 115 110 Indicated 60 58 Total M&I 175 168 Inferred 85 44

Total 260 212

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8 Reserve Estimation

8.1 Estimation Methodology HDR Salva prepared the Coal Resource estimate for KIM Concession coal deposit as at 31 July 2014 which is used as a basis for the Coal Reserve estimate. Coal Resources quoted in this report are inclusive of Coal Reserves.

The Coal reserves estimates presented in this report are based on the outcome of pit optimisation results and the Techno-economics study carried out by HDR Salva. The mining schedule for the KIM concession blocks includes 2 operating open cut mines (KIM East and KIM West) which targets total coal requirement (client specified) of 3 Mtpa from both the pits.

The Subject Specialist for Reserves considers the proposed mine plan and mining schedule is techno-economically viable and achievable. This has been done by reviewing all the modifying factors, estimating reserves in the pit shell and doing a strategic production schedule and economic model which confirms a positive cash margin using the cost and revenue factors as described below in this report.


HDR Salva considers the Modifying Factors to be valid for both pits. The Modifying Factors used are based on actual operations at the KIM Mine which were independently verified by the HDR Salva’s subject specialist during the site visit. Therefore, it is considered valid to use Modifying Factors from the operating KIM mine to satisfy clause 29 of the JORC Code. Further, HDR Salva has carried out independent life of Mine (LOM) Study to develop the mining schedule and its economic evaluation of the Mine.

8.2 Modifying Factors

The following Table (Table 8:1) outlines the factors used to run the mine optimisation and estimate the Coal Reserve Tonnage.

Table 8:1 Modifying & Mine Optimisation Factors Factor Chosen Criteria Seam roof & floor coal loss of 0.05 m each 0.10m Seam roof & floor dilution 0.02 m each 0.04m Geological & Mining loss including loss in transportation and handling at port

5%

Minimum mining thickness minable coal seam 0.3m Dilution default density 2.2bcm/t Dilution default calorific value 500Kcal/kg Dilution default ash 75% Overall Highwall and Endwall slope 20 deg to 40 deg Maximum Pit depth Varies from 90-150m max. Minimum Mining width at Pit bottom 50m

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Factor Chosen Criteria Exclusion of Mining lease (IUP) and offset from Pit crest 50m Mining , Coal handling and Transport Cost – supplied by client and validated by HDR Salva

Available & Used

Coal Selling Price for Break-even Stripping Ratio calculation US$ 56.5/t Government Documents / approvals - supplied by client Available & Used Environment Report Availabe & Used Geotechnical Report Available& Used Hydrogeology Report Available & Used

8.3 Notes on Modifying Factors

Mining Factors 8.3.1

General

The mining limits are determined by considering physical limitations, mining parameters, economic factors and general modifying factors as above (Table 8:1). The mining factors applied to the Coal Resource model for deriving mining quantities were selected based on the use of suitably sized excavators and trucks. The assumptions are that due to the shallow to moderate dip of the coal , mining will need to occur in benches.

The mining factors (such as recovery and dilution) were defined based on the proposed open cut mining method and the coal seam characteristics. The exclusion criteria included the lease boundary and a minimum working section thickness.

Determination of Open Cut Limits

The geological models that were used as the basis for the estimation of the Reserves are the MineScape geological models prepared by HDR Salva to compute the Coal Resources.

Potential open cut reserves inside different blocks of the Project Area were identified with pit optimisation software utilising the Lerchs Grossman algorithm. By generating the financial value (positive or negative) for each mining block within a deposit and then applying the physical relationship between the blocks, the optimal economic pit can be determined.

This method is widely accepted in the mining industry and is a suitable method for determining economic mining limits in this type of deposit. The optimiser was run across a wide range of coal prices using a standard set of costs that was developed by HDR Salva and based on typical industry costs in similar operations. These costs were adjusted to suit the conditions for this project.

Unit Costs

The Contractor and Owner unit costs used in the Lerchs Grossman optimiser for both Pits are detailed in Table 8:2 and Table 8:3.

Table 8:2 Contractor Unit Rates (Real Terms) Cost Item Unit Rate Land Clearing $/ha 1,400 Topsoil Removal $/bcm 1.80

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Waste Mining $/bcm 1.80 Waste Haulage $/bcm/km 0.25 Coal Mining $/t 1.10 Haul to ROM Stockpile $/t km 0.10 Haul to Customer – Road $/t km 0.10

All quoted cost in local currency is adjusted for fuel price and exchange rate.

Table 8:3 Owner Unit Costs (Real Terms) Cost Item Unit Rate ROM Coal Handling $/t 0.30 Mine Closure $/ha 4,200 Environmental and Rehabilitation $/t 0.06 Salary and Wages $/t 0.25 Medical & Community Development $/t 0.05 Corporate Overheads $/t 0.50 Contingency $/t 2.35

Royalty was estimated 5% based on the respective sale prices of the coal . A 10% VAT and 15% operating contingency was also considered.

These costs were used to create a series of waste and coal cost grids which were used to generate the optimiser nested pit shells.

Base Pit for Optimiser

In addition to these constraints, the optimisers were mostly limited by a 3 dimensional shell which was built for each block following either a surface constraint or geological model extent. These constraints are detailed in Table 8:4. This pit shell effectively represented the maximum pit possible in the deposit that was reasonable for the estimation of Coal Reserves.

Table 8:4 Block wise Optimiser Base Pit limits Pit North South East West KIM West IUP and Geomodel Subcrop & River IUP and Geomodel IUP and Geomodel KIM East Geomodel IUP and subcrop IUP and Geomodel IUP and River

Past Mining in KIM East and KIM West

Mining is being carried out in KIM East and KIM west since 2007 and 2010 respectively. The last surveyed topo as at 31 July 2014 has been used as the surface for the optimisation for these Pits to exclude mined out tonnage from the current reserve estimate.

Optimisation Result 8.3.2

The optimiser produced a series of nested pit shells using same cost parameters with varying sale price of coal. The method starts with a very low discounted sale price following a high discount factor and moves toward higher sale prices by decreasing the discount on sale price. It estimates the net margin by subtracting the total cost from the revenue within a particular shell at a particular discount factor using the cost-revenue parameters and the physical quantities within the pit shell. As the method progresses, the incremental margin per ton of coal slowly drops down

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to zero at “zero” discount factor and then goes negative as the pit shells go deeper following higher sale prices. As a result the cumulative margin slowly rises up to a maximum level at “zero” discount factor and then starts dropping off. Thus the pit shell (OPT000) which represents the “zero” discount factor is called the optimum pit shell as any smaller or bigger shell will have a lower cumulative margin and value.

Selection of Pit Shell 8.3.3

United Fiber is proposing to mine 3Mtpa of coal from KIM coal concession blocks from 2018 onwards. An economic model was prepared for the mining operation from each of the KIM coal concessions to determine the project breakeven or incremental stripping ratio. The pit optimisation results were examined and pit shells selected where the incremental stripping ratios were less than or equal to break even strip ratio determined at a point where the costs for mining and handling the coal equalled the revenue generated by the coal.

Break Even Stripping Ratio

Table 8:5 summarises the calculation of the Break Even Stripping Ratio. The methodology adopted involves taking the cost to mine a tonne of coal to the point of sale.

Table 8:5 Break-even Stripping Ratio (BESR) Estimation of Break Even Stripping Ratio KIM West & KIM

East

Coal Price, US$/t $56.52

Total of Road haulage & Royalty, US$/t $29.03

Price at Mine Head, US$/t $27.49

Other mine related cost, US$/t $8.18

Coal Price ex mine, US$/t $19.31

Cost of mining incl. haulage (Coal), US$/t $1.56

Cost of mining incl. land clearing, topsoil & haulage (Waste), US$/bcm $1.99

Break-even stripping ratio, bcm/t 8.89

Total mineable quantities have been estimated based on the in-situ density of coal. The in-situ density of the coal has been estimated using the Preston-Sanders method to account for the difference between air-dried density and in-situ density. The formula and inputs were as follows:

RD2 = RD1 x (100 – M1) / (100 + RD1 x (M2 – M1) – M2) Where

• RD2 = In-situ Relative Density (arb); • RD1 = Relative density (adb); • M1 = Inherent Moisture (adb); and • M2 = Total Moisture (arb).

It should be noted that while the total moisture from laboratory measurements may not necessarily equal the in-situ moisture, this is considered to be a best estimate given the limited amount of data. HDR Salva has assumed that no moisture reduction takes place for the determination of product quality.

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Geotechnical Factors 8.3.4

The KIM East and KIM West Pits occupy areas that comprise relatively flat topped plateaus at around RL 150 m that have been dissected to depths of 20 to 30 m by mainly south to north aligned creeks. The Batang Asam River runs from south to north in a highly meandering path between the two existing mine areas.

In general, the mining areas are being developed into coal measure rocks that are overlain by ignimbrite, as shown below in Figure 8:1.

Figure 8:1 Soil & Rock lithology – KIM Project

The thickness of the ignimbrite has quite a big variation in KIM East Pit varying from 5 m in the SW corner of the pit but it goes up to 55 m on the western side, 40 m on the eastern side and to around 22 m in the central north side.

There have been wall and inpit dump failures reported due to excessive tuff, undercut bedding and structure and internal dump developments in the existing mining areas in KIM pits. The current geotechnical study for the KIM area recommends a high wall slope which is depicted in the figure below.

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Figure 8:2 Geotech Recommendations

Surface Water Management 8.3.5

Pit water management is of critical importance for the effective operation of the mine. Dewatering operations observed during the site visit were considered to be of a high standard with well constructed pit sumps and efficient drainage from operating areas into the sump. The overall strategy for water management over the life of mine will be to:

Minimise surface water entering the pit by: o Building dams and drains to divert water from external catchments away from pits; an o Profiling dumps so that water is diverted away from the pits.

Removing water from excavations by: o Constructing a main sump at the deepest point of each pit and draining all in pit water

to that sump; and o Installing sufficient pumps and pipes of suitable size to pump water from the pit. Two

stage pumping will be required in deeper areas in the later years of the mine life.

Mining Method & Operations 8.3.6

Mining operation commenced in 2007 in KIM East and in 2010 in KIM West Pits. The KIM Mine is an open pit mine using standard truck and excavator methods which are a common practice in Indonesia. Waste material is mined using hydraulic excavators and loaded into standard rear tipping off-highway trucks and hauled to dumps in close proximity to the pits or to in-pit dumps where possible. For the purpose of this Reserve Statement, it is proposed that contractors will continue to be used for mining and haulage operations over the life of mine, and the unit costs used for the Reserve estimate reflect this style of mining.

The mining method can be described as a multi seam, moderate dip, open cut coal mine using truck and shovel equipment in a combination of strip and haulback operations.

Processing Factors & Product Quality 8.3.7

The coal is to be sold unwashed so no processing factors have been applied. Other than crushing to a 50 mm top size no other beneficiation will be applied.

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Mine Logistics Factors 8.3.8

HDR Salva has carried out a high level review of logistic options to access the KIM Project economics. Based on assessment of available information, data gathered during the site visit and while visiting GEM office in Jakarta, following logistic chain for coal blocks comprising the KIM project is considered appropriate.

Coal Logistics

The mined out coal from KIM project is currently being sold to domestic customers. The mine to end user plant supply chain involves hauling of coal to the ROM stockpile, followed by transportation using public road to the domestic customers. Till recent past, the mined out coal from the KIM project had been sold to export customers as well. At present, domestic sales have better margin compared to exporting the product. However, an option to export coal to overseas customers still exists if margin improves in the future.

Mined out coal is halued to the ROM stockpile, located at an approximate distance of 10 km from the KIM pits, using rigid body coal haulage trucks. Although facilities for crushing and screening exist at ROM stockpile area, crushing is not required for sales to most domestic customers. Coal from the ROM stockpile is hauled (262km) along public roads to customers. It is anticipated that most of the coal will be sold to the Lontar Papyrus pulp and paper plant in the near term. However, in mid term, some of the coal produced from the KIM Project may go into to nearby power plants under construction including one at Jambi and Teluk Sirih.

Haulage on Public Roads

The Jambi provincial government in conjunction with regency governments from Jambi’s major coal producing regions have agreed on a suspension of coal trucks using public roads, starting from 31 December 2012 (Jambi Province Regulation No 13 Year 2012). The provincial government is planning to construct an alternative route for coal trucks, in order to avoid resistance from local public and minimise the loss of royalty from coal producers in the area.

Presently, GEMS have developed plans to build a new haul road which will connect the KIM Pits to the existing special road leading to Port Nilau (owned by GEMS) via Lontar Pypras Pulp and Paper Plant. This dedicated connecting road is expected to be completed in 36 months (likely to be completed in 2017).

Although the interpretation of this regulation is little ambiguous in nature, HDR Salva has been advised by GEMS that government is likely to allow hauling by public road where a coal company is developing an own dedicated haul road. The current and proposed logistic map for KIM project is shown in Figure 8:3.

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Figure 8:3 Current and Proposed Coal Logistics, KIM Project

Permits and Approvals 8.3.9

HDR Salva understands that the permits and approvals with regard to further mining activities in the KIM Coal Concession deposits are in good standing. This was independently verified by Lasutlay and Pane Advocates in Indonesia stating that tenements are in good standing. HDR Salva has relied on this

The KIM concession area is located in “Other Use area” which requires no permit from the forestry department. There are no known significant environmental factors that influence the estimation of Reserves within the KIM project area as the environmental management includes the development of waste management facilities and monitoring activities ongoing.

The western IUPs of KIM are located adjacent to the border of the Jambi province and West Sumatra province of which some are cultural land. As a positive note, till recently cultural land owners have requested to get overburden materials from KIM to fill their land as they are less productive areas in the steep hills for cultivation. A small road crossing the coal haul road from west area to Batang Asam River has also been provided as a shortcut for few local residents.

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Environment and Community Relations 8.3.10

A preliminary assessment of potential issues pertaining to environment and community relations which may impact the Reserves estimation was carried out by HDR Salva. These included following activities:

Review of environment management procedure at site;

Visit to GEMS Jakarta office and inspection of environmental management plans;

Review of the Analisis Mengenai Dampak Lingkungan Hidup (AMDAL) - environment impact assessment and management plans; and

Review of Corporate Social Responsibility Reports.

HDR Salva’s preliminary assessment did not reveal any issues related to environment and community relations that will adversely impact project valuation. However, it should be noted that HDR Salva’s assessment was only preliminary in nature and HDR Salva cannot provide any guarantee or warranty that significant environmental or community issues will not affect the operation. Key environmental and community relations issues are discussed below.

Environmental Aspects

Key issues which can have potential impact on project valuations are: Water Run-off, noise and dust and rehabilitation.

Water Run-off from site

If sediment loads are high or if water is acidic, water run-off from dumps, stockpiles, roads and water pumped from pits has the potential to pollute local rivers, creeks and vegetation. This is managed through the use of bunds, drains and sediment ponds of sufficient size to allow small particles to settle out of the water. Regular monitoring of water discharge points is required under government regulations.

Noise and Dust

Noise and Dust originating from mine operations haulage and coal handling have the potential to impact the local environment, particularly if villages and local communities are located within close proximity to mining and coal handling operations. Dust is generally managed by using water trucks on haul roads, and by spraying water or dust suppressant chemicals to minimise dust being airborne and suppressing it.

Rehabilitation

A large area of land will be cleared as part of the KIM mining operation, although much of this area is not covered by any forest land. The disturbed area is generally rehabilitated by removing the topsoil prior to mining, storing the topsoil onsite during mining and covering the final landform with topsoil at the completion of mining. The area to be rehabilitated is then panted with suitable vegetation.

Management at the KIM Project have established procedures and a nursery in place to prepare for revegetation to take place. To prevent the dust hazard, the company is currently using dust

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suppressant and water sprinkling system. HDR Salva notes that the current approved AMDAL for the KIM concessions allows the company to mine in excess of the proposed throughput.

Mine closure plans for the updated mine plan have yet to be completed; however HDR Salva does not foresee any significant issues with this aspect of the operation. A reasonable allowance has been made in for environmental management, rehabilitation and mine closure.

Social Aspects 8.3.11

Maintaining a good relationship with local communities is a key requirement for the success of the KIM operation. Efforts must be made to continue the ongoing community development programs in coordination with the local government. HDR Salva reviewed KIM’s Corporate Social Responsibility programs which include the following aspects:

Economy

Economic development of the local community is set to include activities to assist with the economic development of the community by providing employment and business opportunities once mining operations have finished.

Current programs include training in sewing skills and establishing aquaculture infrastructure.

Health

It includes programs to improve health in the local communities and to increase people’s knowledge through education in health issues.

Cost and Revenue Factors 8.3.12

General

GEMS provided a “data sheet” of indicative unit costs and revenues relevant for this project which was subject to review and agreement with United Fiber. HDR Salva did an independent coal marketing study to review the coal prices forecast for reasonableness. HDR Salva also reviewed the costs for reasonableness against known current mining costs for similar mining conditions within Indonesia. HDR Salva developed a NPV based economic model was developed to show that the project and reserves are “economic". The model produced a positive NPV of $26 Million at 11.5% discount rate. These unit rates were then used to estimate the cost to deliver coal to the domestic consumers. This allowed a break even strip ratio to be estimated and the rates were also used to calibrate the optimiser software.

The following points summarise the cost and revenue factors used for the estimate:

All costs are in US dollars; Long term coal price of US $ 56.52 per tonne; Royalties of 5% of revenue less marketing costs have been allowed along with VAT of

10% and Contingency of 5%; Allowances were made for hauling, crushing, quality control, stockpiling and road

transport to customer which totalled approximately US $34.08 per tonne; Coal mining rate considered is US $1.10 per tonne; and Waste mining rate considered is US $1.80 per bank cubic metre.

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Operating Cost

Total operating costs per tonne of coal product including royalty for the KIM Project has been estimated as US $52.08 per tonne over the life of the mine. The cost components for the different heads have been given in Table 8:6 below.

Table 8:6 Average Unit Operating Cost (Real Terms) over Life of Mine

Cost Item $/t Land Clearing $0.02 Topsoil Removal $0.05 Waste Mining $12.25 Waste Haulage $1.00 Coal Mining $1.10 Haul to ROM Stockpile $0.45 ROM Coal Handling $0.30 Haul to Customer $26.20 Mine Closure $0.07 Environmental and Rehabilitation $0.06 Salary and Wages $0.25 Medical & Community Development $0.05 Corporate Overheads $0.50 Local Government Fees $0.50 VAT $4.11 Contingency $2.35 Operating Cost Excl. Royalty $49.25 Royalty $2.83 Operating Cost incl. Royalty $52.08

Capital Cost

The KIM project is an operating mine with most of the mine infrastructure already established and in-place. HDR Salva has assumed mining operations to be continued using contractor’s mining equipment.

The major capital required for the continuation of the project is linked with the land acquisition for the development of the mine over its life and the cost associated with the construction of dedicated road to link the KIM Project with the existing Jalan WKS special road.

The total capital cost estimate for KIM Project including road logistics is estimated to be US $58.4M which includes a contingency of US $7.6M. A contingency of 15% has been included in the capital cost estimate. These estimated are considered to have an accuracy of ± 15%.

While preparing these estimates, HDR Salva has relied on industry benchmarks, internal database, internal studies and expertise on the KIM concessions. The capital costs for road construction is considered to be relatively well understood, although a conservative approach to estimating these costs has been taken.

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The Capital Cost estimates and the basis of its estimation is shown in Table 8:7. The cost estimate was prepared in Q3 2014 in US dollars ($).

Table 8:7 Capital Cost (Real Terms)

Particulars Direct Cost ($M)

Contingency ($M)

Total Cost ($M)

Land Compensation 18.0 2.7 20.7

Land and Land Development 18.0 2.7 20.7

Site Infrastructure 5.0 0.8 5.8 Mine Infrastructure 5.0 0.8 5.8

Haul Road Construction 27.8 4.2 31.9

Hauling to Customers 27.8 4.2 31.9

Total Project Capital 50.8 7.6 58.4

HDR Salva has compared these against the industry benchmarks and estimated these to be reasonable.

