greenwood management: phase 2 project engineering report eucalyptus

Greenwood Management ApS: Omøgade 8, 2nd Floor, 2100 Copenhagen Ø, Denmark CVR No 31 62 93 73

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Ref - 49837 PROJECT REPORT: GREENWOOD AGROPECUARIA LTDA 10.905.327/0001-66 BRAZILIAN EUCALYPTUS PROJECT REPORT 2009-2010.

INTRODUCTION This document, dated 01 March 2010, sets out a summary of the Greenwood Management ApS project progression in relation to the eucalyptus projects situated in the state of Bahia, Brazil. This report details recommendations and processes taken by Greenwood Agropecuaria Ltda in the development of the eucalyptus plantation project, in individual phases.

DISCLAIMER

This document has been prepared by Greenwood Management ApS in connection with the company’s Brazilian eucalyptus projects. This document is being provided for the sole purpose of reporting the terms of the working relationship between the company and their clients and has been prepared in good will. All figures used in this report were deemed to be correct at the time of printing. This document and its contents have been distributed in confidence and may not be produced or disclosed to third parties or made public in any way without the prior written permission of Greenwood Management ApS.


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PHASE 2: PROJECT ENGINEERING: Prepared by Greenwood Management ApS 01 November 2008

Prepared by Greenwood Management ApS


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TABLE OF CONTENTS

I. EXECUTIVE SUMMARY .......................................................................................................... 4

II. SITE LOCATION AND IDENTIFICATION ............................................................................... 5

III. SITE INSPECTION .................................................................................................................. 14

IV. SPECIES SELECTION AND PLANT SPACING ..................................................................... 18

V. IMPLIMENTATION PLAN AND COSTING ............................................................................. 19

VI. APPENDIX I- IRRIGATION CHARTS FOR THE REGION ..................................................... 22

VII. APPENDIX II- LETTER OF INTENT WITH VES ..................................................................... 24

VIII. APPENDIX III- LEGAL PAPERWORK AND DESCRIPTIONS ............................................... 26


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I- EXECUTIVE SUMMARY

Following approval of the phase 1 report, the project was progressed in a number of sites, focussing on the Barreiras region of Bahia. It was then determined that three sites in close proximity to each other in Baianopolis/Cristopolis, outside the township of Barreiras, had the potential to live up to the expectations of the project and its progression in 2009. The sites that were eventually decided upon were situated on a plateau. This offered the benefit of a higher rainfall of 1200mm, and close proximity to a new asphalt highway connecting the sites to the port of Salvador, should export markets need to be considered at a later stage in the project. This highway also links the sites directly to the local markets in Barreiras. Another consideration in the acquisition was to align these sites in close proximity to each other to a planned train line that, it had been confirmed, would eventually be built in the area. Once built, it was felt that it would potentially open up a number of additional markets for the future success of the projects. The township of Barreiras has a commercial airport and it has been confirmed by a number of sources that the state of Bahia is currently being considered by the government to be split in two. This would in effect create the need for a new state capital and Barreiras is viewed as a primary candidate. The purpose of the project was to develop a full time eucalyptus plantation in the Bahia region of Brazil. The primary market for the eucalyptus harvest would be the sale of eucalyptus charcoal. Phase 1 of the report indicated that the state of Minas Gerais currently holds ten out of Brazil’s 27 pig iron producers and Bahia itself supplies approximately 11% of all the charcoal produced in Brazil, with the merchant pig iron industry consuming approximately 68.46% of this charcoal. It was therefore decided that if the project was to successfully supply this market with charcoal from plantation grown eucalyptus, the project location would be paramount in this success. Whilst the charcoal markets are the current primary markets, the project would look to align itself to and help to promote secondary markets in the area.


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II- SITE LOCATION AND IDENTIFICATION

Bahia Bahia is one of 26 states in Brazil and is located in the north eastern part of the country on the Atlantic coast. It is the fourth most populous Brazilian state and the fifth largest in overall area. The capital of Bahia is Salvador, which is located at the junction of the Atlantic Ocean. The state’s geographical regions comprise the Atlantic forest, the Recôncavo region radiating from the bay (the largest in Brazil) and the site of much of the sugar and tobacco cultivation in the country, and the Planalto, which includes the fabled Sertao region of Bahia’s far interior. A mountain chain, marked on the map as Chapada Diamantina, crosses the state of Bahia from north to south. This same chain has other names, like Serra do Espinhaço in Minas Gerais and Borborema in Pernambuco and Paraíba. The mountain chain has the shape of "Chapadões", flat top plateaus with abrupt edges. The chain divides Bahia into two clearly distinct geographical zones. To the east, where the Atlantic forest once existed, the soil is fertile and, despite high temperatures, rainy seasons are regular. Vegetation The predominant vegetation in the west is "cerrado". These tough conditions have caused the interior to be much less developed than the coast. The river São Francisco, the largest in the Brazilian north east, also crosses the state. The São Francisco is a permanent river, which continuously supplies water to this arid region when many other smaller rivers dry out. It starts in Minas Gerais and goes on until the Atlantic, making borders between Bahia and Alagoas. There are short stretches of the river which are navigable, but mainly for cargo. The large blue spot at the north is a huge dam built to hold water for the hydroelectric plant of Itaparica. Climate The climate is tropical. In addition to its considerable size, Bahia has the longest coastline of the country: 1,103 km long (685 miles in total; north coast: 143 miles; Todos os Santos Bay: 124 miles; southern coast: 418 miles). With 68% of its territory located in the semi-arid zone, the state presents diversified climates and an average rainfall that varies from 363 to 2,000 mm (14.3 to 78.7 inches) per year, depending on the region. With regards to the weather, Bahia is one of the most privileged states of the country with the following temperatures: 19.2 to 26.6 °C (67 to 80 °F).