Marketing Factors 8.3.13

The KIM Project produces coal which is sold in the domestic market. The sales price assumptions used in this study are based on domestic coal prices received for coal sold from the KIM project in the current market.

HDR Salva does not see any difficulties marketing the coal from the KIM project as a domestic thermal coal. At Present, the primary markets for this coal are paper and pulp mills located in Sumatra. But in future, some of the coal produced from the KIM Project may go into nearby power plants which are currently under construction.

HDR Salva also reviewed the economics for export sales from the concession. It was found that with the current mining costs for the operation, the margins for export sales were lower than domestic sales for current and forecast coal prices. In future, this situation may change with the increase in coal prices.

Considering the present uncertainty with the global export market, and to be on conservative side, HDR Salva has opted to use domestic price forecast only which has been estimated to be US $56.5/t in the real term.

Product Quality 8.3.14

As previously stated, HDR Salva have assumed no moisture change in the product coal chain. Therefore it is assumed that the final product will have the same quality of ROM coal which is summarised in the Table 8:8 below.

Table 8:8 Product Coal Quality

Pits RD adb t/m3 TM arb % IM adb

% Ash adb % CV arb Kcal/Kg TS adb %

KIM West 1.40 22.29 11.49 16.90 4,995 1.07

KIM East 1.39 23.05 11.91 16.67 4,967 1.18

Total 1.40 22.40 11.55 16.87 4,991 1.09

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Other Factors 8.3.15

Surface constraints to the mining operations at KIM projects are limited to the concession boundary and seam sub crops. Other constraints that were used to define the project were limits of exploration drilling, constraints due to river and variable land compensation rates. No significant surface features exist that would further constrains mining activities.

There are a number of planning issues which may impact on the stated mining reserves. These include:

detailed geotechnical studies to confirm the overall slope angles and other parameters; detailed hydrogeological studies to know the water flow gradient and dewatering

arrangement; more quality data as well as detailed drilling and updates to the geological model; land compensation issues; and changes in life of mine schedule, infrastructure constraints, coal transportation issues and

due to changes in marketing and costing during the mining operation.

These issues may cause the pit shell and mining quantities to change in future Reserve Statements.

HDR Salva is not aware of any other environmental, legal, marketing, social or government factors which may hinder the economic extraction of the Coal Reserves other than those disclosed in this report. In the opinion of HDR Salva the uncertainties in areas discussed in the report such as in structural and geotechnical area, use of public haul road for coal hauling etc. are not sufficiently material to prevent the classification of areas deemed Measured Resources to be areas of Proved Reserves for the purpose of this report. HDR Salva also believes that the uncertainties in each of these area also not sufficiently material to prevent the classification of areas deemed Indicated Resources to be areas of Probable Reserve.

Key project risk for the KIM Project emanates from the following factors in order of importance:

Lower long term coal prices or domestic coal demand; Higher life of mine operating costs and logistics issues: and Higher Capital costs

Any downside to these factors will likely have a significant impact on the economic feasibility of this project.

8.4 Final Pit Design

For the purposes of this report, HDR Salva has limited the pit depth to the limit of exploration drilling within the limit applied to the Resource estimates. Other factors considered in the final optimum pit designs included:

The location and proximity of coal to exploration data; Proximity to the concession boundary; Out of pit dumping room; Geotechnical parameters; and Surface water management considerations.

The final pit designs closely followed the selected pit shell in most locations (Figure 8:4 and Figure 8:5).

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Cut-off Parameters and Pit Limit 8.4.1

Overall low-wall slopes as per the basal seam dip, endwall slopes and highwall slopes for the final pit design were considered as per Table 8:9 given below. The slope parameters are based on the geotechnical study carried out for KIM project.

Table 8:9 Pit Design Parameters for KIM Project Pit Design Parameters KIM Pits

Overall Highwall Slope 40 deg up to 90 m depth, 20 deg for depth up-to 200m depth Bench Slope 70 deg

Bench Height 10 m

Highwall berm 10 m

Low wall slope 12 deg Ramp Width 30 m Maximum Ramp Grade 8%

Pit Design 8.4.2

The coal seam distribution within the KIM Concession deposits resulted in the Optimiser identifying pits with the 300L basal seam (Figure 8:4 and Figure 8:5). The pits were subjected to adjustments to form a practical pit design, which lead to the exclusion of the minor narrow pit shells and the resultant formation of Mineable Pit Shells, which formed the basis of the subsequent reserves estimate.

Optimsed Pits for various blocks have been designed within the limits as defined by the pit optimisation analysis. These limits are rationalised to ensure access between floor benches and walls were straightened to generate mineable pits.

The overall highwall batter angle approximately varies from 20 to 40 degrees as the ultimate pit depth ranges from a little more than 80 m to 200 m. This was done in accordance with the geotechnical study done on KIM projects

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Figure 8:4 Selected Optimiser Pit shell & Final Pit Design - KIM West

Figure 8:5 Selected Optimiser Pit shell & Final Pit Design- KIM East

.

Selected Pit Shell – KIM East

Final Pit Design – KIM East

300L Seam Floor

KIM East ML

Pit Crest

Pit Toe

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The ROM coal quantities within the Mineable Pit Shells were then tested so that only Measured and Indicated Coal Resources were classified as Coal Reserves. Coal Reserves within the seams having Measured Resources are reported as Proved Reserves whereas seams having Indicated Resources are reported as Probable Reserves. The Final pit design of the selected pit shells and associated cross sections for estimating Coal Reserves for KIM Coal concession deposits are shown in Figure 8:6 to Figure 8:9 below:

Figure 8:6 Final Pit Design - KIM West

Figure 8:7 Representative Cross Section- KIM West

Section

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Figure 8:8 Representative Cross Section - KIM East

Mining Schedule 8.4.3

A life of mine plan was plan was completed based on the final pit design. This was done to ensure that the proposed mining method would be practical and achievable and that the proposed dumping strategy would be able to contain the waste mined in the final pit design. This provides a check on the reasonableness of the assumed waste mining costs and estimates the average waste haul per period. The schedule targets production of 0.4 Mt in year 1 (2014), 2 Mt by year 4 (2017) and ramping up to 3 Mt from year 5 (2018) onwards. KIM East produced 1.07 Mt of coal in 2013 and was initially targeted to produce 1 Mt of coal in 2014. But due to the market outlook, it is scheduled to produce 0.4Mt only in 2014 from KIM East. There is no coal being produced from KIM West in 2014. . GEMS is proposing to restart the mining operations in KIM West from 2016.

The production history from KIM mines as shown below shows that both the mines have produced 2.22 Mt in 2012 and can achieve the scheduled target of 3 Mtpa.

Table 8:10 Historical Production from KIM Mines Pits Quantities 2007 2008 2009 2010 2011 2012 2013 KIM East

OB, Mcum 2.06 4.48 3.44 5.48 9.62 6.20 7.83 Coal, Mt 0.51 0.88 0.58 0.87 1.26 0.65 0.81

KIM West

OB, Mcum - - - 2.37 10.06 12.09 0.78 Coal, Mt - - - 0.25 0.96 1.01 0.26

Total OB, Mcum 2.06 4.48 3.44 7.85 19.68 18.29 8.61 Coal, Mt 0.51 0.88 0.58 1.12 2.22 1.66 1.07

Figure 8:10 shows the existing mining condition at the KIM West Pit as there is no mining operations are being carried out currently. Mining activities are being carried out at the KIM East Pit which is shown in Figure 8:11.

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Figure 8:9 KIM West Pit

Figure 8:10 KIM East Pit

8.5 Audits and Reviews

Checks were done to validate the Minex Coal Resources to Coal Reserves estimation by repeating it manually in an Excel spread sheet. Other validation work included estimating the total volume of coal and waste in the pit shells using the separate industry standard computer programs MineScape. As MineScape structure and quality grids were imported into Minex for optimisation work, volume and area checks were also carried out in Minex within the pit shells.

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The difference between the Proved and Probable Reserves with respect to Measured and Indicated Resources respectively is explained by the following:

The Measured and Indicated Resource polygons extend beyond the Mineable Pit Shells; There are some Inferred tonnes in the pit shell which cannot be counted as Coal

Reserves; and There are geological and mining losses and dilution gains in the coal reserve estimation.

8.6 Discussion of Relative Accuracy and Confidence

A comparison between the actual coal mined and geo model predicted coal tonnages have been done in the KIM East Pit since commencement of mining in 2007 till end of Q2, 2014 and it shows an overall 91% recovery for the said period as shown in Table 8:11. The Ply-by-Ply in-situ Geo Model was used for generating the model predicted number.

Table 8:11 Production Reconciliation

Actual Coal Tonnes, Mt Geo-Model Coal Tonnes (Mt) Difference in Percentage (%)

6.58 7.27 8.9

8.7 Reserves Classification

Under the JORC Code as shown below only Measured and Indicated Coal Resources can be considered for conversion to Coal Reserves after consideration of the “Modifying Factors” including mining, processing, infrastructure, economic, marketing, legal, environmental, and social and government factors.

To convert Resources to Reserves it must be demonstrated that extraction could be justified after applying reasonable investment assumptions. The highest confidence level establishes Proved Reserves from Measured Resources and a lesser confidence level establishes Probable Reserves from Indicated Resources. A level of uncertainty in any one or more of the Modifying Factors may result in Measured Resources converting to Probable Reserves depending on materiality. A high level of uncertainty in any one or more of the Modifying Factors may preclude the conversion of the affected Resources to Reserves.

This classification is also consistent with the level of detail in the mine planning completed for KIM Coal concession deposits. Inferred Coal Resources in the mineable pit shell have been excluded from the Reserve Statement.

In the opinion of HDR Salva, the uncertainties in most of these are not sufficiently material to prevent the classifications of areas deemed Measured Resources to be areas of Proved Reserves and areas deemed Indicated Resources to be the areas of Probable Reserves.

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Figure 8:11 Relationships between Mineral Resources & Ore Reserves

Source: JORC Code 2012

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9 Statement of Coal Reserves The Statement of Coal Reserves has been prepared in accordance with the 2012 Edition of the JORC Code. Total ROM Coal Reserves for PT Kuansing Inti Makmur coal deposit (“KIM”) are summarised in Table 9:1 as of 31 July 2014. ROM coal reserves are same as Marketable coal reserves.

Table 9:1 ROM Coal Reserves for KIM Coal Concession as at 31 July 2014

Area Proved Reserves Mt

Probable Reserves Mt

Total Reserves Mt

KIM West Pit 24.4 6.0 30.5 KIM East Pit 3.1 2.0 5.1 Total, KIM Project 27.5 8.0 35.6

Total ROM Coal Reserves for each of KIM coal concessions are reported by seam and are presented in Table 9:2 and 9:3.

Table 9:2 ROM Coal Reserves for KIM West as at 31 July 2014

Seams Reserve (Mt)

RD, adb

Ash, adb %

IM, adb TM, ar TS, adb CV

(Gar) kcal/kg Proven Probable Total % % %

100U 0.6 0.4 1.0 1.48 21.99 11.52 22.82 2.74 4,021 100L 1.7 0.6 2.3 1.49 26.81 9.30 19.85 2.27 4,399 200U 0.5 0.5 1.0 1.37 11.41 13.99 25.42 1.57 4,826 200 0.1 0.0 0.1 1.42 - 13.41 26.62 1.30 - 200L 0.4 0.3 0.7 1.37 9.58 15.76 26.22 1.08 4,657 300U 17.0 3.2 20.2 1.36 13.29 11.62 22.26 0.99 5,298 300L 4.2 1.0 5.3 1.51 27.37 10.89 22.21 0.42 4,367 Total 24.4 6.0 30.5 1.40 16.90 11.49 22.29 1.07 4,995

Table 9:3 ROM Coal Reserves for KIM East as at 31 July 2014

Seams Reserve (Mt) RD,

adb

Ash, adb

IM, adb

TM, arb TS, adb CV

(Gar) kcal/kg Proved Probable Total % % % %

100U 0.1 0.1 0.2 1.51 26.47 10.84 21.60 2.21 4,003 100L 0.1 0.1 0.2 1.47 26.86 10.75 20.08 2.13 4,320 200U 0.1 0.2 0.2 1.42 16.61 13.88 27.67 1.55 4,669 200 0.1 0.0 0.1 1.42 - 12.89 23.49 1.51 4,496 200L 0.0 0.1 0.1 1.39 12.44 14.67 29.39 1.32 4,788 300U 2.1 1.4 3.5 1.36 14.63 11.52 22.13 1.17 5,262 300L 0.6 0.2 0.7 1.44 20.34 13.09 25.86 0.46 4,291 Total 3.1 2.0 5.2 1.39 16.67 11.91 23.05 1.18 4,967

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10 JORC Table 1 This Coal Reserve Report has been carried out in recognition of The 2012 JORC Code published by the Joint Ore Reserves Committee (“JORC”) in 2012. Under the report guidelines all geological and other relevant factors for this deposit are considered in sufficient detail to serve as a guide to on-going development and mining.

In the context of complying with the Principles of the Code, Table 1 of the JORC code (Appendix B) has been used as a checklist by HDR Salva in the preparation of this report and any comments made on the relevant sections of Table 1 have been provided on an ‘if not, why not’ basis. This has been done to ensure that it is clear to an investor whether items have been considered and deemed of low consequence or have yet to be addressed or resolved.

The order and grouping of criteria in Table 1 reflects the normal systematic approach to exploration and evaluation. Relevance and Materiality are the overriding principles which determine what information should be publicly reported and HDR Salva has attempted to provide sufficient comment on all matters that might materially affect a reader’s understanding or interpretation of the results or estimates being reported. It is important to note that the relative importance of the criteria will vary with the particular project and the legal and economic conditions pertaining at the time of determination.

In some cases it may be appropriate for a Public Report to exclude some commercially sensitive information. A decision to exclude commercially sensitive information would be a decision for the company issuing the Public Report, and such a decision should be made in accordance with any relevant corporation regulations in that jurisdiction.

In cases where commercially sensitive information is excluded from a Public Report, the report should provide summary information (for example the methodology used to determine economic assumptions where the numerical value of those assumptions is commercially sensitive) and context for the purpose of informing investors or potential investors and their advisers.

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References Amier, Rubianto Indrayudha, Coals, source rocks and hydrocarbons in the South Palembang sub-basin, south Sumatra, Indonesia, Master of Science (Hons) thesis, Department of Geology, University of Wollongong, 1991, http://ro.uow.edu.au/theses/2828

ASIC, 2011. Regulatory Guide 112: Independence of Experts. Australian Securities & Investments Commission [online]. Available from: <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rg112-30032011.pdf/$file/rg112-30032011.pdf> [Accessed 22 August 2012].

Bishop, M.G, 2001, South Sumatra Basin Province, Indonesia: The Lahat/Talang Akar- Cenozoic Total Petroleum System, USGS Open-File Report 99-50-S

JORC, 2012. Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves – The JORC Code – 2012 Edition [online], The Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia.

PT SMG Consultants – JORC Resource Statement KIM Project 21st October 2013.

Tamtomo, Budi, Yuswar, Irzan, and Widianto, Eko, 1997, Transgressive Talang Akar sands of the Duang area, south Sumatra basin: origin, distribution and implication for exploration play concept, in Howes, J. V. G, and Noble, R. A., eds., Proceedings of the Petroleum Systems of Se Asia and Australasia: Indonesian Petroleum Association Conference, May 1997, p. 699-708.

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Appendix A: CVs Person Role

Manish Garg (Director - Consulting) Qualification B. Eng. (Hons), MAppFin

Prof. Membership MAusIMM; MAICD

Contribution Overall Supervision, Economic Assessment (VALMIN 2005)

Experience

Manish has more than 25 years’ experience in mining Industry. Manish have worked for mining majors including Vedanta, Pasminco, WMC Resources, Oceanagold, BHP Billiton - Illawarra Coal and Rio Tinto Coal. Manish has been in consulting roles for past 5 years predominately focusing on due diligence, valuations and M&A area. A trusted advisor, Manish has qualifications and wide experience in delivering due diligences, feasibility studies and project valuations for banks, financial investors and mining companies on global projects, some of these deals are valued at over US$5 billion.

Craig Williams (Principal Consultant - Geology) Qualification B. Sc. (Hons), M.Sc. (Geology) Prof. Membership MAusIMM Contribution Geology, Resource (JORC 2012) Experience Craig is a geologist with 19 years’ experience in the mining industry. He

has worked at De Beers, Anglo Coal and Vale along with significant consulting experience. Craig’s experience covers mineral exploration, underground coal mine production, technical management, and resource estimation, together with due diligence, mineral audits and review, coal quality and exploration. To date, Craig has worked on over 30 coal projects around the world, inclusive of both thermal and coking coal, in the Bowen, Hunter, Surat, Galilee and Collie Basins of Australia, as well as in Africa, Madagascar, Mongolia and Indonesia.

Sunil Kumar (Principal Consultant - Mining) Qualification B. Engg. (Mining) Prof. Membership MAusIMM Contribution Mine Scheduling, Reserve (JORC 2012) Experience Sunil is a mining engineer with 25 years’ experience in the mining

industry across operations and consulting. His career spans 4 years in working in mining operations and about 21 years as a mining consultant primarily in the mine planning & design role which included estimation of coal reserves, DFS/FS, due diligence studies, techno-commercial evaluations and technical inputs for mining contracts. Prior to joining HDR Salva, Sunil was working as Principal Mining Engineer at Xstrata Coal. To date Sunil has worked on over 25 coal projects around the world, inclusive of thermal and coking coal projects in Australia, as well as in major coalfields in India, Indonesia, Mongolia and Mozambique.

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Appendix B: JORC Table 1 Criteria Explanation Comment

Sampling techniques

Nature and quality of sampling (e.g. cut channels, random chips etc.) and measures taken to ensure sample representivity.

Include reference to measures taken to ensure sample representivity and the appropriate calibration of any measurement tools or systems used.

Aspects of the determination of mineralisation that are Material to the Public Report.

In cases where ‘industry standard’ work has been done this would be relatively simple (e.g. ‘reverse circulation drilling was used to obtain 1m samples from which 3 kg was pulverised to produce a 30 g charge for fire assay’). In other cases more explanation may be required, such as where there is coarse gold that has inherent sampling problems. Unusual commodities or mineralisation types (e.g. submarine nodules) may warrant disclosure of detailed information.

Chip samples were collected at every 1m for lithology logging. Sampled all cored coal, sampled separately any bands and taken 10cm of roof and floor for non coal samples.

Drilling techniques

Drill type (e.g.. core, reverse circulation, open-hole hammer, rotary air blast, auger, Bangka etc.) and details (e.g.. core diameter, triple or standard tube, depth of diamond tails, face-sampling bit or other type, whether core is oriented and if so, by what method, etc.).

Used man-portable top drive hydraulic rigs, capable of HQ3 coring.

Drill sample recovery

Whether core and chip sample recoveries have been properly recorded and results assessed.

Measures taken to maximise sample recovery and ensure representative nature of the samples.

Whether a relationship exists between sample recovery and grade and whether sample bias may have occurred due to preferential loss/gain of fine/coarse material.

After the completion of each core run, core loss is determined by the on site geologist and recorded in the drill hole completion sheet. If recovery is found to be less than 90% within a coal seam intersection, the hole is re-drilled in order to re-sample this seam with greater than 90% core recovery. All samples with less than 90% core recovery over the width of the seam intersection were excluded from the coal quality database.

Followed drilling SOP's for loose and carbonaceous formations to achieve full sample recovery.

Logging

Whether core and chip samples have been logged to a level of detail to support appropriate Mineral Resource estimation, mining studies and metallurgical studies.

Whether logging is qualitative or quantitative in nature. Core (or costean, channel etc.) photography.

The total length and percentage of the relevant intersections logged.

Detailed logging of chips and core. Core photographs were taken.

Sub-sampling techniques and sample preparation

If core, whether cut or sawn and whether quarter, half or all core taken. If non-core, whether riffled, tube sampled, rotary split etc. and whether sampled wet or dry. For all sample types, the nature, quality and appropriateness of the sample preparation technique.

Quality control procedures adopted for all sub-sampling stages to maximise representivity of samples.

No sub-sampling of the core.

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Criteria Explanation Comment

Measures taken to ensure that the sampling is representative of the in situ material collected.

Whether sample sizes are appropriate to the grainsize of the material being sampled.

Quality of assay data and laboratory tests

The nature, quality and appropriateness of the assaying and laboratory procedures used and whether the technique is considered partial or total.

For geophysical tools, spectrometers, handheld XRF instruments, etc., the parameters used in determining the analysis including instrument make and model, reading times, calibrations factors applied and their derivation, etc. Nature of quality control procedures adopted (e.g. standards, blanks, duplicates, external laboratory checks) and whether acceptable levels of accuracy (i.e. lack of bias) and precision have been established.

PT Geoservices laboratories are accredited to ISO 17025 standards. Coal quality laboratory adheres to internal QAQC and inter-laboratory QAQC checks. ISO methods have been used for MHC tests. Australian Standards have been used for RD and American Society for testing and materials (ASTM) methods have been used for all other quality variables.

Geophysical traces were observed to be generally of good quality.

Verification of sampling and assaying

The verification of significant intersections by either independent or alternative company personnel.

The use of twinned holes.

Documentation of primary data, data entry procedures, data verification, data storage (physical and electronic) protocols.

Discuss any adjustment to assay data.

Coal quality sampling undertaken by GEMS. Visual inspection on site.

Twinned holes checked for agreement of seam intersection depths and in almost all cases there was good agreement.

Location of data points

Accuracy and quality of surveys used to locate drill holes (collar and down-hole surveys), trenches, mine workings and other locations used in Mineral Resource estimation.

Specification of the grid system used.

Quality and adequacy of topographic control.

Borehole collars have been surveyed using standard total station techniques employed by the survey contractors. Surveys have been validated by GEMS survey staff. The surveyed borehole locations for KIM match well with topographic data. The topography was generated by PT Surtech Utama across KIM project area using LIDAR remote sensing data.

Data spacing and

Distribution

Data spacing for reporting of Exploration Results.

Whether the data spacing and distribution is sufficient to establish the degree of geological and grade continuity appropriate for the Mineral Resource and Ore Reserve estimation procedure(s) and classifications applied.

Whether sample compositing has been applied.

Data spacing sufficient to establish continuity in both thickness and coal quality. Data sets include topography and base of weathering as well as seam structure and coal quality. Ply sampling methodology use.

Sample compositing has been applied.

Orientation of data in relation to geological structure

Whether the orientation of sampling achieves unbiased sampling of possible structures and the extent to which this is known, considering the deposit type.

If the relationship between the drilling orientation and the orientation of key mineralised structures is considered to have introduced a sampling bias, this should be assessed and reported if material.

Ply by Ply sampling used therefore orientation of sampling not seen to introduce bias as all drilling is vertical.

Sample Security The measures taken to ensure sample security. Proper measures for sample security were taken.

Audits or reviews The results of any audits or reviews of sampling PTSMGC conducted a review of the drill

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techniques and data. hole database in 2013. Standard database checks also performed by HDR Salva as outlined on Section 5.4.4 prior to resource modelling.

Mineral tenement and land tenure status

Type, reference name/number, location and ownership including agreements or material issues with third parties such as joint ventures, partnerships, overriding royalties, native title interests, historical sites, wilderness or national park and environmental settings.

The security of the tenure held at the time of reporting along with any known impediments to obtaining a licence to operate in the area.

All tenure is secured and currently available.

.

Exploration done by other parties

Acknowledgment and appraisal of exploration by other parties. No exploration by other parties.

Geology Deposit type, geological setting and style of mineralisation.

See Section 4 of the Resource and Reserve Report.

Drill hole information

A summary of all information material to the understanding of the exploration results including a tabulation of the following information for all Material drill holes:

easting and northing of the drill hole collar elevation or RL (Reduced Level – elevation above

sea level in metres) of the drill hole collar dip and azimuth of the hole down hole length and interception depth hole length.

If the exclusion of this information is justified on the basis that the information is not Material and this exclusion does not detract from the understanding of the report, the Competent Person should clearly explain why this is the case.

This report pertains to resource estimation not exploration results. As such the details of the drill holes used in the estimate are too numerous to list in this Table.

Data aggregation methods

In reporting Exploration Results, weighting averaging techniques, maximum and/or minimum grade truncations and cut-off grades are usually material and should be stated.

Where aggregate intercepts incorporate short lengths of high grade results and longer lengths of low grade results, the procedure used for such aggregation should be stated and some typical examples of such aggregations should be shown in detail.

The assumptions used for any reporting of metal equivalent values should be clearly stated.

All samples have been composited over full seam thickness and reported using Minescape modelling software.

No metal equivalents used.

Relationship between mineralisation widths and intercept lengths

These relationships are particularly important in the reporting of Exploration Results.

If the geometry of the mineralisation with respect to the drill hole angle is known, its nature should be reported.

If it is not known and only the down-hole lengths are reported, there should be a clear statement to this effect (e.g. ‘downhole length, true width not known’).

Ply sampling methodology prevents samples from crossing ply boundaries. Therefore orientation of sampling not seen to introduce bias as all drilling is vertical and seams mostly gently dipping..

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Diagrams

Where possible, maps and sections (with scales) and tabulations of intercepts should be included for any material discovery being reported if such diagrams significantly clarify the report.

See figures in the Report and Appendices.

Balanced reporting

Where comprehensive reporting of all Exploration Results is not practicable, representative reporting of both low and high grades and/or widths should be practised to avoid misleading reporting of Exploration Results.

No reporting of exploration results.

Other substantive exploration data

Other exploration data, if meaningful and material, should be reported including (but not limited to): geological observations; geophysical survey results; geochemical survey results; bulk samples – size and method of treatment; metallurgical test results; bulk density, groundwater, geotechnical and rock characteristics; potential deleterious or contaminating substances.

Geophysical survey results available for majority of the holes.

Further work The nature and scale of planned further work (e.g.. tests for lateral extensions or depth extensions or large-scale step-out drilling).

Further work will be necessary to improve the confidence levels of the deposits and understanding of the full seam stratigraphy. No proposed exploration plan has been proposed in this report.

Database integrity

Measures taken to ensure that data has not been corrupted by, for example, transcription or keying errors, between its initial collection and its use for Mineral Resource estimation purposes.

Data validation procedures used.

The database for all blocks is considered of an acceptable standard to report a Coal Resource. Drill hole data used to construct Minescape model. Checks against original down hole geophysics (las) files used to verify data during modelling.

Site Visits

Site Visits undertaken by the Competent Person and the outcome of these visits. If no site visits have been undertaken, indicate why this is the case

Site visit by Mining Engineer (CP for Reserving) but not the geologist (CP for Resource).

Geological site visit not conducted due to the fact that the geology had been well documented by previous workers.

Geological interpretation

Confidence in (or conversely, the uncertainty of) the geological interpretation of the mineral deposit.

Nature of the data used and of any assumptions made.

The effect, if any, of alternative interpretations on Mineral Resource estimation.

The use of geology in guiding and controlling Mineral Resource estimation.

The factors affecting continuity both of grade and geology.

High degree of confidence in seam picks made using down hole geophysical data.

The KIM geological models created by HDR Salva are considered to accurately represent the deposits. No major faults have been reported .

Current Minescape model tonnes agree with previous model by PT SMGC Minex model to within 10% error margin, excluding the effect of different classification distances.

Dimensions

The extent and variability of the Mineral Resource expressed as length (along strike or otherwise), plan width, and depth below surface to the upper and lower limits of the Mineral Resource.

See figures in the Report and Appendices.

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Estimation and modelling techniques

The nature and appropriateness of the estimation technique(s) applied and key assumptions, including treatment of extreme grade values, domaining, interpolation parameters and maximum distance of extrapolation from data points.

The availability of check estimates, previous estimates and/or mine production records and whether the Mineral Resource estimate takes appropriate account of such data.

The assumptions made regarding recovery of by-products.

Estimation of deleterious elements or other non-grade variables of economic significance (eg sulphur for acid mine drainage characterisation).

In the case of block model interpolation, the block size in relation to the average sample spacing and the search employed.

Any assumptions behind modelling of selective mining units.

Any assumptions about correlation between variables.

Description of how the geological interpretation was used to control the resource estimates.

Discussion of basis for using or not using grade cutting or capping.

The process of validation, the checking process used, the comparison of model data to drill hole data, and use of reconciliation data if available.

FEM interpolator used for surface elevation, thickness and trend. Inverse distance squared used for coal quality throughout.

Based on experienced gained in the modelling of over 40 coal deposits around the world, the FEM interpolator is considered to be the most appropriate for structure and inverse distance the most appropriate for coal quality.

Grid cell size of 25 m for the topographic model, 25 m for the structural model.

Visual validation of all model grids performed.

Sulphur is below 1% on average for most seams.

Moisture Whether the tonnages are estimated on a dry basis or with natural moisture, and the method of determination of the moisture content.

All tonnages estimated on air dried basis.

Cut-off parameters The basis of the adopted cut-off grade(s) or quality parameters applied.

The coal resources contained in this report are confined within the concession boundary. The resources were limited to 250m below topography. A minimum ply thickness of 10cm and maximum thickness of 30cm was used for coal partings.

Mining factors or assumptions

Assumptions made regarding possible mining methods, minimum mining dimensions and internal (or, if applicable, external) mining dilution. It may not always be possible to make assumptions regarding mining methods and parameters when estimating Mineral Resources. Where no assumptions have been made, this should be reported.

The KIM East and KIM West areas are currently being mined as open pit excavations by truck and shovel method.

Metallurgical factors or assumptions

The basis for assumptions or predictions regarding metallurgical amenability. It may not always be possible to make assumptions regarding metallurgical treatment processes and parameters when reporting Mineral Resources. Where no assumptions have been made, this should be reported.

N/A in situ air dried tonnes quoted

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Environmental Factors

Assumptions made regarding possible waste and process residue disposal options. It is always necessary as part of the process of determining reasonable prospects for eventual economic extraction to consider the potential environmental impacts of the mining and processing operation. While at this stage the determination of potential environmental impacts, particularly for a greenfield project, may not always be well advanced, the status of early consideration of these potential environmental impacts should be reported. Where these aspects have not been considered this should be reported with an explanation of the environmental assumptions made.

N/A

Bulk density

Whether assumed or determined. If assumed, the basis for the assumptions. If determined, the method used, whether wet or dry, the frequency of the measurements, the nature, size and representativeness of the samples.

N/A in situ air dried tonnes quoted.

Classification

The basis for the classification of the Mineral Resources into varying confidence categories.

Whether appropriate account has been taken of all relevant factors i.e. relative confidence in tonnage/grade computations, confidence in continuity of geology and metal values, quality, quantity and distribution of the data.

Whether the result appropriately reflects the Competent Person(s)’ view of the deposit.

Classification distances based on an assessment of the variability of critical variables through statistical analysis and by an assessment of the degree of geological complexity. Classification radii for the three resource categories are:

Measured:250m

Indicated:500m

Inferred:2000m

Audits or reviews The results of any audits or reviews of Mineral Resource estimates.

Reconciliation exercises between planned and actual mining is occurring on an ongoing basis.

Discussion of relative accuracy/confidence

Where appropriate a statement of the relative accuracy and/or confidence in the Mineral Resource estimate using an approach or procedure deemed appropriate by the Competent Person. For example, the application of statistical or geostatistical procedures to quantify the relative accuracy of the resource within stated confidence limits, or, if such an approach is not deemed appropriate, a qualitative discussion of the factors which could affect the relative accuracy and confidence of the estimate.

The statement should specify whether it relates to global or local estimates, and, if local, state the relevant tonnages or volumes, which should be relevant to technical and economic evaluation. Documentation should include assumptions made and the procedures used.

These statements of relative accuracy and confidence of the estimate should be compared with production data, where available.

Spacing ranges for the three resource categories are considered to adequately reflect the degree of confidence in the underlying estimate on a global basis. Significant local variation to estimated values may arise which should be addressed by adequate grade control procedures.

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Mineral Resource Estimate for conversion to Ore Reserves

Description of the Mineral Resource estimate used as a basis for the conversion to an Ore Reserve.

Clear statement as to whether the Mineral Resources are reported additional to, or inclusive of, the Ore Reserves.

Basis of the estimates is “KIM JORC Resource Statement as at 30 July 2014. Coal resources is inclusive of Coal reserves.

Site Visits

Comment on any site visits undertaken by the Competent Person and the outcome of those visits.

If no site visits have been undertaken indicate why this is the case.

Mr Sunil Kumar, Mining Engineer, CP, made the site visit and held discussions during July 2014.

Study Status

The type and level of study undertaken to enable Mineral Resources to be converted to Ore Reserves.

The Code requires that a study to at least Pre-Feasibility Study level has been undertaken to convert Mineral Resources to Ore Reserves. Such studies will have been carried out and will have determined a mine plan that is technically achievable and economically viable, and that material Modifying Factors have been considered.

The Kim Mine is an operating mine. KIM East Pit is being currently mined. KIM West Pit was mined till the end of 2013 and is proposed to be mined again from Q1, 2016.

Cut-off parameters The basis of the cut-off grade(s) or quality parameters applied

Refer Table 8:4, Break even Stripping Ratio analysis

Mining factors or assumptions

The method and assumptions used as reported in the Pre-Feasibility or Feasibility Study to convert the Mineral Resource to an Ore Reserve (i.e. either by application of appropriate factors by optimisation or by preliminary or detailed design).

The choice, nature and appropriateness of the selected mining method(s) and other mining parameters including associated design issues such as pre-strip, access, etc.

The assumptions made regarding geotechnical parameters (eg pit slopes, stope sizes, etc.), grade control and pre-production drilling.

The major assumptions made and Mineral Resource model used for pit and stope optimisation (if appropriate).

The mining dilution factors used.

The mining recovery factors used.

Any minimum mining widths used.

The manner in which Inferred Mineral Resources are utilised in mining studies and the sensitivity of the outcome to their inclusion.

The infrastructure requirements of the selected mining methods.

Refer Table 8:1 Modifying Factors and Pit Optimisation Parameters and Section 8:3 on Notes on Modifying Factors.



Therefore it is considered valid to use Modifying Factors from the operating KIM mine to satisfy clause 29 of the JORC Code. While JORC 2012 in not explicit with reference to operating mines, the guidance given in ASX FAQ no. 9 is considered relevant in this regard.

Further, HDR Salva has carried out independent life of Mine (LOM) Study to develop the mining schedule and its economic evaluation of the Mine.

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Metallurgical Factors or assumptions

The metallurgical process proposed and the appropriateness of that process to the style of mineralisation.

Whether the metallurgical process is well-tested technology or novel in nature.

The nature, amount and representativeness of metallurgical test work undertaken, the nature of the metallurgical domaining applied and the corresponding metallurgical recovery factors applied.

Any assumptions or allowances made for deleterious elements.

The existence of any bulk sample or pilot scale test work and the degree to which such samples are considered representative of the ore body as a whole.

For minerals that are defined by a specification, has the ore reserve estimation been based on the appropriate mineralogy to meet the specifications.

The coal is to be sold unwashed so no processing factors have been applied. Other than crushing to a 50 mm top size no other beneficiation will be applied.

Environmental

The status of studies of potential environmental impacts of the mining and processing operation. Details of waste rock characterisation and the consideration of potential sites, status of design options considered and, where applicable, the status of approvals for process residue storage and waste dumps should be reported.

Refer Section 8.3.9, Permits and approvals

Infrastructure

The existence of appropriate infrastructure: availability of land for plant development, power, water, transportation (particularly for bulk commodities), labour, accommodation; or the ease with which the infrastructure can be provided, or accessed.

Discussed in Section 8.3.8 Mine Logistic Factors

Costs

The derivation of, or assumptions made, regarding projected capital costs in the study.

The methodology used to estimate operating costs. Allowances made for the content of deleterious elements.

The derivation of assumptions made of metal or commodity price(s), for the principal minerals and co- products.

The source of exchange rates used in the study.

Derivation of transportation charges.

The basis for forecasting or source of treatment and refining charges, penalties for failure to meet specification, etc.

The allowances made for royalties payable, both Government and private.

Discussed in Section 8.3.10 Cost and Revenue factors.

Revenue Factors

The derivation of, or assumptions made regarding revenue factors including head grade, metal or commodity price(s) exchange rates, transportation and treatment charges, penalties, net smelter returns, etc.

The derivation of assumptions made of metal or commodity price(s), for the principal metals, minerals and co-products

Discussed in Section 8.3.10 Cost and Revenue factors

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Market Assessment

The demand, supply and stock situation for the particular commodity, consumption trends and factors likely to affect supply and demand into the future.

A customer and competitor analysis along with the identification of likely market windows for the product.

Price and volume forecasts and the basis for these forecasts.

For industrial minerals the customer specification, testing and acceptance requirements prior to a supply contract.

Discussed in Section 8.3.11 Marketing Factors

Economic

The inputs to the economic analysis to produce the net present value (NPV) in the study, the source and confidence of these economic inputs including estimated inflation, discount rate, etc.

NPV ranges and sensitivity to variations in the significant assumptions and inputs

Economic analysis (NPV) done based on long term price outlook and the cost estimates (Contractor mining operation)

Social The status of agreements with key stakeholders and matters leading to social licence to operate

Refer Section 8.3.9, Permits and approvals

Other

To the extent relevant, the impact of the following on the project and/or on the estimation and classification of the Ore Reserves:

Any identified material naturally occurring risks.

The status of material legal agreements and marketing arrangements.

The status of governmental agreements and approvals critical to the viability of the project, such as mineral tenement status, and government and statutory approvals. There must be reasonable grounds to expect that all necessary Government approvals will be received within the timeframes anticipated in the Pre-Feasibility or Feasibility study. Highlight and discuss the materiality of any unresolved matter that is dependent on a third party on which extraction of the reserve is contingency.

Discussed under Section 8.3.13, Other Factors

Classification

The basis for the classification of the Ore Reserves into varying confidence categories.

Whether the result appropriately reflects the Competent Person’s view of the deposit.

The proportion of Probable Ore Reserves that have been derived from Measured Mineral Resources (if any).

Discussed under Section 8.7, Reserve Classification

Audit & Reviews The results of any audits or reviews of Ore Reserve estimates.

Discussed under Section 8.5, Audits & Reviews

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Discussion of Relative accuracy/confidence

Where appropriate a statement of the relative accuracy and confidence level in the Ore Reserve estimate using an approach or procedure deemed appropriate by the Competent Person. For example, the application of statistical or geostatistical procedures to quantify the relative accuracy of the reserve within stated confidence limits, or, if such an approach is not deemed appropriate, a qualitative discussion of the factors which could affect the relative accuracy and confidence of the estimate.

The statement should specify whether it relates to global or local estimates, and, if local, state the relevant tonnages, which should be relevant to technical and economic evaluation. Documentation should include assumptions made and the procedures used.

Accuracy and confidence discussions should extend to specific discussions of any applied Modifying Factors that may have a material impact on Ore Reserve viability, or for which there are remaining areas of uncertainty at the current study stage.

It is recognised that this may not be possible or appropriate in all circumstances. These statements of relative accuracy and confidence of the estimate should be compared with production data, where available.

Discussed under Section 8.6, Relative Accuracy and confidence

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Appendix C: Raw Coal Quality Histograms per Seam KIM EAST

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Page 71

KIM WEST

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Page 72

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Appendix D: Cross-Sections

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970


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Page 78

Appendix E: Resource Polygons for selected seams

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973


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975


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977


978


979


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Appendix F: Drill Hole Location Plans

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984

APPENDIX 6C – TKS INDEPENDENT QUALIFIED PERSON’S REPORTAND VALUATION

Date: 19 January 2015Report No: R223.2014

Independent Qual i f ied Person ’s Repor t and Valuat ion

Coal Assets of PT Trisula Kencana SaktiRegency of Barito Utara, Central Kal imantan

Indonesia

On behalf of

UNITED F IBER SYSTEM LTD

By

Ian Wollff (BSc, MAusIMM, MAIG, IAGI (CPI))Ray Cary (BSc, FAusIMM (CP), FAIG)

For: Ms Pauline Lee Approved:

United Fiber System Limited50 Raffles Place#32 01 Singapore Land TowerSINGAPORE 048623 ________________________

John BishopDirector Singapore

985


United Fiber System LtdCoal Assets of PT Trisula Kencana Sakti

Report No: R223.2014 I

Author and Reviewer Signatures

PrincipalAuthor: Ian Wollff Signature:

DAG & BSc(Geology)MAusIMM, MAIG,IAGI (CPI)

Date: 19 January 2015

Contributors: Ray Cary, DwiyokoTaruno

PrincipalReviewer: Ray Cary Signature:

BSc (Geology,Physical Chemistry)FAusIMM (CP), FAIG

Date: 19 January 2015

OtherReviewers: John Bishop

CSAAuthorisation: John Bishop Signature

BSc (Geology),MAusIMM, MAIG Date 19 January 2015

Revision:

Rev No. Date Revisions Author Approved

986



Report No: R223.2014 II

Executive Summary

United Fiber System Limited (“UFS”) has requested CSA Global Pty Ltd (“CSA”) to prepare anIndependent Qualified Person’s Report and Valuation of two adjacent Coal Izin UsahaPertambangan (“IUP”) or Mining Business Permit that are in the Production OperationPermit stage for coal located in Central Kalimantan, Indonesia (Figure 1) (“Report”). The IUPsare held by PT Trisula Kencana Sakti (”TKS”) and are to be acquired by UFS, a company listedon the Singapore Stock Exchange (“SGX”), as part of the proposed reverse takeover of UFSby PT Golden Energy Mines Tbk (“GEMS”) (“the Proposed RTO”). The Report is to beincluded in its entirety within a Circular to be sent to UFS shareholders ahead of anExtraordinary General Meeting to approve the Proposed RTO.

The IUPs have a total area of 9,707ha and lie within a designated Production Forest. Withinthe IUPs is a 699ha Izin Pinjam Pakai Kawasan Hutan (“IPPKH”) or Forestry Borrow and UsePermit which allows the mining of coal within the designated Production Forest. The IPPKHarea can be progressively adjusted as mining activity progresses. The IUPs and IPPKH havebeen confirmed as being in good standing by independent enquiry of the legal firmLasutLay& Pane (“LLP”).

The IUPs are located 58km east of the town of Muara Teweh which is on the Barito River(Figure 2). Road distance from the mine site to a barge port on the Barito River at Pangku is47km. The Barito River allows barge loading of the coal and shipment to the coast(approximately 485km) for loading onto larger bulk coal carriers at the TaboneoTranshipment Point. Alternative road transport routes from the mine to the Barito River arealso available. The Pangku river port is owned by a company not associated with TKS whilstthe haul road is part of a network of haul roads owned by several other companies. Coalproduction commenced within the IPPKH area in August 2010 and ceased in March 2012.Sales ceased in September 2012. A total of 218,522t of coal was mined and 184,514t sold.

Within the IUPs coal is present in the Tanjung Formation (~40My old), the MontalatFormation (~20My old) and the Warukin Formation (~15My old). These formations are partof the Barito Basin stratigraphy. The known resources are restricted to the Montalat andWarukin Formations. The outcrop pattern of these formations is controlled by an eastnortheast to west southwest trending syncline which completes a structural closure withinthe central part of the IUPs affording continuous coverage of the coal bearing stratigraphyfor a distance 24km around a shallow basin like structure. An adjacent sub parallel anticlineis located in the south east portion of the IUPs.

A total of 494 drill holes aggregating 40,168m have been completed within the IUPs. At least21 separate coal seams have been identified with an average total combined thickness of15.05m within a sediment package 575m thick. Individual seams range from 0.10m to 3.88mthick and average 1.00m in thickness. Coal quality analyses have been completed on 709 NQcore samples from 261 drill holes which indicate that the coal is of a sub bituminous rank

987


UnitCoal

Repo

with(ave

1 CV2 kca3ar –4 TS

ed Fiber SysteAssets of PT T

ort No: R223.20

h a low to merage TS4>1.5

V – Calorific Val/kg – kilocal–as received re

– total sulphu

em LtdTrisula Kenca

014

oderate ene5%ar).

Figure 1

Figure 2. Lo

Value lories/kilogrameferring to theur

na Sakti

ergy content

1. Location o

ocation of TK

me test sample

(average CV

of TKS Coal

KS Coal Proje

V1 of <5500 k

Project in In

ect in Centra

kcal/kg2ar3) a

donesia

l Kalimantan

and high sul

n

III

phur

988



Report No: R223.2014 IV

Indonesia based resource consultants PT Danmar Explorindo (“Danmar”) prepared aQualified Person’s Report of Coal Resources dated 15 January 2015 which are summarised inthe tables below. Danmar states that the estimates were prepared according to theAustralasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves– The JORC Code 2012 Edition (“JORC Code”). Danmar’s report includes the appropriateCompetent Persons statement and the JORC Code 2012 Table 1 checklist. CSA’s scope doesnot include an audit of Danmar’s Coal Resource Estimates.

In Situ Coal Resources within IUPs (as at 31 July 2014)MEASURED (Mt) INDICATED (Mt) INFERRED (Mt) TOTAL (Mt)

40 12 25 77

Weighted Average Coal Quality for All Resources (as at 31 July 2014)TM5 IM6 ASH VM7 FC8 TS CV CV CV% % % % % % Kcal/kg Kcal/kg Kcal/kgar adb9 adb adb adb adb adb ar daf10

20.65 13.77 7.35 39.07 39.80 1.79 5,811 5,352 7,356

The Hardgrove Grindability Index is 59 and Relative Density (in situ) is 1.32. The resources areestimated to a 100m depth.

CSA has reviewed Danmar’s estimate and has formed an independent view that about 53Mtof the Resources might satisfy the JORC Code requirement for reporting of Coal Resources,i.e. “that there are reasonable prospects for eventual economic extraction (i.e. more likelythan not)”.

Despite the past production activity, Danmar did not undertake a Coal Reserve Estimate dueto a lack of a suitable pre feasibility study and due to prevailing coal prices at or belowexpected costs.

Outside the identified resources Danmar has recognised potential for additional resourcesand has suggested an “Exploration Target” (JORC 2012) of 20Mt to 113Mt of coal, some ofwhich is expected to have CVs in the range of 5,700 Kcal/kg to 6,500 Kcal/kg (ar) and TS inthe range 0.3% to 3.0% (adb). Although little drilling has been completed over most of theprospective areas, CSA considers that the area of IUPs outside that underlain by theresources (6,827ha) has substantial coal potential.

After analysis of the transactions involving land only, CSA has formed the opinion that thearea outside that underlain by resources has a value in the range US$11.6M to US$18.7M,with a preferred value near the upper end of the range at US$15M due to the excellentprospects for realising the exploration targets. Analysis of the transactions for whichresources and resources/land areas were reported suggests a value in the range US$16M toUS$21M for the 53Mt of Resources, with a preferred value near the lower end of the range,that is, US$18M.

5 TM – total moisture 6 IM –inherent moisture 7 VM – volatile matter 8 FC – fixed carbon 9adb – air dried basis 10daf – dry ash free basis

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Report No: R223.2014 V

In CSA’s opinion, the fair market value of the TKS IUPs as at 31 July 2014 lay within the rangeUS$28M to US$40M, with a most likely value of US$33M. It is stressed that this is only anopinion as to the likely value, which can only be confirmed by going to the market. Despitethe valuations having been based on transactions that largely took place over the last 24months or so, CSA cautions that the continuing volatile market for thermal coal experiencedsince the beginning of 2012 could potentially and materially alter the market value of theasset from that derived in this Report.

This Report has been prepared in accordance with the Code for the Technical Assessmentand Valuation of Mineral and Petroleum Assets and Securities for Independent ExpertReports (“VALMIN Code”) and the SGX mainboard admission rules for mineral, oil and gascompanies (“MOG Rules”). All references to units of currency in this Report are to US Dollars(“$” or “US$”). Standard abbreviations used are kilometres (“km”), metres (“m”), hectare(“ha”), million (“M”), kilogram (“kg”) and tonne/s (“t”).

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Report No: R223.2014 VI

Contents

Author and Reviewer Signatures................................................................................................ IExecutive Summary ................................................................................................................... IIContents ............................................................................................................................... .... VI1 Introduction ....................................................................................................................... 11.1 Scope and Terms of Reference ............................................................................................... 11.2 Reporting Standards ............................................................................................................... 11.3 Authors of Report ................................................................................................................... 11.4 Basis for Report....................................................................................................................... 21.5 Independence ......................................................................................................................... 31.6 Declarations and Limitations................................................................................................... 41.7 Previous Valuations................................................................................................................. 4

2 Coal Mining in Indonesia .................................................................................................... 53 Indonesian Mining Law ...................................................................................................... 74 Kalimantan Coal Geology ................................................................................................. 105 TKS IUPs............................................................................................................................ 125.1 Location and Access .............................................................................................................. 125.2 Tenure ............................................................................................................................... ....125.3 Regional Geological Setting................................................................................................... 145.4 Project Geology..................................................................................................................... 155.5 Coal Stratigraphy................................................................................................................... 165.6 Previous Exploration and Mining .......................................................................................... 175.7 Coal Deposit Modelling ......................................................................................................... 185.8 Coal Resources ...................................................................................................................... 195.9 Coal Transport....................................................................................................................... 235.10 Coal Marketability................................................................................................................. 245.11 Exploration Potential ............................................................................................................ 245.12 Site Inspection....................................................................................................................... 255.13 Project Risks .......................................................................................................................... 26

6 Coal Prices and Outlook ................................................................................................... 277 Valuation of TKS IUPs ....................................................................................................... 307.1 Valuation Concepts ............................................................................................................... 307.2 Valuation Methods................................................................................................................ 317.3 Valuation of TKS IUPs............................................................................................................ 327.3.1 Valuation of Land Area ..................................................................................................... 337.3.2 Valuation of Resources ..................................................................................................... 337.3.3 Valuation Conclusions ...................................................................................................... 34

8 References........................................................................................................................ 399 Glossary ............................................................................................................................ 40

Figures

Figure 1. Location of TKS Coal Project in Indonesia................................................................................ IIIFigure 2. Location of TKS Coal Project in Central Kalimantan ................................................................ IIIFigure 3. Indonesian Coal Basins and Major Coal Mines ......................................................................... 6Figure 4. Coal Basins of Kalimantan....................................................................................................... 11Figure 5. Location of TKS Coal Project in North Barito, Central Kalimantan ......................................... 13Figure 6. TKS Project Title Areas and Access Roads (UTM Zone 50S).................................................... 14Figure 7. Simplified TKS Project Geology (modified after Danmar 2015).............................................. 16Figure 8. TKS Drill Hole and Coal Outcrop locations .............................................................................. 18

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Report No: R223.2014 VII

Figure 9. TKS Coal Resource Areas......................................................................................................... 20Figure 10. TKS Exploration Target Areas (Modified after Danmar 2015) .............................................. 25Figure 11. Selected Indonesian Thermal Coal Prices from July 2009 to July 2014 ................................ 27Figure 12. Selected Indonesian Coal Prices from July 2012 to July 2014 .............................................. 28

Tables

Table 1. Details of IUPs for Coal (LasutLay & Pane 2015)........................................................................ 8Table 2. TKS Warukin Montalat Formation Coal Seam Stratigraphy and Thicknesses

(Danmar 2015)....................................................................................................................... 17Table 3. TKS Coal Production (Danmar 2015)........................................................................................ 18Table 4. In Situ Coal Resources within TKS IUPs (Danmar 2015) ........................................................... 20Table 5. Weighted Average Coal Quality All Resources (Danmar 2015)................................................ 21Table 6. Coal Resources by Depth (Danmar 2015) ................................................................................ 21Table 7. Coal Resources by Seam (Danmar 2015) ................................................................................. 21Table 8. Coal Resource Quality by Seam (Danmar 2015) ...................................................................... 22Table 9. Coal Resources by Formation (Danmar 2015) ......................................................................... 22Table 10. Coal Resource Quality by Formation (Danmar 2015) ............................................................ 23Table 11. TKS Coal Shipments (Danmar 2015)....................................................................................... 24Table 12. Coal Brand and Price (HBA July 2014).................................................................................... 28Table 13. TKS Coal and Indicative Price¹ (July 2014) ............................................................................. 29Table 14. Summary of Comparable Indonesian Coal Project Transactions ........................................... 35

Appendices

Appendix 1 LasutLay & Pane Report .............................................................................................. 45Appendix 2 TKS Coal Stratigraphy (Danmar 2015) ......................................................................... 46Appendix 3 Site Visit 17 July 2014................................................................................................... 47

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Report No: R223.2014 1

1 Introduction

1.1 Scope and Terms of Reference

On 15 May 2014 the directors of United Fiber System Limited commissioned CSA Global Pty Ltdto prepare an Independent Qualified Person’s Report and Valuation of two Izin UsahaPertambangan or IUP with Production Operation Permits for coal located in the Regency ofBarito Utara, Central Kalimantan, Indonesia. The IUPs are currently held by PT Trisula KencanaSakti and are to be acquired by UFS, a company listed on the Singapore Stock Exchange, as partof the proposed reverse takeover of UFS by PT Golden Energy Mines Tbk (“GEMS”), a miningcompany listed on the Indonesia Stock Exchange (“IDX”).TKS is beneficially owned by GEMSwhich is a member of the Sinar Mas Group (“Sinar Mas”). Upon completion of the Proposed RTO,the controlling shareholders of GEMS will become the controlling shareholders of UFS.

CSA’s Report and valuations have been prepared as at 31 July 2014 (“Valuation Date”). TheReport is to be included in its entirety within a circular to be sent to UFS shareholders ahead ofan Extraordinary General Meeting to approve the Proposed RTO (“Circular”), and has beenprepared in accordance with the prevailing SGX Mainboard admission rules for mineral, oil andgas companies (“MOG Rules”). Under the MOG Rules, Rule 1015 requires that if a verysubstantial acquisition or reverse takeover relates to the acquisition of a mineral, oil or gas assetof a mineral, oil or gas company, the circular that must be sent to shareholders must contain areport prepared by an independent qualified person in accordance with the VALMIN Code or anequivalent standard that is acceptable to SGX. CSA has prepared this Report accordingly.

CSA’s scope does not include an audit of Danmar’s Coal Resource Estimates, nor does it includean audit of the LasutLay & Pane (“LLP”) legal review of the various permits or corporate matters.

1.2 Reporting Standards

In February 1995 the Australasian Institute of Mining and Metallurgy (“AusIMM”) adopted theCode and Guidelines for Assessment and Valuation of Mineral Assets and Mineral Securities forIndependent Expert Reports. There have since been a number of revised editions, the latest ofwhich was issued in mid 2005 under the title “Code for the Technical Assessment and Valuationof Mineral and Petroleum Assets and Securities for Independent Expert Reports” (“VALMINCode”). The VALMIN Code is binding on members of the AusIMM and AIG. CSA has prepared thisReport in accordance to the VALMIN Code.

The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves2012 Edition sets out minimum standards, recommendations and guidelines for Public Reportingof Exploration Results, Mineral Resources and Ore Reserves. The JORC Code has been adoptedby the AusIMM and AIG, and is therefore binding on members of those organisations.

1.3 Authors of Report

This Report has been prepared by CSA Global Pty Ltd. CSA is an international minerals industryconsultancy with its head office in Perth, Western Australia, branch offices in Darwin, Brisbane

993




and Adelaide, and overseas offices in the United Kingdom, South Africa, Canada, Russia,Indonesia and Singapore. The Company has provided geological consulting services to theexploration and mining industries in Australia, Asia, Europe, Africa, and the Americas for over 30years. These services include estimation, assessment and evaluation of a wide range of bothmetallic and non metallic deposits, and it has advised upon, designed and performed explorationprograms, carried out valuations, due diligence studies, and mine development studies andproduced independent reports on mining and exploration properties.

The principal author of this Report is Mr Ian Wollff a Principal Geologist and Director of PT. CSAGlobal Indonesia. Mr Wollff graduated from the Ballarat School of Mines and Industries in 1972with a Diploma of Applied Geology and in 1982 completed a Bachelor of Science in Geology. He isa Member of the AusIMM and a Member of the AIG. He is also an accredited with the IndonesianIkatan Ahli Geologi Indonesia (“IAGI”) as a Competent Person Indonesia (“CPI”) for publicreporting of Coal Resources. He has over 40 years of industry experience including some 30 yearsin Indonesia that includes exploration, resource evaluation and pre feasibility studies in Australiaand Indonesia plus construction of coal mines in Indonesia. Commodities have included coal,uranium, base metals and gold. Mr Wollff has the necessary qualifications and experience to beconsidered a “Specialist” under the VALMIN Code.

The co author of this Report is Mr Ray Cary. Mr Cary is an Associate Consultant with CSA, andalso the Director and Principal of Northwind Resources Pty Ltd (“NRPL”) of Perth, WesternAustralia. Mr Cary graduated from the University of Western Australia in 1970 with a Bachelor ofScience, majoring in Geology and Physical Chemistry. He is a Fellow of the AusIMM and a Fellowof the AIG. He has worked in the mining and exploration sectors for over 40 years in exploration,resource evaluation, feasibility studies, project development, mining operations, corporate andasset acquisitions, resource project financing and company directorships. He has preparednumerous public and private evaluations of companies, mining operations and explorationprojects, and has extensive experience in financial modelling for operations involving a variety ofcommodities including gold, nickel, base metals and iron ore. The geographic spread of theseactivities includes Australia, New Zealand, Central and South East Asia, West and Central Africa,Europe, Northern and Central America and the Pacific region. Mr Cary has the necessaryqualifications and experience to be considered an “Expert” under the VALMIN Code with morethan 5 years’ experience in the assessment and valuation of mineral assets.

The Report was prepared under the overall supervision of Mr John Bishop, President Director ofPT CSA Global Indonesia and Director of CSA Global (Singapore) Pte Ltd. Mr Bishop graduatedfrom the University of Canterbury, New Zealand, in 1982 with a Bachelor of Science, majoring inGeology. He is a Member of the AusIMM and a Member of the AIG. He has more than 30 yearsinternational experience in the management, evaluation and development of mineral and coalprojects, including more than 7 years in the Indonesian mining industry.

1.4 Basis for Report

The information upon which this report is based has been provided to CSA by GEMS or has beensourced from the public domain. Coal Resources within the IUPs have been estimated by PTDanmar Explorindo under instruction from UFS. The status and legal standing of the IUPs hasbeen established by LasutLay & Pane (“LLP”). Danmar’s final report dated 15 January 2015 wasmade available to CSA on 18 January 2015, and LLP’s final report dated 16 January 2015 was

994




received 17 January 2015. The Danmar and LLP reports were prepared to incorporateinformation up to 31 July 2014. LLP determined that the IUPs and IPPKH were in good standing atthe time of their report, which would have been the case at the Valuation date. CSA provided adraft of this Report to Danmar and to LLP, both of whom have advised that they consent to theinclusion in this Report of the discussion of their work in the form and context in which itappears.

CSA has made reasonable enquiries and exercised its judgement on the reasonable use of theinformation provided by Danmar and LLP, and CSA has no reason to doubt the reliability of anyof the information or to believe that information has been withheld or is incomplete. However,the information has not been independently audited, nor has any audit been conducted of any ofGEMS, TKS or UFS, their subsidiaries or associated entities, or any other parties to the ProposedRTO. All material sources of information are shown in the footnote of Table 11 and Section 8 atthe rear of the Report.

The statements and opinions included in the Report are given in good faith and in the belief thatthey are not false, misleading or incomplete. A copy of the Report was provided to UFS in draftform with a written request for comment as to errors of fact or interpretation, materialomissions, or substantive disagreement as to the conclusions reached herein. The opinions andconclusions presented in the Report are believed to be appropriate on the basis of theinformation available at the time. These opinions and conclusions could however be subject tochange over time should new information become available, or with changes in other factorsthat may affect the quantum of Coal Resources within the IUPs or the prospectivity of the IUPs.

The VALMIN Code stipulates that a field inspection of a material Mineral or Petroleum Asset ortenement must be made where an inspection is likely to reveal information or data that isMaterial to a Report, providing it is practicable to do so. CSA Senior Coal Resource GeologistDwiyoko Taruno was the Specialist who visited the IUPs on the 17 July 2014 in the company ofTKS’s Site Community Development Officer Mr Uppu. Mr Dwiyoko’s observations are discussedin Section 5.12 of this Report.

1.5 Independence

None of CSA, NRPL, any of their employees, partners, directors, substantial shareholders,affiliates, Associates or subsidiaries, nor the authors of this report, have, or have had anyassociation with any of UFS, GEMS, TKS or any of their directors, subsidiaries, substantialshareholders, its advisers and their associates which could reasonably be construed as affectingCSA’s independence in the preparation of this Report. None of CSA, NRPL, any of theiremployees, partners, directors, substantial shareholders, affiliates, Associates or subsidiaries,nor the authors of this report has, or has had, any shareholding, or the right (whetherenforceable or not) to subscribe for securities, or the right (whether legally enforceable or not)to nominate persons to subscribe for securities in UFS, GEMS or any other company discussed inthis Report. None of CSA, NRPL, any of their employees, partners, directors, substantialshareholders, affiliates, Associates or subsidiaries, nor the authors of this report has, or has had,any interest in the IUPs discussed in this Report, or any other of the assets and undertakings ofUFS or GEMS or their subsidiaries or associated companies. No member or employee of CSA orNRPL is, or is intended to be, a director, officer or other direct employee of UFS or GEMS.

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CSA is an independent geological consultancy. Fees are being charged to UFS under normalcommercial terms for the preparation of this Report, the payment of which is not contingentupon the conclusions of the Report. CSA has not previously provided professional services to UFSor GEMS, and there is no agreement or understanding between CSA and/or GEMS as to CSAperforming future work for them. CSA’s relationship with UFS is solely one of professionalassociation between client and independent consultant.

1.6 Declarations and Limitations

This Report has been prepared by CSA Global Pty Ltd at the request of, and for the sole benefit ofUFS. Its sole purpose is to provide an independent valuation of two IUPs [188.45/207/2010 and188.45/208/2010] located in the Barito Utara regency of Central Kalimantan and which are heldby TKS. This Report is to be included in the Circular in its entirety. The Report is not intended toserve any purpose beyond that stated herein and should not be relied upon for any otherpurpose.

Having taken all reasonable care to ensure that such is the case, CSA and the authors confirmthat, to the best of their knowledge, the information contained in the Report is in accordancewith the facts, contains no omission likely to affect its import, and no change has occurred fromthe Valuation Date to the date hereof that would require any amendment to the Report.

The terms of CSA’s appointment include the provision of an indemnity whereby UFS has agreedto hold CSA, its directors, employees and Associates harmless from any liabilities, costs andexpenses relating to, or arising from this engagement (including, without limitation, legal feesand the time of CSA’s personnel involved) incurred by reason of any action CSA may take in goodfaith, unless CSA has been negligent. UFS will indemnify and compensate CSA in respect ofpreparing the Report against any and all losses, claims, damages and liabilities to which CSA or itsAssociates may become subject under any applicable law or otherwise to the extent that suchloss, claim, damage or liability is a direct result of UFS or any of its directors or officers knowinglyproviding CSA with any false or misleading information, or knowingly withholding materialinformation. UFS has agreed that if it makes any claim against CSA for loss as a result of a breachof contract, and that loss is contributed to by UFS’s own actions, then liability for the loss will beapportioned as is appropriate having regard to the respective responsibility of the parties for theloss.

This report has been prepared for the sole use of the Directors of UFS for inclusion in theCircular. CSA has consented to the inclusion of the Report in the Circular in the form and contextin which it is to appear, and has not since withdrawn that consent. Other than the Circular,neither the whole nor any part of the Report, nor any reference to it, may be included in or with,or attached to any documents, circular, resolution, letter or statement without the prior writtenconsent of CSA as to the form and context in which it is to appear.

1.7 Previous Valuations

It is a requirement of the VALMIN Code that previous valuations for the assets concerned bediscussed. To the best of CSA’s knowledge there are no previous valuations of the TKS propertiesin the public domain.

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2 Coal Mining in Indonesia

Modern coal exploration was initiated in Indonesia in the 1970s when the Government invitedtenders from major international mining companies to participate in the exploration anddevelopment of coal resources in Sumatra, East Kalimantan and South Kalimantan (Figure 3).Companies such as CRA (now Rio Tinto), BP Coal, Utah Coal, ARCO and Enadisma lodgedapplications for large blocks of prospective terrain in East and South Kalimantan. The areas wereknown as Coal Contracts of Work (“CCoW”), now known as 1st Generation CCOWs, whichallowed the holder to explore and develop the coal resources within them over a period of 30years. A royalty of 13.5% was payable during production.

Coal production began from these CCOW’s in the late 1980s, and from 1989 to 1999 annualproduction increased from about 4.5Mt to about 81Mt and from 81Mt to 380Mt between 1999and 2012 representing an annual growth rate of 13% (Patersons Securities Limited, January2013).

In 1994 the Indonesian Government awarded 2nd Generation CCoWs to 17 Indonesian basedcompanies but this system of tenure was discontinued the following year.

In 1997 the 3rd Generation CCoW system was introduced and endured until 2000. CCoWs underthis system were offered to 117 companies almost all of which were domestically owned.

Between 2000 and 2009, domestic investors, with Government support, gained majorityownership of Indonesia’s largest coal producers including PT Kaltim Prima Coal from Rio Tinto/BPand PT Arutmin from BHP. During this time, the industry was subjected to greater regulatorycontrol by provincial and regency governments and production expanded at a rate of 12% perannum to where Indonesia became the world’s largest exporter of thermal coal in 2009, with117Mt shipped compared with 115Mt from Australia. Indonesia continues to be the world’slargest exporter of thermal coal. In 2012 Indonesian producers shipped 380Mt of thermal coal,with production derived from more than 40 different mine sites in Kalimantan and Sumatra.

Coal is generally transported from mines to shipping points via a combination of trucking andbarging typically performed by contractors. At most operations, coal is trucked directly to a coalprocessing/barge loading facility located on the tidewater or on a river that is navigable by barge.Coal trucking distances for these direct haul operations typically vary between 10km and 35km,with a few mines experiencing longer hauls of up to 75km. The majority of export coals areloaded into barges at either river or coastal loading facilities and transported to an offshoretransfer point for loading onto ocean going vessels, or barged to a deep water point, such as theBalikpapan Coal Terminal, Indonesia Bulk Terminal or Arutmin’s North Pulau Laut Coal Terminal.PT Kaltim Prima Coal has its own dedicated deep water shipping terminal which is connected tothe coal mining operations by a 13km long conveyor belt.

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Figure 3. Indonesian Coal Basins and Major Coal Mines

In 2009 a new Mining Law was introduced which established a new system of exploration anddevelopment titles for private companies known as an IUP (Izin Usaha Pertambangan). The olderCCoWs are to be replaced by IUPs over a time frame set out for the various Generations ofCCoWs and different operators. A Domestic Market Obligation (“DMO”) was also imposed whichmandates that a coal mining company make available for domestic consumption a certainpercentage of its production, to be determined on an annual basis. This is to be no higher than35% in any one year, however, in practice, supplies of coal to Indonesian power stations havebeen more than adequate to meet demand over the past few years. An Indonesian Coal PriceReference, called the Harga Batubara Acuan (“HBA”), has also been established whichdetermines on a monthly basis a minimum price for particular types of coal according to theirenergy content and other quality parameters that is used to calculate a royalty paymentirrespective of the actual selling price of the coal if below the HBA price.

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3 Indonesian Mining Law

The legal framework for the mining law in Indonesia is built on the principle that land, water andnatural resources contained therein are controlled by the state and must be used for thegreatest benefit of the people. On January 12, 2009, Law No. 4, 2009 concerning Mineral andCoal Mining (“Mining Law 2009”) came into effect (Appendix 1). This introduced a new licensingsystem in the form of Mining Business Licences (IUPs), Special Mining Business Licences (IUPKs),and People’s Mining Licences (IPRs). One significant feature of the Mining Law 2009 is thatforeign investors are recognized as owners of coal IUP’s, though with various restrictions.

The key changes introduced under the Mining Law 2009 include:

Abolition of the contract based system to be replaced by a license based systemapplicable to both foreign and domestic investors. Existing CCoWs are to be honoureduntil their expiry, subject to certain amendments.

Mining open for foreign investment but with mandatory divestment.

Designation of mining areas permitted for mining activities.

All new coal mining concessions must be granted by way of tender.

Domestic Market Obligations (“DMO”).

Key implementing regulations under the Mining Law 2009 which have been issued to dateinclude:

The requirement for progressive divestment of up to 51% of IUP interests held by foreigninvestors by the end of the 10th year of production;

Restrictions on the export of unprocessed mineral ore and the requirement for furtherin country processing;

Imposing minimum domestic market sales obligations procedures on coal;

Imposing a benchmark pricing framework for coal and mineral exports to set a minimumprice for transactions in such commodities; and

An IUP may be an Exploration IUP or a Production Operation IUP (Table 1). If the explorationcarried out by an Exploration IUP holder continues into exploitation, a Production Operation IUPmay be granted. The holder of an Exploration IUP is guaranteed to be granted a ProductionOperation IUP in respect of the same mining commodity within the same mining area.

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Table 1. Details of IUPs for Coal (LasutLay & Pane 2015)

IUP pursuant to theMining Law 2009 Scope of Activities Maximum Period Granted Maximum Area

Granted

Exploration IUPGeneral survey, exploration,research and feasibility study

of coal miningSeven (7) years 50,000ha

Production Operation IUPConstruction, mining,

processing and refining, andlogistics and sales of coal

Twenty (20) years with anoption for two (2) ten (10)

year extensions.15,000ha

The area of a Coal Exploration IUP must be reduced to a maximum of 25,000ha after three years.

All existing IUP’s were converted or granted under the previous Kuasa Pertambangan (“KP”)system. There have been no new IUP’s granted under the Mining Law of 2009 tender system.

An IUP in respect of coal does not automatically grant the holder the right to explore for orexploit other minerals, however, the holder of the IUP is given priority to apply for an IUP forother minerals within the same WIUP (the IUP tender or application area). A business entity,including both foreign investment and domestic companies, a cooperative or an individual mayapply for and be awarded an IUP. A privately held company can only hold one IUP, and onlycompanies listed on the Indonesia stock exchange are entitled to hold more than one license.Transfer of ownership or shares in the IUP holder (mining company) can only be effected afterexploration has reached a certain phase where two prospective discoveries have been made andwhen the IUP has entered the Production status. The holder of an IUP will have title to the coal itrecovers only after production.

Prior to engaging in mine ownership foreign parties must establish a PMA (foreign investment)company. Foreign parties can initially wholly own a PMA mining company, however, Indonesianownership in the PMA company must be at least 51% at the end of the tenth year following thecommencement of commercial production. The divestment shares must first be offered to theCentral Government and the relevant regional government. If the Central or regionalgovernments decline the offer, the divestment shares must then be offered to Central orregional government business entities, and if those entities decline, to private entities. The offerof the divestment shares to Central or regional government entities is by an assessed value, anddivestment to private entities must be made by way of a tender. The divestment of shares is tooccur progressively from the sixth year after the commencement of operations.

Coal producers are required to pay national and regional income taxes, value added tax, importduties and regional levies, permanent land rent, building taxes and production royalties.Production royalties are not payable for materials removed as waste unless they are used by theholder by the IUP. The rate of permanent rent and production royalties varies based on the scaleof mining, production level and commodity prices.

The Indonesian Coal Price Reference (HBA) is set by the Minister on a monthly basis as the floorprice for the calculation of royalty. If the actual sales price is higher than the HBA, the royaltycalculation is based on the actual sales price; if actual sales are below the HBA, the royaltycalculation is based on the HBA. Specific coal types (e.g. fine coal, reject coal, and coal withspecific impurities) and coal for specific purposes can be sold below the HBA with the priorapproval of the Director General of Minerals and Coal (“DGMC”).

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Holders of an IUP are required to process and refine their coal in Indonesia to increase its valuebefore exporting. The processing and refining can be undertaken by third parties that havealready obtained a special Production Operation IUP for processing and refining. Processingincludes any of the following coal crushing, washing, blending, upgrading, briquetting,liquefaction and gasification.

The Mining Law 2009 and implementing regulations contain a framework for a Domestic MarketObligation (“DMO”), where the Central Government has the authority to control production andexport of coal in order to guarantee supply for an increasing domestic demand for coal. Underthe policy, mining companies must sell a certain minimum percentage of their production todomestic users. Therefore, the level of production will depend on whether or not the companyhas complied with their DMO. The price of coal sold to domestic users is referenced to the HBA.The Minister determines the minimum amount of coal to be allocated to domestic users on anannual basis.

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Report No: R223.2014 10

4 Kalimantan Coal Geology

Economic coal deposits in Indonesia are located on the islands of Kalimantan and Sumatra wherethey are present in relatively young geological strata preserved in large sedimentary basins(Figure 3).

In Kalimantan, the coal measures are found within Palaeogene and Neogene sediments (Figure4). The Eocene Epoch of the Palaeogene Period hosts the older coal measures whilst theMiocene Epoch of the Neogene Period hosts the younger coal measures. The interveningOligocene Epoch was a time of higher relative sea level which resulted in the deposition ofmainly marine sediments, whilst the Pliocene Epoch, which is younger than the Miocene, sawthe deposition of low rank and low energy coals (Friederich et.al, 1999). The presence of higherrank coals at or near the land surface is dependent on tectonic uplift or the presence of igneousintrusions or areas of historic greater geothermal gradient.

In general there are significant differences in the coal quality and thickness of coal seams fromthe Eocene and Miocene Pliocene Epochs. The Eocene coals generally tend to be morecontinuous but thinner than coal formed during the Miocene Pliocene. The Eocene coals arethought to have formed under extensional structural regimes (i.e. in a rift basin) in transgressivedepositional environments (i.e. rising sea level). Coal seams are typically up to 6m thick inexposed economic deposits. The rank of Eocene coals is generally higher, with their lowermoisture contents and higher calorific values making them suitable for the export thermal coalmarket. In some areas of Central and Western Kalimantan, Eocene coals with coking coalproperties have been found.

The Miocene coals were mostly deposited during the regressive phase (i.e. receding sea level) ofthe depositional and tectonic history of the basins. Prograding deltaic environmental conditionspredominated during deposition which mirrors the current coastal environments in East andSouth Kalimantan. Coal seam thickness is variable, but generally thicker (up to 10m or more) andseams more numerous than Eocene coals. Miocene coal seams in the Kutai and Barito Basins(Figure 4) are commonly characterised by the occurrence of intensive splitting and washoutscaused by sand channelling. Increased coal seam thickness is sometimes due to the presence ofraised peat domes which allowed very low ash coal seams to be formed. In general the Miocenecoals have much lower ash than the Eocene coals.

The quality of Kalimantan coals varies across the island and is strongly influenced by thegeological environment, resulting in a wide variation of coal characteristics including cokingproperties. In general terms, the variation in coal properties is dependent on the depositionalenvironment (coal type) and the degree of coalification (coal rank).Coal rank varies quitemarkedly, from lignite through sub bituminous, high to low volatile bituminous and semianthracite to anthracite. Eocene coals are commonly bituminous or higher in rank. The rank ofMiocene coals in normal geological conditions is relatively low, except for areas with anunusually higher geothermal gradient such as in the vicinity of the anticlines and structuraldomes in the Kutai Basin north of Samarinda. Both the Eocene and Miocene coals are rich invitrinite macerals, whilst inertinite is almost absent. Vitrinite content is commonly 80% to 90%.

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Report No: R223.2014 11

Kalimantan coals differ greatly from most Australian or US bituminous coals, but are similar tothe Tertiary coals of New Zealand and the Gippsland Basin of Australia (Cook and Daulay, 2000).

Figure 4. Coal Basins of Kalimantan

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Report No: R223.2014 12

5 TKS IUPs

On the 15 January 2015 the Indonesia based resource consultants PT Danmar Explorindoprepared a report titled “PT Trisula Kencana Sakti, Qualified Person’s Report of Coal Resources”according to instructions from UFS. The Danmar report relied upon information available up to31 July 2014. CSA received a final version of Danmar’s report on 18 January 2015. Danmar’sreport includes descriptions of the geology and coal occurrences within the IUPs, historicalexploration, and the methods it adopted to estimate Coal Resources within the TKS IUPs, whichhave been reported in compliance with the JORC Code 2012. The discussion on these topicsbelow is based on the information presented in Danmar’s report. CSA has been advised thatDanmar’s report is to be included in its entirety within the Circular.

5.1 Location and Access

The TKS IUPs are located 58km east of the town of Muara Teweh, Central Kalimantan (Figure 5).Access to site is via unsealed public roads, and is a journey of approximately 1.5 hours. MuaraTeweh is serviced by light commercial aircraft daily from Balikpapan and three days a week fromBanjarmasin (Figure 2 in Executive Summary). A sealed provincial road connects Muara Tewehwith the city of Banjarmasin, a 220km road journey of approximately eight hours. Banjarmasinhas regular commercial flights to Jakarta and other Indonesian centres.

5.2 Tenure

Clause 67 of the VALMIN Code states that the status of tenements is material and requiresdisclosure. Determination of the status of tenements must be based on recent independentinquiry. LasutLay & Pane (“LLP”), a Jakarta based legal firm, was commissioned by GEMS toprepare a report in respect of the legal aspects of the mining activities of GEMS’ subsidiary PTTrisula Kencana Sakti, solely from the perspective of the laws of Indonesia (Appendix 1). LLP’sscope was to confirm that:

TKS has good title to its mining concessions; and

TKS has complied with material, applicable provisions of the Mining Law 2009 and itsimplementing regulations, environmental law, forestry law and other relevant laws (asapplicable).

LLP’s due diligence was not concerned with business, geological, financial or taxation matters oran evaluation of business risks and taxation or financial issues. LLP’s final report dated 16 January2015 was issued on 17 January 2015. The LLP report was made available to CSA for reference inpreparing this Report.

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Report No: R223.2014 13

Figure 5. Location of TKS Coal Project in North Barito, Central Kalimantan

TKS is the beneficial holder of three Operation and Production IUPs, two of which are the subjectof this Report. The two IUPs of interest (Figure 6) are:

188.45/207/2010 tentang Penyesuaian Izin KP Eksploitasi Menjadi Izin UsahaPertambangan Operasi Produksi a/n PT Trisula Kencana Sakti / concerning theAdjustment of Mining Exploitation Permit to Production Operation Mining Permit. Issuedby North Barito Regent, Kalimantan Tengah province and valid from 26 April 2010 until26 April 2026, covering an area of 4,748ha, located at North Barito Regency, CentralKalimantan Province.

188.45/208/2010 tentang Penyesuaian Izin KP Eksploitasi menjadi IUP Operasi Produksia/n PT Trisula Kencana Sakti / concerning the Adjustment of Exploitation Permit toProduction Operation Mining Permit. Issued by North Barito Regent, Kalimantan Tengahprovince and valid from 26 April 2010 until 26 April 2028, covering an area of 4,959ha,located at North Barito Regency, Central Kalimantan Province.

LLP reports that TKS’s granted Production and Operation IUPs are in good standing, withpermanent rent requirements met. TKS has complied with all applicable environmentalregulations and there are no pending investigations by government agencies on environmentalissues. Both IUP’s were granted “Clean and Clear” status by the General Director of Mineral andCoal on the 28 February 2012.

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Report No: R223.2014 14

Although not specifically discussed by LLP, Danmar report that both IUPs are within a designatedProduction Forest, and therefore a Forestry Borrow and Use Permit (called an IPPKH) is requiredfor mining. LLP identify the following Borrow and Use Permit which is of relevance to this Report:

SK.319/MENHUT II/2010 tentang Izin Pinjam Pakai Kawasan Hutan untuk EksploitasiBatu Bara dan Sarana Penunjangnya pada Kawasan Hutan Produksi Terbatas danKawasan Hutan Produksi yang dapat Dikonversi a/n PT Trisula Kencana Sakti seluas698.58 Ha / concerning borrow and use permit for Coal Exploitation and itsInfrastructure in Limited Production Forest Area and Production Forest which can beconverted to PT Trisula Kencana Sakti with an Area of 698.58 Ha. Issued by the Ministerof Forestry and valid from 19 May 2010 until 19 May 2020;

CSA understands that mining activities can only be carried out within this IPPKH however thePermit area can be progressively adjusted as mining activity progresses. For drilling outside theIPPKH a separate exploration category IPPKH permit must be obtained.

Figure 6. TKS Project Title Areas and Access Roads (UTM Zone 50S)

5.3 Regional Geological Setting

The TKS IUPs are within the Barito Basin of Central Kalimantan (Figure 4). The Barito Basin isdefined by the Meratus Mountains to the east and separated from the Kutai Basin to the northby a flexure parallel to the WNW ESE orientated Adang Fault. The Barito Basin began to developin the Late Cretaceous following a micro continental collision between the Paternoster and theSW Borneo micro continents (Darman and Sidi, 2000). Early Tertiary extensional deformationoccurred as a tectonic consequence of that oblique convergence, producing a series of NW SE

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Report No: R223.2014 15

trending rifts. Tight SSW NNE trending folds, parallel to the bounding Meratus Mountains,dominate structure.

Barito Basin coal measures occur within sediments of the:

Tanjung Formation –mid to late Eocene age (45 36My ago);

Montalat Formation – early Miocene age (24 16My ago);

Warukin Formation – mid to late Miocene age (16 10My ago).

5.4 Project Geology

Published 1:250,000 scale geological maps identify coal outcrops of the Tanjung Formation,Montalat Formation and Warukin Formation within the TKS IUPs (Figure 7), however, whilstTKS’s mapping and drilling have confirmed that these coal seams are present, Danmar believesthat the published geological maps for the area are inaccurate. Danmar’s interpretation, basedupon 1,361 points of observation, describes lower quality Warukin coal seams in the core of asyncline, grading to higher quality Montalat coal seams toward the outer edges of the structure.The Warukin Montalat boundary is important in the geologic record as it approximates thechange in sedimentation from a transgressive to regressive regime.

The Tanjung Formation geology within the TKS project is less well understood becauseexploration has been limited to coal outcrop mapping. It is expected that coal seams discoveredin the older Tanjung Formation will have a higher calorific value and generally better qualitycharacteristics than the younger Warukin and Montalat coal seams. It is inferred that the 12million year unconformity between the Tanjung Formation and the Montalat Formation hasbeen the loci for regional scale shearing/faulting.

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Report No: R223.2014 16

Figure 7. Simplified TKS Project Geology (modified after Danmar 2015)

5.5 Coal Stratigraphy

Drilling has confirmed that there are twenty one (21) coal seams within the Warukin andMontalat Formations within the TKS IUPs (Appendix 2, Table 2). Nine (9) occur in the WarukinFormation and twelve (12) in the Montalat Formation. Seam S400 is the basal seam of theWarukin Formation (Figure 7) and S1200 the basal seam of the Montalat Formation. The S100,S200, S300 and S400 seams are the most significant economic grouping with an average of 5m ofcombined coal thickness within a 31m sedimentary sequence (Appendix 2). The main seam isS200 with an average thickness of 1.80m. Interburden sediments are generally mudstone. Amassive 37m thick sandstone unit marks the end of Montalat sedimentation period.

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Report No: R223.2014 17

Table 2. TKS Warukin Montalat Formation Coal Seam Stratigraphy and Thicknesses (Danmar2015)

Seam IDMinimumThickness

(m)

MaximumThickness

(m)

AverageThickness

(m)S10 0.12 0.54 0.29

S20 0.15 1.52 0.73

S30 0.10 1.30 0.48

S40 0.08 1.00 0.48

S50 0.01 0.70 0.33

S100 0.30 2.70 1.59

S200 0.20 3.38 1.80

S300 0.20 2.28 0.86

S400 0.10 1.49 0.75

S500 0.15 2.06 0.89

S550 0.20 1.45 0.68

S600U 0.14 1.40 0.51

S600L 0.24 2.60 0.73

S700U 0.14 1.55 0.84

S700L 0.14 1.85 0.74

S800 0.20 1.10 0.49

S850 0.15 1.28 0.51

S900 0.15 1.10 0.50

S1000 0.15 1.25 0.70

S1100 0.30 1.00 0.62

S1200 0.20 1.20 0.53

5.6 Previous Exploration and Mining

Exploration work within the IUPs commenced in September 2005 and ceased during 2011.Activities included:

Coal outcrop mapping 200 observations, 30 sample analyses (Figure 8);

Vertical drilling 494 holes, 40,168m, average depth 80m (Figure 8);

Down hole geophysical logging;

Coal and non coal quality analyses (709 samples);

Light Detection and Ranging (“LIDAR”) topographic survey over the entire area of theIUPs;

Ground surveys by Total Station (hole collars, benchmarks).

TKS’s total exploration expenditure to July 2014 was US$ 3.5M (Danmar 2015).

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Report No: R223.2014 18

Figure 8. TKS Drill Hole and Coal Outcrop locations

TKS commenced conventional truck and shovel mining in August 2010 and ceased in March 2012(Table 3), however few details are available. The open pit location is shown in Figure 8.Production was primarily from the S100, S200 and S300 seams, with total productionvolumetrically small compared to the overall coal resource inventory.

Table 3. TKS Coal Production (Danmar 2015)

PERIODOVERBURDEN

(BCM)COAL MINED(Tonnes)

STRIP RATIO(BCM/Tonnes)

AUG DEC 2010 491,011 9,156 53.6JAN DEC 2011 1,392,413 158,729 8.8JAN MAR 2012 214,989 50,637 4.2

TOTAL 2,098,413 218,522 9.6

Note: BCM = bank cubic metres

5.7 Coal Deposit Modelling

Drill holes were generally spaced on a 250m x 250m or 500m x 500m grid and provided 1,361points of observation to determine seam geometry and seam distribution. Danmar’s reportdescribes TKS’s data collection procedures and the data validation techniques Danmaremployed, prior to creating the coal seam model for the S20 to S1200 seams. As per industry

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Report No: R223.2014 19

standard practice, coal seam correlations and coal seam thicknesses were interpreted byreference to down hole geophysical logging evidence.

CSA notes that:

The drilling traverse orientations and vertical drilling were appropriate to intersect theshallow dipping (0° to 20°) coal seams.

The reliability of drilling data appears generally good.

The sampling methodology across the coal non coal interface is adequate howeverply by ply sampling rather than bulk sampling of the coal seams would have betteridentified those portions of the seams with deleterious material such as high ash or highsulphur.

All samples (coal and non coal) were sent to PT Geoservices Laboratory, Banjarbaru,South Kalimantan for ISO and ASTM standard preparation and analyses.

The 3D coal seam model created by Danmar using GEMCOM Surpac software is valid forresource estimation purposes.

5.8 Coal Resources

The information in this Report that relates to Exploration Results and Coal Resources is based oninformation compiled by Mr Daniel Madre, who is a Member of the AIG (number 5632). MrMadre is a Director of PT Danmar Explorindo and has sufficient experience relevant to the coaldeposits under consideration and to the activity which he is undertaking to qualify as aCompetent Person as defined in the 2012 Edition of the Australasian Code for Reporting ofExploration Results, Mineral Resources and Ore Reserves (JORC 2012). Mr Madre consents tothe inclusion in this Report of the matters based on his information in the form and context inwhich it appears.

Danmar report Coal Resources only as the project study status precludes a Coal ReserveEstimate. The Resource Estimate relies on a coal seam model constructed by Danmar. The seammodel considered all Points Of Observation (“POB” – an intersection of a seam in a drill hole),however, only high reliability POBs where the drill hole collar had a nominal locational accuracyin space of 0.1m or better, and geological logging had been reconciled to geophysical down holelogging results, were used for the Coal Resource Estimates. High reliability POBs comprised 82%of the database. The block modelling function in the Surpac software package was used to createa block model constrained by the coal seam model and the base of weathering at an assumedlevel of 3m below surface. The block model was constructed with primary blocks 100m (Y) x 50m(X) x 1.5m (Z), and sub blocks 25m (Y) x 12.5m (X) x 0.375m (Z). Blocks were not created forseams less than 0.4m thick. Coal seam thicknesses and analytical data were interpolated fromthe POBs into the block model with inverse distance squared weighting of data.

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1012



Report No: R223.2014 21

Table 5. Weighted Average Coal Quality All Resources (Danmar 2015)

TM IM ASH VM FC TS CV CV CV% % % % % % Kcal/kg Kcal/kg Kcal/kgar adb adb adb adb adb adb ar daf

20.65 13.77 7.35 39.07 39.80 1.79 5,811 5352 7,356

Table 6. Coal Resources by Depth (Danmar 2015)

DEPTH RANGE MEASURED (Mt) INDICATED (Mt) INFERRED (Mt) TOTAL (Mt)0 50m 19 5 10 34

50 100m 21 7 15 43TOTAL 40 12 25 77

Note: Rounding errors are acceptable

Table 7. Coal Resources by Seam (Danmar 2015)

Seam IDCOAL RESOURCES INSITU (Mt) to 100m depth

MEASURED INDICATED INFERRED TOTALS10 0.0 0.0 0.0 0.0S20 2.1 0.3 0.3 2.7S30 1.8 0.3 0.1 2.1S40 2.5 0.3 0.5 3.3S50 0.4 0.0 0.0 0.4S100 10.1 1.2 3.2 14.4S200 13.3 1.9 1.7 16.8S300 5.3 0.8 1.3 7.5S400 3.7 1.0 1.2 5.9S500 0.0 0.0 4.3 4.3S550 0.0 0.0 1.2 1.2S600U 0.0 0.0 1.8 1.8S600L 0.0 0.0 2.6 2.6S700U 0.0 3.0 1.4 4.4S700L 0.8 1.4 1.6 3.8S800 0.0 0.0 0.3 0.3S850 0.0 0.0 0.5 0.5S900 0.0 0.7 0.1 0.8S1000 0.0 1.2 1.3 2.4S1100 0.0 0.0 1.4 1.4S1200 0.0 0.0 0.6 0.6ALL 40 12 25 77

Note: Rounding errors are acceptable

Major seams S100, S200, S300 and S400 contain 32Mt of Measured Resources and 5Mt ofIndicated Resources.

1013



Report No: R223.2014 22

Table 8. Coal Resource Quality by Seam (Danmar 2015)

Seam ID

COAL QUALITY (In situ) to 100m depthTM IM ASH VM FC TS CV CV CV HGI RD% % % % % % Kcal/kg Kcal/kg Kcal/kg In situar adb adb adb adb adb adb ar daf point g/cm3

S20 24.12 16.48 9.21 36.45 37.86 0.56 5,370 4,879 7,234S30 20.88 12.98 5.38 45.57 36.08 0.32 6,252 5,686 7,631 46 1.31S40 23.78 15.00 11.78 35.96 37.25 1.02 5,277 4,731 7,159 1.38S50 19.15 8.75 22.12 43.08 26.04 0.55 5,288 4,685 7,374 72 1.36S100 21.84 14.57 5.79 38.41 41.24 1.77 5,762 5,272 7,218 54 1.31S200 23.51 14.78 7.68 36.92 40.66 2.82 5,576 5,005 7,194 54 1.31S300 21.77 14.00 7.92 39.69 38.17 0.60 5,775 5,253 7,399 52 1.30S400 19.80 12.08 14.84 39.84 33.51 3.64 5,374 4,902 7,342 66 1.38S500 20.52 15.05 4.65 39.87 40.44 1.29 5,980 5,595 7,441 66 1.28S550 18.94 16.51 6.03 38.20 39.25 0.40 5,756 5,588 7,431 1.31S600U 15.26 10.53 9.13 42.32 38.01 1.38 6,182 5,855 7,687 1.36S600L 18.74 13.64 3.43 38.81 44.12 0.37 6,193 5,827 7,468 1.30S700U 16.17 11.81 7.14 42.12 39.91 2.40 6,159 5,854 7,600 1.30S700L 18.34 13.02 3.56 39.93 43.48 0.69 6,315 5,929 7,569 1.29S800 15.11 11.17 3.92 40.72 44.17 1.29 6,427 6,142 7,569 1.28S850 14.97 11.38 11.58 37.38 39.66 0.49 5,868 5,630 7,612 1.29S900 14.30 12.16 5.94 39.31 42.59 1.29 6,255 6,103 7,639 1.31S1000 13.91 10.50 3.41 42.55 43.54 1.48 6,546 6,296 7,606 1.34S1100 12.39 9.94 3.70 42.28 44.07 2.44 6,650 6,470 7,700 1.30S1200 11.85 9.25 5.10 41.79 43.86 3.93 6,563 6,375 7,662 1.33Average 20.65 13.77 7.35 39.07 39.80 1.79 5,811 5,352 7,356 59 1.32

Note 1 Seam S10 excluded from the quality model (no validated samples)Note 2 TM (Total moisture), IM (Inherent Moisture), ASH (Ash content), VM (Volatile matter),

FC (Fixed carbon), TS (Total sulphur), CV (Calorific value), HGI (hardgrove grindability index),RD in situ (relative density lab results adjusted to in situ using the Preston Sanders formula)ar (as received calculation), adb (air dried basis laboratory result), daf (dry ash free calculation)

Table 9. Coal Resources by Formation (Danmar 2015)

Formation IDCOAL RESOURCES INSITU (Mt) to 100m depth

MEASURED INDICATED INFERRED TOTALWARUKIN 39 6 8 53MONTALAT 1 6 17 24

ALL 40 12 25 77

Note: Warukin = seams S20 to S400 and Montalat = seams S500 to S1200

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Report No: R223.2014 23

Table 10. Coal Resource Quality by Formation (Danmar 2015)

FormationID

COAL QUALITY (In situ) to 100m depthTM IM ASH VM FC TS CV CV CV HGI RD

% % % % % % Kcal/kg Kcal/kg Kcal/kg Insitu

ar adb adb adb adb adb adb ar daf point g/cm3

WARUKIN 22.31 14.29 8.33 38.35 39.02 1.97 5,628 5,102 7,265 59 1.32MONTALAT 17.00 12.62 5.19 40.67 41.51 1.39 6,215 5,904 7,559 1.30

ALL 20.65 13.77 7.35 39.07 39.80 1.79 5,811 5,352 7,356 59 1.32

Note: Warukin = seams S20 to S400 and Montalat = seams S500 to S1200

CSA is of the opinion that the Montalat Coal Resources, those stratigraphically below the S400seam, are unlikely to meet the JORC Code requirement for “reasonable prospects of eventualeconomic extraction”. Below the S400 seam there are 12 widely spaced seams (S500 to S1200 –Appendix 2) with an apparent ratio of coal to interburden sediments of 1:59. By contrast theupper S20 to S400 sequence (the Warukin Formation) contains a good grouping of major seamsand an apparent coal to interburden ratio of 1:11. Given the thin nature of the individual seamsbelow the S400, particularly once mining losses are accounted for, the considerable thicknessesof interburden separating them, current coal prices and the outlook for prices (Section 6) andlikely operating costs, CSA is of the view that only a limited tonnage of the Resource below theS400 seam will be economically recoverable under reasonably foreseeable circumstances. CSAhas concluded that the 53 Mt of Warukin Coal Resources, in seams S20 to S400, provides areasonable basis for the purpose of its valuation.

5.9 Coal Transport

The IUPs are well located near the town of Muara Teweh, existing infrastructure and a navigablebarging river (Figure 2 and Figure3) during much of the year. TKS had a number of contracts orlease agreements with owners for use of logging roads for coal hauling, port stockpilemanagement and barge loading but these have expired. When operating, run of mine coal wasgenerally hauled 47km to the Port of Pangku for crushing and loading onto 3,500t barges. Thiswas often a point of sale (FOB barge). The loading capacity of the port facility was not declared.The stockpile yard can accommodate 200,000 tonnes. An alternative loading port is Buntok Baru,located 70km south west of the IUPs. River depths at Buntok Baru are suitable for 5000t barges.Loading conveyors with a capacity of 1,000t/hr or greater are available for third party hire.

Coal loaded onto barges at either Buntok Baru or Pangku is usually transhipped to 8,000t bargesat Timbau and thence to the Mother Vessel (MV) (Figure 2). Pangku is approximately 235kmfrom Timbau and Timbau is approximately 250km from the Taboneo Transhipment point.Timbau is available year round to barge coal to Taboneo. Ports in the upper reaches of the BaritoRiver may have only limited seasonal access and/or have limits on barge sizes due to seasonalfluctuations in water level.

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Report No: R223.2014 24

5.10 Coal Marketability

Resource coal quality analyses are reported in Table 8 above. Coal production qualityreconciliations to the resource model were not available for review. Coal marketing studies werenot available for review however coal marketability has been proven by sales evidence (Table11).

Table 11. TKS Coal Shipments (Danmar 2015)

Date Sales TermSalePrice$US/t

PriceMV$US/t

TM%ar

Ash%adb

TS%adb

CVKCal/KgGAR

Tonnes

Mar 11 FOB Buntok Port 54.00 76.68 23 7 1.0 5,200 2,299Aug 11 FOT ROM Stockpile 45.00 85.68 23 7 1.0 5,200 60,008Oct 11 FOB Pangkuh Port 60.00 82.68 23 8 1.5 5,300 2,777Nov 11 FOB Pangkuh Port 60.00 82.68 23 8 1.5 5,300 3,675Dec 11 FOB Pangkuh Port 60.00 82.68 23 8 1.5 5,300 3,593Dec 11 FOB Timbau Port 72.00 82.00 23 8 1.5 5,300 7,506Jan 12 FOB Pangkuh Port 57.50 80.18 23 8 1.5 5,300 3,451Feb 12 FOB MV Taboneo 78.50 78.50 23 8 1.8 5,000 37,111Mar 12 FOB Pangkuh Port 57.50 80.18 23 8 1.5 5,300 3,495May 12 FOB Pangkuh Port 57.50 80.18 23 8 1.5 5,300 3,495Jul 12 FOB Timbau Port 38.00 48.00 24 8 2.3 5,000 12,106Sep 12 FAS Taboneo Port 44.50 45.95 24 8 2.2 5,000 45,000

ALL 57.04 75.45 23.2 7.8 1.6 5,227 184,515

TKS coal can be described as a sub bituminous rank, low to moderate energy and high sulphurthermal coal which has been successfully sold to traders as a blending coal. The Total Sulphur(TS) content is the primary deleterious material which attracts a discount if TS is above 1.0%. TSvaries between seams, within a seam profile and by geographic area. The nature of the sulphurand where it occurs is not well defined.

5.11 Exploration Potential

Danmar have identified four Exploration Target (JORC 2012) areas which, with further drilling,have potential for the discovery of 20Mt to 113Mt of coal (Figure 10):

Target 1 has potential for 5Mt to 50Mt in a previously untested area and new geologicalsetting (the older Tanjung Formation). The coal quality is expected to be superior toResources defined to date. CSA is of the opinion that the Danmar prediction isconservative and possibly understates the upside potential for further coal discovery.

Target 2 has potential to add 5Mt to 25Mt to the Resource inventory from Montalatformation coal seams.

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1017



Report No: R223.2014 26

Coal occurs within the IUP title and IPPKH permit areas.

Coal observed in outcrop is similar to that described and defined by drilling.

Coal mining has occurred as per Figure 22 of the Danmar report.

Surveying and drilling has been undertaken to the extent and professional standardindicated by the Danmar report.

Infrastructure, haul roads and jetty used during the previous TKS mine productionperiod remain in a useable condition.

5.13 Project Risks

Based upon CSA’s review of the Danmar report, site inspection and Indonesian coal industryknowledge, the following project risks are considered material:

• Geological risk – low because the gentle synclinal structure is well defined by drillingand generally favourable for open pit mining;

• Future mining risk – low due to previous mining history, available transportinfrastructure and active open pit mining in the region;

• Coal transport risk – moderate due to the influence of seasonal weather events upondirt haul roads and barging on the Barito River;

• Coal marketing risk – high due to the prevailing coal prices close to the marginal cost ofproduction for this coal type and high (>1%) total sulphur content of TKS coal.

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1020



Report No: R223.2014 29

Table 13. TKS Coal and Indicative Price¹¹ (July 2014)

Coal Type TM % (ar) Ash % (adb) TS % (adb) CV kcal/kg (ar) Price $US/t

Warukin Formation 22.31 8.33 1.97 5,102 48.39

Montalat Formation² 17.00 5.19 1.39 5,904 62.99

TKS RESOURCE (all seams) 20.65 7.35 1.79 5,352 52.80

1. Source: http://www.coalspot.com/indonesian coal price reference/2. CSA is of the opinion that the Montalat Coal Resources are unlikely to meet the JORC Code requirementfor “reasonable prospects of eventual economic extraction”. Refer to section 5.8 above.

The CoalSpot.com website allows the calculation of price based on HBA coal brands and inputs oftotal moisture, ash, calorific value and total sulphur for a specific coal. This online calculatorsuggests a July 2014 price of US$52.80 for the TKS Resource coal, US$48.39 for TKS WarukinFormation coal and US$62.99 for Montalat Formation coal. A range of products and prices maybe expected as individual seams are mined, depending on marketing, mining technique, blendingand mine planning.

Since July 2012, TKS type coals have been generally range bound between prices of US$45/t toUS$60/t (Figure 12). Future prices for internationally traded thermal coal are uncertain anddriven by a variety of factors:

In the near term, continuing high stockpiles and reducing/slowing demand from Chinafor thermal coal.

A growing abundance of relatively cheap shale gas in the USA and the increasingconversion of electricity power plants from coal fired to gas fired in the US (BMOCapital Markets, 2012).

Diversion of some lower cost thermal coal production (in particular from the PowderRiver Basin in Wyoming) to the Pacific Basin export thermal coal market through westcoast US/Canada ports (BMO Capital Markets, 2012).

Countering these negative trends is the projected increasing demand from India for importedthermal coal although port and rail infrastructure constraints may limit delivery in India in theshort term (Economist, August 2012). On the other hand, Goldman Sachs (July 2013) in ananalysis entitled “The window for thermal coal investment is closing” suggest that prices willremain flat near the marginal cost of production.

Platts (7 July 2014) forward curve coal, July 7 for FOB Newcastle mid point for August 2014 is$70.00 and is predicted to increase gradually to $72.95 in Q2 of 2015 (4.2% annual increase), to$76.75 for 2016 (5.2% annual increase) and to $80.45 for 2017 (4.8% annual increase). The HBAfor TKS type coal may be expected to follow this longer term price increase trend.

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Report No: R223.2014 30

7 Valuation of TKS IUPs

7.1 Valuation Concepts

There are a number of recognised methods used for valuing mineral assets, with the selection ofthe most appropriate method dependent on a number of factors, including the type and quantityof information available and the relative stage of evaluation and/or development of the assetconcerned. The VALMIN Code defines mineral assets as:

“all property including, but not limited to real property, intellectual property, and/or mining andexploration tenements held or acquired in connection with the exploration, development and/orproduction from those tenements together with all plant, equipment and infrastructure ownedor acquired for the development, extraction and processing of minerals in connection with thosetenements.”

The VALMIN Code notes that most Mineral Assets can be classified as either:

Exploration Areas – properties where mineralisation may or may not have been identified, butwhere a Mineral Resource has not been identified.

Advanced Exploration Areas – properties where considerable exploration has been undertakenand specific targets have been identified, but where a mineral resource has not been identified,that warrant further detailed evaluation, usually by drill testing, trenching or some other form ofdetailed geological sampling. A resource estimate may or may not have been made but sufficientwork will have been undertaken on at least one prospect to provide both a good understandingof the type of mineralisation present and encouragement that further work will elevate one ormore of the prospects to the resource category .

Pre Development Projects – properties where Mineral Resources have been identified and theirextent estimated (possibly incompletely) but where a decision to proceed with development hasnot been made. Properties at the early assessment stage, properties for which a decision has notbeen made to proceed with development, properties on care and maintenance and propertiesheld in retention titles are included in this category if Mineral Resources have been identified,even if no further evaluation or advanced exploration is being undertaken.

Development Projects – properties for which a decision has been made to proceed withconstruction and/or production, but which are not yet commissioned or are not yet operating atdesign level.

Operating Mines – mineral properties, particularly mines and processing plants that have beencommissioned and are in production.

Each of these requires a different valuation approach. The TKS IUPs are at an advanced stage ofexploration with identified Coal Resources. There has been limited mining which was suspendedafter a relatively short period due to declining coal prices. For the purposes of valuation, thatpart of the IUPs underlain by resources is considered to be a Pre Development Project, rather

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Report No: R223.2014 31

than a Development Project, and the balance, with little exploration but an exploration target,an Advanced Exploration Area.

The VALMIN Code (Definition 43). defines “Value” as the “Fair Market Value” which is “theamount of money (or the cash equivalent of some other consideration) determined by theExpert in accordance with the provisions of the VALMIN Code, for which the Mineral Asset orSecurity should change hands on the Valuation Date in an open and unrestricted marketbetween a willing buyer and a willing seller in an “arm’s length” transaction, with each partyacting knowledgeably, prudently and without compulsion”.

“Value is usually comprised of two components, the underlying or ‘Technical Value’ of theMineral Asset…., and a premium or discount relating to market, strategic or otherconsiderations.”

The concept of Fair Market Value hinges upon the notion of an asset changing hands and musttherefore take into account, inter alia, market considerations, which can only be determined byreference to “comparable transactions”. Generally, truly comparable transactions for MineralAssets are difficult to identify due to the relative infrequency of transactions involving producingassets and/or resources, the great diversity of mineral exploration properties, the stage to whichtheir evaluation has progressed, perceptions of prospectivity, tenement types, the commodityinvolved and so on. An important consideration when valuing an exploration property is thepotential of the property to host an economic deposit, which is a key determinant for what theproperty will be judged to be worth when assessed by the market.

The VALMIN Code states that Value should be selected as the most likely figure from within arange after taking account of risk and other factors which might impact on Value.

7.2 Valuation Methods

The Fair Market Value of exploration properties and undeveloped Mineral Resources are mostoften determined by four general approaches:

The Geoscience Factor Method which seeks to rank and weight geological aspects, includingproximity to mines and other deposits, the significance of the mineralised district and thecommodity sought. The method is only applicable to exploration tenements.

The Appraised Value Method considers the costs and results of historical exploration and isagain only applicable to exploration tenements.

The Market Approach or Comparable Transaction Method looks at recent arm’s lengthtransactions for comparable properties and is applicable to all types of Mineral Assets

The Income Approach most often used to value Operating Mines and properties for whichmineral resources have been defined and sufficiently detailed feasibility studies have beencompleted to estimate likely future cashflows. A Net Present Value (“NPV”) is derived byforecasting the cash flows that would accrue from mining the deposit and discounting them backto the present day. NPV must generally be factored to take into account risk, market and otherfactors, including the stage of evaluation and/or development.

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Report No: R223.2014 32

The Market Approach or Comparable Transaction Method has been selected as the mostappropriate for valuing the TKS IUPs and has been used to separately value the Coal Resourcesand the exploration areas away from the Resources. DCF analysis was not considered as theprevious mining was rendered uneconomic when coal prices retreated to their present level. CSAis not in a position to speculate when coal prices might recover to a level that will enable aresumption of operations.

Analysis of market transactions is always very difficult as the assets involved may comprise landonly (tenements) for exploration and advanced exploration areas, land plus resources/reservesfor pre development and early development projects, and land plus resources/reserves plusinfrastructure assets for advanced development projects and operating mines. If these assetswere to be valued in the conventional manner, separate values would be attributed to the land,the resources/reserves and the infrastructure assets, in the same way as a commercial tradingenterprise might be valued – land, improvements, stock, cash at bank and goodwill.

For transactions involving the acquisition of all or part of a corporate entity’s shares, rather thana direct cash consideration for specific assets, the analysis becomes more uncertain as theamount of cash as a component of a company’s assets, the amount of goodwill attributed toshare values and the premium that may perhaps have been paid for a change in control orsimilar, may distort the apparent value of the underlying assets. Further, there may have beenany number of other considerations in the negotiation, including the perceived prospectivity oftenements, quality of resources/reserves, capital and operating costs, profitability, strategic fitwith existing operations, back to back deals and so on, most, if not all of which cannot bedetermined from public domain data.

Without being privy to the details of how a transaction consideration was arrived at between theparties concerned, it is nigh on impossible to confidently determine values for individual assetclasses. Hence the process of valuation for the current purpose must necessarily involve a highlevel of judgement and subjectivity.

The basic premise is to try and identify a number of transactions which appear to have a numberof features in common, and from these derive a reasonable estimate of what appears to be a“going rate” for land and resources/reserves. These are what are known as “yardstick values”. Inmany cases there will be what appear to be “outliers” in the data set which may reflect any ofthe special circumstances mentioned above.

7.3 Valuation of TKS IUPs

Prior to July 2012, there was a general expectation that (then) high coal prices would besustained. Since mid 2012, the market outlook has changed with the realisation that the declinein coal prices was unlikely to be temporary, and as a result, there would be fewer opportunitiesfor entry into the market and diminished prospects for growth. It is therefore considered thattransactions since July 2012 will be more indicative of current market conditions for the sale ofcoal assets than those that occurred before this date.

With this in mind, a database of sixteen Indonesian coal asset transactions that were reportedbetween August 2012 and June 2014 has been assembled. These are all transactions of whichCSA is aware for the period 31 July 2012 to 31 July 2014. The transactions are summarised in

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Report No: R223.2014 33

Table 14, and for simplicity of reference have been numbered therein from 1 to 16. The valuesUS$/ha and US$/t for coal resources shown in Table 14 are simply the transaction value dividedby hectares or resource tonnes as the case may be, with no attempt to allocate value to one orthe other. Dividing the transaction amount by the units of area or resources will be respectively,the maximum possible as by implication no value is ascribed to the other component.

7.3.1 Valuation of Land Area

The TKS IUPs have an area of 9,707ha, of which 2,880ha are underlain by resources (Section 5.8).A coal exploration target of 20Mt to 113Mt, including 5Mt to 50Mt of highly prospective TanjungFormation, has been identified within the 6,827ha not underlain by resources (Section 5.11).

Referring to Table 14, transactions 1, 4, 8, 10, 12, and 16 involve land only, thus providing a goodindication of a likely yardstick value. The weighted average land value from these transactions isUS$713/ha within a range US$262 to US$2,745/ha. Transactions 5, 9 and 13 have only very smallcoal resources suggesting that these transactions were also largely based around the land values.Including these in the analysis indicates a weighted average land value of US$969/ha within thesame range. Transaction 7 reportedly involved resources of 276Mt, however, these were notJORC Code compliant and were not based on any drilling. It is therefore considered reasonable toinclude transaction 7 in the land only dataset, which indicates an average land value ofUS$1,035/ha, again within the same range. Compared with the other indicated land values,transactions 1 (US$262/ha) and 10 (US$354/ha) are clearly outliers. Removing these from thedataset indicates a yardstick land value of US$1,400/ha within a range US$1,140 to US$2,745/ha;the median value is US$1,700/ha. The upper end of the range (transactions 5 and 12) is not anoutlier. Previous analysis of Indonesian coal assets conducted by CSA on a more limited datasetindicated a yardstick value of around US$1,600/ha, within a similar range about US$300/ha toUS$2,900/ha, with, as now, the lower values appearing to be outliers.

All transactions discussed above involved IUPs, rather than CCoWs, thus the nature of tenure isnot a factor in the variations in land value indicated from the analysis. Transactions 5, 9, 12 and16 have the highest indicated land value/ha, and all have either a modest history of coalproduction or are currently producing on a modest scale. They all however involve only verysmall areas, ranging from 100ha to 2,117ha. Transaction value/ha relative to coal quality doesnot appear to be a factor.

The history of albeit, very limited coal production and the significant coal exploration target thathas been identified within the TKS IUPs both justify a yardstick value somewhat above theaverage. In CSA’s opinion, a yardstick value of US$2,200/ha is appropriate, being theapproximate mid point between the median value of $1,700/ha and the maximum (which occurstwice) of US$2,745/ha, indicating a value for the 6,827ha not underlain by resources of US$15Mwithin a range US$11.6M to US$18.7M.

7.3.2 Valuation of Resources

In Table 14, Transactions 2, 6, and 15 are all very high value, all involve large coal resources andall are producing mines, with production ranging from 1.5Mtpa to 29Mtpa. Simply dividing thetransaction value by the land area produces outcomes at least an order of magnitude greater

1025



Report No: R223.2014 34

than the yardstick values derived for land above. Obviously, the transactions were driven byresources/reserves and profitability, which in turn will determine the value of the resources. Forthese three transactions, the average transaction value/resource tonne is US$0.75 within a rangeUS$0.49/t to US$1.11/t; the median is US$0.70/t.

All operations are located within CCoWs, which are a more secure form of title than IUPs, but aresubject to higher taxes and royalties. If the highest $/ha land value identified above (2,745/ha) isassigned to the land area in Transactions 2, 6 and 15 and this subtracted from the transactionprice, the resulting coal resource yardstick values are an average of US$0.72/t within a rangeUS$0.43 to US$1.05/t, with a median of US$0.63/t.

All three transactions were share based, so all the uncertainties regarding the true market valueof the underlying assets described above, and particularly the resources, apply. Further, as allassets were medium to large scale producing mines, there were very likely substantialinfrastructure assets in place. It is not possible to form a view on the likely profitability of theresources, which will impact on their value. In CSA’s opinion, the resource yardstick valuesindicated by these three transactions are absolute maximum values.

Transactions 3, 11 and 14 all indicate high land or resource values (considered alone) for noapparent reason. If the average yardstick values for land and resources derived above areapplied to these components of the respective transactions, the resulting Fair Market Value thatis indicated is between 30% and 60% of that actually paid. These transactions are not considered“typical” for whatever reason and have not been considered in the analysis.

Danmar has estimated 77Mt of Coal Resources within the IUPs (Section 5.8). CSA has reviewedDanmar’s estimate and has formed an independent view that about 53Mt of the Resourcesmight satisfy the JORC Code requirement for reporting of Coal Resources, i.e. “that there arereasonable prospects for eventual economic extraction (i.e. more likely than not)” (Section 5.8).The IUPs are in a remote location, with associated high transport costs. The high sulphur contentof the coal will mean it is less readily marketable than low sulphur coals. It therefore seemsreasonable to assign a yardstick value at, or below the lower end of the range. CSA hasconcluded that an appropriate yardstick value for the TKS Resources is US$0.35/t within a rangeUS$0.30/t to US$0.40/t, resulting in a Value for a 53Mt resource of US$16M to US$21M, with amost likely Value of US$18M.

7.3.3 Valuation Conclusions

It is CSA’s opinion that as at 31 July 2014 the combined Fair Market Value for the Resources andthe area of the IUPs not underlain by Resources is in the range US$28M to US$40M, with a mostlikely value of US$33M. It is stressed that this is only an opinion as to the likely value, which canonly be confirmed by going to the market.

1026


UnitedFibe

rSystem

Ltd

CoalAssetsof

PTTrisu

laKe

ncanaSakti

Repo

rtNo:R2

23.2014

35

Table14

.Summaryof

Compa

rableIndo

nesian

CoalProjectT

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ns

INDONESIANCO

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1027


UnitedFibe

rSystem

Ltd

CoalAssetsof

PTTrisu

laKe

ncanaSakti

Repo

rtNo:R2

23.2014

36

INDONESIANCO

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1028


UnitedFibe

rSystem

Ltd

CoalAssetsof

PTTrisu

laKe

ncanaSakti

Repo

rtNo:R2

23.2014

37

INDONESIANCO

ALPR

OJECT

PROVINCE

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1029


UnitedFibe

rSystem

Ltd

CoalAssetsof

PTTrisu

laKe

ncanaSakti

Repo

rtNo:R2

23.2014

38

INDONESIANCO

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OJECT

PROVINCE

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1030



Report No: R223.2014 39

8 References

BMO Capital Markets, 2012, Coal to Gas Switching, Are We Done Yet?

Cook, A., and Daulay, B., 2000, The Indonesian Coal Industry: The Australian Coal Review (April2000).

Petromindo, 2012, Indonesian Coal Book 2012/2013.

Darman, H. and Sidi, F.H., 2000, An Outline of the Geology of Indonesia, Indonesian Associationof Geologists (IAGI)

Economist, 2012, An Area of Darkness, Giant electricity cuts cast half of India into darkness—andhighlight its lousy infrastructure, August 2012.

Friederich, M, Langford, R & Moore, T, 1999, The geological setting of Indonesian coal deposits:The AusIMM Proceedings No 2. pp. 23 29.

Goldman Sachs, July 2013, Rocks & Ores, The window for thermal coal investment is closing,Commodities Research dated 24/7/2013.

Lasut, R., 16 January 2015, Report on GEMS Group Mining Rights for TKS Concessions, Report tothe Board of Directors of United Fiber Systems Limited by LasutLay & Pane received 17January 2015.

Lucarelli B, 2010, The History and Future of Indonesia’s Coal Industry: Impact of Politics andRegulatory Framework on Industry and Performance, Working Paper No93, PESDStanford, Program of Energy and Sustainable Development (July 2010).

Patersons Securities Ltd, January 2013, Indonesian Coal Review The short term option dated 16January 2013.

Platts Mc Graw Hill Financial 7 July 2014, Coal Trader International Vol 14, issue 129, MondayJuly 7, 2014.

PT Danmar Explorindo, 15 January 2015, PT Trisula Kencana Sakti, Qualified Person’s Report ofCoal Resources, report to United Fiber System Ltd received 18 January 2015.

SNI 5015:2011, Standar National Indonesia. Pedoman pelaporan, sumberdaya, dan cadanganbatubara. ICS 07.060 Badan Standardisasi National (BSN)

The JORC Code, 2012 Edition, Australasian Code for Reporting of Exploration Results, MineralsResources and Ore Reserves: AusIMM, MCA & AIG.

The Valmin Code, 2005 Edition, Code for the Technical Assessment and Valuation of Mineral andPetroleum Assets and Securities for Independent Expert Reports: AusIMM, MCA & AIG.

1031



Report No: R223.2014 40

9 Glossary

Term Meaningafm Ash free moisture basis

ad or adb Air dried basis for reporting coal analyses. An analytical sample is spread out and exposed toair for a measure time period so that its moisture content comes into equilibrium with thehumidity of the laboratory.

alluvial Pertaining to silt, sand and gravel material, trans ported and deposited by a river.alluvium Clay silt, sand, gravel, or other rock materials trans ported by flowing water and deposited in

comparatively recent geologic time as sorted or semi sorted sediments in riverbeds,estuaries, and floodplains, on lakes, shores and in fans at the base of mountain slopes andestuaries.

analysis proximate The analysis of coal or coke in terms of moisture, volatile matter, ash and fixed carbon.analysis ultimate The analysis of coal in terms of carbon, hydrogen, sulphur and oxygen.

andesite An intermediate volcanic rock composed of andesine and one or more mafic minerals.anthracite Coal with the highest energy content, from 86% to 98%, by weight, and high caloric values.anticline A convex upward fold structure having older rocks in the core. The folded strata or layers are

inclined downward from the axial plane.ar As received condition or as received basis. Represents an analysis of a sample as received at a

laboratory.ash Impurities (usually a sediment) consisting of iron, alumina and other incombustible matter

that are contained in coal. Since ash increases the weight of coal, it adds to the cost ofhandling and can affect the burning characteristics of coal.

ash analysis Determination of the inorganic constituents present in coal ash or coke ash, usuallyexpressed as oxides.

asl Above sea levelassay The testing and quantification metals of interest within a sample.AIG Australian Institute of GeoscientistsASX Australian Securities Exchange

AusIMM Australasian Institute of Mining and Metallurgybasin A large geological depression filled with tectonically related sedimentary or volcanic rocks.Bcm Bank cubic metres

bedding Stratification in sedimentary rocks brought about by deposition of different materials.Bituminous coal The most common type of coal and characterized by a moisture content of less than 20% by

weight , heating value of greater than 6330 kcal/kg (afm basis) and volatile matter greaterthan 14%. Bituminous coal is a soft, dense and black coal containing large amounts of carbon,often with well defined bands of bright and dull material. It is used primarily as fuel in steamelectric power generation, with substantial quantities also used for heat and powerapplications in manufacturing and to make coke.

Blends A mixture of two or more coal types or brands. In the case of coke making, blending providesthe manufacturer with the potential to mix lower cost poorer coking coals with higher costhard coking coals and thereby reduce the overall cost of the coke oven feed.

Calorific value (CV) orspecific energy

Coal sample’s energy content measured as the heat released on complete combustion in airor oxygen, usually expressed as the amount of heat (measured in kilocalories) per unit weightof coal (measured in kilograms) or (kcal/kg or MJ/kg).

carbon, fixed (FC) A figure obtained by subtracting from 100 the sum of the percentages of moisture, volatilematter and ash as expressed on a common moisture basis; forms part of the proximateanalysis

CCOW Coal Contract of Work, a state agreement title with the Indonesian governmentclastic Pertaining to a rock made up of fragments or pebbles (clasts).

1032



Report No: R223.2014 41

Cleat A fracture or system of fractures in a coal seam or lithotype, usually roughly perpendicular tothe bedding and along which the coal is more easily broken up.

Coal A readily combustible black or brownish black rock with a composition, including inherentmoisture, which consists of more than 50% by weight and more than 70% by volume ofcarbonaceous material. It is formed from plant remains that have been compacted,hardened, chemically altered and metamorphosed by heat and pressure over time.

Coal measures A layered sequence essentially of sedimentary rocks containing coal seams.Coal rank or rank The degree of alteration (or metamorphism) that occurs as a coal matures from peat to

anthracite is referred to as the “rank” of the coal. Low rank coals include lignite and subbituminous coals. These coals have lower energy content because they have low carboncontent. They are lighter (earthier) and have higher moisture levels. As time, heat, and burialpressure all increase, the rank does as well. High rank coals, including bituminous andanthracite coals, contain more carbon than lower rank coals which results in a much higherenergy content. They have a more vitreous (shiny) appearance and lower moisture contentthen lower rank coals.

Coal seam or seam Coal deposits occur in layers in a bed of coal lying between a roof and floor with each layercalled a “seam.”

Coke Hard, dry carbon substance produced by heating coal to a very high temperature in theabsence of air and used in the manufacture of iron and steel.

Coking coal Coal used to make coke and also referred to as metallurgical coal.Core, slim Bore cores having diameters usually in the range 45mm to 65mm.csv file Comma separated value fileCP Competent Person (JORC Code) & Chartered Professional (AusIMM)CV Calorific value – see aboveDCF Discounted Cash FlowDMO Domestic Market Obligationdaf Dry ash free A theoretical measure of coal (or other organic material), based on a sample in

which the moisture and ash are totally eliminated and the remaining constituents arerecalculated to total 100 percent; An analysis expressed on the basis of a coal sample fromwhich the total moisture and the ash have in theory been removed

dip The acute angle between a bedding plane or any structural surface (eg fault plane) and ahorizontal plane, measured in a plane normal to the strike.

dolerite Medium grained mafic intrusive rock composed mostly of pyroxenes and sodium calciumfeldspar.

dry coal basis Coal quality data calculated on a theoretical basis in which no moisture is associated with thesample.

DWT Dead Weight Tonnesdyke Body of intruding igneous rock that cross cuts the host strata at a high angle.Fault A fracture or fractures zone across which relative displacement has occurred in the rock

mass. The displacement and the nature or direction of movement can vary.FC Fixed carbon (see carbon fixed definition above)

Fob/FOB Free on Boardformation The primary formal unit of lithostratigraphic classification. It is a body of rock strata of

intermediate rank in the hierarchy of lithostratigraphic units.g/m³ A unit in the category of Density. It is also known as grams per cubic meter, grams per cubic

metre, gram per cubic metre, gram/cubic meter, gram/cubic metre. Gram Per Cubic Meter(g/m3) has a dimension of ML 3 where M is mass, and L is length. It can be converted to thecorresponding standard SI unit kg/m3 by multiplying its value by a factor of 0.001

HGI HardgroveGrindability index The relative grindability of ores and minerals in comparison withstandard coal, chosen as 100 grindability, as determined by a miniature ball ring pulverizer.Also known as Hardgrove number.

ICPR Indonesian Coal Price ReferenceIDX Indonesian Stock Exchange

1033



Report No: R223.2014 42

IM Inherent Moisture (bed moisture, equilibrium moisture, capacity moisture) is assumed to bethe water held within the pore system and capillaries of coal and is not to be identified withresidual moisture.

inertinite A maceral group formed from plant matter that has been oxidized to various degrees. Itnormally exhibits a higher reflectance than liptinite or vitrinite.

IPPKH IzinPinjamPakaiKawasanHutan (Forestry Permit for Mining)IUP Izin Usaha Pertambangan, (Mining Business License)

JORC Code Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reservesprepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining andMetallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (JORC),December 2012.

cal/g Calories per gram.Kabupaten or

RegencySecond tier of local government in Indonesia, having its own local government and legislativebody

Kcal/kg Kilocalories per kilogramKecamatan or District Third tier of local government in Indonesia

k Kilo (1,000)kg kilogramkt Kilo tonnesKP Kuasa Pertambangan – Tenement title prior to Indonesian mining law 2009

lignite The lowest ranked coal. Often called “soft” or “brown” coal, it is a brownish black coal withcarbon content of 25 35%. It has energy values ranging from 15,000 20,000 kJ/kg (6,3008,300 BTUs/lb) and high moisture content of up to 45% by weight. Lignite is strictly a thermalcoal and is used as a fuel in power generating plants.

Liptinite A maceral group formed from substances high in hydrogen, yielding a high proportion ofvolatile matter and resistant to decay and decomposition.

Macerals The microscopically recognizable organic constituents of coal, analogous to the minerals ininorganic rocks, but differing from the latter in that macerals are not characterized bycrystallographic properties nor are they constant in chemical composition. The macerals aredistinguished microscopically by properties such as reflectance, colour, morphology,fluorescence, anisotropy and hardness. They originated from the remains of different organsand tissues of plants and have acquired their properties during peat accumulation andcoalification.

MCAF Mining cost adjustment factorMEE Multiple Exploration Expenditure

metallurgical coal The various grades of coal suitable for making steel, such as coking coal, which is used tomake coke, and PCI coal, which is used in the steelmaking process for its calorific value.

metamorphic Rock that has been altered by physical and chemical processes involving heat, pressure andderived fluids.

Mudstone Fine grained sedimentary rock whose original constituents were clays or muds; hardenedmud; a mix of silt and clay sized particles

MV Mother VesselNPV Net Present ValueNQ Drill core with diameter of 45mm

open cut mining Form of mining designed to extract minerals that lie near the surface. Overburden is removedto expose the minerals for mining. Rock covering the minerals may be blasted and removedby large draglines or electric shovels and trucks.

PCI coal Coal that is pulverized and injected into a blast furnace. Those grades of coal used in the PCIprocess are generally non coking. However, since such grades are utilized by the metallurgicalindustry, they are considered to be a metallurgical coal. PCI grade coal is used primarily as aheat source in the steelmaking process in partial replacement for high quality coking coalswhich are typically more expensive.

PEM Prospectivity Enhancement Multiplier

1034



Report No: R223.2014 43

reserves, coal Those parts of the coal resources for which sufficient information is available to enabledetailed or conceptual mine planning and for which such detailed planning has beenundertaken. Reserves are quoted under different categories, depending on the degree ofplanning conducted.

resources, coal All the potentially useable coal in a defined area, based on points of observation andextrapolations from those points.

ply A layer of coal seam normally differing in properties from adjacent layers. Any distinctivelayer may be regarded as a ply.

points of observation(POB)

An intersection at a known location of coal bearing strata, which provides information aboutthe strata including coal seams by one of the following methods;

Observation, measurement and testing of surface or underground exposures.Observation, measurement and testing of bore cores.Observation and testing of cuttings, and use of down hole geophysical logs on noncored boreholes.

Preston Sandersformula

The Preston & Sanders equation for the calculation of relative density (RD) to estimate in siturelative density

Province Highest tier of local government, sub national entity in Indonesia, having its own localgovernment, headed by a Governor.

RD The ratio of the density (mass of a unit volume) of a substance to the density of a givenreference material by laboratory analysis

RD in situ In the ground, undisturbed relative densitysandstone A clastic sedimentary rock composed mainly of sand sized minerals or rock grainsschist A crystalline metamorphic rock having a foliated or parallel structure due to the

recrystallization of the constituent minerals.seam thickness The total thickness of coal and other interbanded sediments that constitute one seam,

measured at right angles to the bedding.sedimentary Term describing a rock formed from sediment.

SGX Singapore Stock Exchangeshale Fine grained, laminated sedimentary rock formed from clay, mud and silt.sills Sheets of igneous rock which is flat lying or has intruded parallel to stratigraphy.silts Fine grained sediments, with a grain size between those of sand and clay.SRTM Shuttle Radar Topography Missionstocks Small intrusive mass of igneous rock, usually possessing a circular or elliptical shape in plan

view.strata Sedimentary rock layers.

stratigraphic Composition, sequence and correlation of stratified rocks.strike Horizontal direction or trend of a geological structure.

sub bituminous coal Dull black coal with carbon content of 35 45%, energy content values in the range of 20,00027,000 kJ/kg (8,300 10,500 BTUs/lb) and moisture content generally between 20% and 30%by weight. Sub bituminous coal generally has a lower sulphur content which makes itattractive for combustion purposes. It is primarily used as a fuel source in thermal powerplants and for industrial heating purposes.

sulphur One of the elements present, in varying quantities, in coal that contributes to environmentaldegradation when coal is burned. Sulphur dioxide is produced as a gaseous by product of coalcombustion. Low sulphur" coal has a variety of definitions, but typically is used to describecoal consisting of 1.0% or less sulphur.

syncline A concave upward fold in which the stratigraphically youngest rocks occur in the core.

thermal coal Coal that is used primarily for its heating value. Thermal coal tends not to have thecarbonization properties possessed by metallurgical coals. Most thermal coal is used toproduce electricity in thermal power plants.

total moisture (TM) The percentage of water in all forms (except water of crystallization of the mineral matter)that resides within the coal matrix

Total sulphur (TS) See sulphur abovetonnes Metric ton or tonne which is equivalent to 1,000 kilograms, or 2,204.60 pounds.

1035



Report No: R223.2014 44

VALMIN Code The VALMIN Code establishes standards of best practice for the technical assessment andvaluation of mineral and petroleum assets and securities by geologists involved in thepreparation of Independent Expert Reports. The VALMIN Code is binding on members of TheAusIMM when preparing public Independent Expert Reports required by the Corporations Actconcerning mineral and petroleum assets and securities.

volatile matter (VM) Those products, exclusive of moisture, released by a material as gas or vapourvolcanic Formed or derived from a volcano.

1036



Report No: R223.2014 45

Appendix 1 LasutLay & Pane Report

1037


1038


1039


1040


1041


1042


1043


1044


1045


1046


1047


1048


1049


1050


1051


1052


1053


1054


1055


1056


1057


1058


1059


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1063



Report No: R223.2014 46

Thickness

Gar DafSoil 2.6

Mudstone 6

Mudstone 14

Mudstone 16

Mudstone 13

Mudstone 11

Mudstone 15

Coal 1.59 S100 22.08 14.57 5.50 38.60 41.33 1.68 5760 5253 7205 1.35 54

Coal 1.80 S200 23.50 15.18 7.08 37.06 40.67 2.87 5595 5053 7194 1.36 54

Coal 0.86 S300 21.77 14.00 7.92 39.69 38.17 0.60 5755 5232 7373 1.34 52

Mudstone 10

Coal 0.75 S400 19.80 12.08 14.84 39.56 33.51 3.64 5253 4785 7164 1.43 66

Sandstone 37

Coal 0.89 S500 20.53 15.17 4.69 39.76 40.39 1.28 5966 5596 7441 1.30 66

Mudstone 31

Coal 0.68 S550 18.94 16.51 6.03 38.20 39.25 0.40 5756 5589 7431 1.32 n/a

Mudstone 39

Mudstone 7Coal 0.73 S600L 18.74 13.64 3.43 38.81 44.12 0.37 6193 5827 7468 1.32 n/a

Mudstone withsandstone

20

Sandstonewith mudstone

bands33

Coal 0.84 S700U 16.24 11.82 6.37 42.38 39.41 2.46 6219 5909 7600 1.32 n/aMudstone 8

Coal 0.74 S700L 18.31 12.98 3.60 39.98 43.44 0.70 6315 5928 7569 1.32 n/a

Mudstone 64

Mudstone 22

Mudstone 13

Mudstone withsandstonebands

49

Coal 0.70 S1000 13.87 10.48 3.42 42.56 43.54 1.50 6549 6304 7606 1.36 n/a

Mudstone withsandstonebands

45

Coal 0.62 S1100 12.38 9.96 3.72 42.24 44.08 2.49 6647 6468 7700 1.31 n/aMudstone withsandstonebands

48

Mudstone 40

575TOTAL SEDIMENT THICKNESS

3.93 6563 6375 7662 1.34 n/a

n/a

Coal 0.53 S1200 11.85 9.25 5.10 41.79 43.86

42.64 1.24 6263 6109 7639 1.32

1.31 n/a

Coal 0.50 S900 14.32 12.17 5.87 39.33

37.64 39.70 0.50 5893 5651 7612

7569 1.30 n/a

Coal 0.51 S850 14.97 11.39 11.27

3.92 40.74 44.17 1.29 6427 6142

5853 7687 1.39 n/a

Coal 0.49 S800 15.11 11.17

10.54 9.17 42.23 38.06 1.40 6175

EARLY

MONTA

LAT

Coal 0.51 S600U 15.30

Mudstone 8

7374 1.42 72

Mudstone 8

23.01 38.45 27.41 0.59 4883 4395Coal 0.33 S50 19.70 11.13

1.22 5162 4608 7159 1.45 n/a

46

Coal 0.48 S40 23.69 14.51 13.54 35.30 36.65

36.48 0.32 6238 5673 7631 1.35

n/a n/a

Coal 0.48 S30 21.14 13.22 5.11 45.20

36.68 38.06 0.55 5408 4919 7234Coal 0.73 S20 24.11 16.50 8.76

n/a n/a n/a n/a n/an/a n/a n/a n/a n/a n/a

RD HGIAve (m) air dried basis

MIOCE

NE

MIDDLE

WAR

UKIN

Coal 0.29 S10

VM FC TS CV CV CV

STRATIGRAPHIC COLUMN TKS PROJECTAge Formation

LithologySeam ID

COAL QUALITY (IN SITU )

Description TM IM ASH

Appendix 2 TKS Coal Stratigraphy(Danmar 2015)

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Report No: R223.2014 47

Appendix 3 Site Visit 17 July 2014

Map 1

Map 2

GPS Readings below are UTM_Z50S

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UnitCoal

Repo

TriniSitethe cOn t


ort No: R223.20

TKS pit lookin

TKS Pit lookin

ty Mine ResoOffice and Cacurrent relatiohis TMS site Ca. 12 buildib. 1 unit Koc. 3 unit Mid. 8 unit Nis

em LtdTrisula Kenca

014

SITE 1

g to NW from 0

ng to W from 0

SITE 3

TMR site off

urces (TMR),mp at 030083onship with TKCSA observed:ngs includingomatsu Bulldoitsubishi Lightssan Dump Tr

na Sakti

0300292E 9895

300292E 98959

fice

TKS mining co37E 9897669.KS regarding s:site office, cazer (inoperabt vehicle (inopruck (inoperab

5944N

944N

ontractor.This camp issuch facilities

amp, mosque,ble)perable)ble)

Damaged be

Stockpile surv

located withinis not known

facility, etc.

SITE 2

nchmark at 030

vey point at 029

SITE 3

TMR Camp

n the TKS tene.

00587E 989762

99332E 989765

p

ement area, t

48

27N

555N

hough

1066


UnitCoal

Repo

A

SiteThe


ort No: R223.20

ROM StoAround 11ha wi

TKS drill ho

PT Aust

8 TKS site ofasset is outsida. 1 unit offb. 1 unit mec. 2 unit und. 1 unit ge

em LtdTrisula Kenca

014

SITE 4

ockpile at 02993ith maximum co

SITE 6

ole collar at 029

SITE 7

ral Byna Loggin

ffice and facilide the IUP titlfice buildingess facilitiesnfinished buildnset room.

na Sakti

337E 9896957Noal capacity of

98940E 989755

ng road to port

ties (0229291e area. TKS ow

ding

N50,000t

6N Pro

1E 9899894N)wn the 4ha la

Weigh b

ovince road (selog

, 10 km fromnd site.

SITE 5

ridge at 029933

SITE 7

aled) intersectigging road, view

SITE 7

Haul road

the ROM stoc

32E 9897655N

ion with PT Ausw to SW

d from TKS Pit

ckpile.

49

stal Byna

1067


UnitCoal

Repo

NoteCSAdoescapawhelead


ort No: R223.20

ewere unables not involveacity of up torein TKS hading from near

em LtdTrisula Kenca

014

SITE 8

TKS Site Off

Unfinished bui

TKS Genset s

to visit the PaTKS. A site vo 200,000t wa lease to user the tenemen

na Sakti

fice

lding 1

shed

angku port facvisit by CSA inith the yarde such facilitient to Muara Te

cilities due ton 2012 confirand barge loes. Danmar aleweh is not ge

U

a road blockamed the natuoading conveylso reports onenerally availa

SITE 8

TKS Mess

Unfinished Buil

Camp road

age by Ujubarure of the poyor owned byn these facilitiable for coal h

s

ding 2

d

ro villagers. Thort at that timy PT. Sinomaies. The publihauling

50

he disputeme, with aas Mining,c highway

1068

APPENDIX 7 – INDEPENDENT BUSINESS VALUATION REPORT

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