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Economy

Bahia has the largest GDP of the states of the north/north east of Brazil. It is the main producer and exporter of cocoa in Brazil. In addition to important agricultural and industrial sectors, the state also has considerable mineral and petroleum deposits. In recent years, soy cultivation has increased substantially. Bahia is the sixth largest economy of the country. In the mid 1950s, the Bahian economy could be considered a typical example of the primary-exporting model, following subsistence production. For ten years this dynamic was led by the cocoa crop, which used to be the state's main product and its most important source of income. With the acceleration of the industrialization process in the 70s, which had started in the 50s, the productive structure of the region began to change. This process, which was not limited to the regional market, was apparent in the Brazilian industrial matrix in the chemical (especially petrochemical) and metallurgical segments. For the last twenty years, the dynamism of the Bahian economy has surpassed the national economy and the state has been able to present higher growth rates than those presented by the national economy. The Bahian economy, with its exceptional trajectory of growth, once again presents activity indicators superior to those of the Brazilian economy. Those numbers are the result of the endeavours of the Bahian government, the result of increasing productive investment, and therefore, potential production. This has been carried out through attractive enterprise policies in all segments of the economy, placing Bahia in a privileged position in the regional and national scenario. Today, the state has a differentiated economic profile, not just depending on one or two sectors. Bahian industry has diversified and widened its productive base, with the implantation of new industrial segments, like the automobile and tyre industries, footwear and textile, furniture, food and beverages, cosmetics and perfumes, information technology and naval. Exceptional results can be seen in agriculture, commerce and tourism, where Bahia is one of the principle national destinations. For this to happen, the strategic position of Bahia as an international tourist destination has been fundamental, with direct and regular flights to Europe, the United States, and the Southern Cone, due to complementary governmental and private initiatives, as well the development of new tourist poles integrated to local culture.


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Recent economic statistics for Bahia show the following:

6th largest economy in Brazil.

Agribusiness represents around 32% of GDP in Bahia and is progressing fast.

GDP growth at 5%, (Brazil as a whole 2.3%).

GDP of $40bn, representing 5% of Brazil’s total and 36% of GDP for the north east.

Larger GDP than Bolivia, Uruguay and Paraguay put together.

2006 Bahian exports were at $5.53bn, whilst imports were at $3.92bn. This indicates a balance of payment surplus. Foreign Investment comes from:

Italy 18.2%.

Portugal 14.9%.

Spain 13.6%.

USA 10.4%.

France 4.8%.

Germany 4.3%.

Britain 3%

Between 1991 and 2006, $1.8bn worth of investment has gone into:

Energy $168m.

Roads $367m.

Sanitation/sewerage $726m.

Airports $160m.

Heritage $174m.


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The primary markets for plantation-grown eucalyptus in the Bahia and the western Bahia region are: Charcoal Traditionally, steel companies have used charcoal as their main fuel and carbon source and today 30% of the 29.9 million tons of steel produced utilize charcoal to fuel the process. Charcoal can come from either native vegetation or reforested vegetation, and is achieved by a process called carbonization. The charcoal is produced onsite and typically charcoal from eucalyptus earns a premium versus native wood due to its higher caloric value. Ten of Brazil's 27 steel companies are located in Minas Gerais, the state bordering Bahia directly to the south. Combined with a reduction of native vegetation, tighter regulatory pressure and the tremendous increases in production of steel products, steel companies in Minas Gerais have been forced to procure charcoal from Bahia and further north to satisfy demand.

Picture 1: Shows steel production by state.


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The substitution of reconstituted wood products like plywood for solid wood products has been an on-going change in the non-structural wood sector. Cost, both of the raw product and processing, are significantly less compared to traditional wood products. As native forests have diminished and environmental regulations against the harvesting of natural forests have increased, Brazilian manufacturers have moved into plywood and particle board production. The secondary markets in the Bahia and the western Bahia region that will also be a focus for the project are: Pressure Treated Lumber Fenced posts throughout the region are either made of concrete or cut from native trees and are often used with the bark still intact. Utility poles are also made exclusively from concrete. By pressure treating a eucalyptus post or pole with cremated copper arsenate (CCA), eucalyptus wood can be placed in the ground for up to twenty years and the cost of a pressure treated post is far less than concrete. Auto-clave facilities to pressure treat eucalyptus exist in southern Brazil and the product has been accepted domestically and is being successfully exported. At present, however, there are no facilities in western Bahia. Furniture Furniture exports from Brazil recently exceeded US$1 bn annually. Eucalyptus is used to produce furniture including chairs, tables, benches, cabinets, stands and dressers. While exports of furniture have been threatened by a stronger local currency, growth has been sustained. Exports for Brazilian furniture production are destined mostly for the United States, but are also sent to France and Argentina. In addition to furniture, Brazilian eucalyptus is also exported for flooring, molding and joinery.

Source: Associação Brasileira da Indústria de Panéis de Madeira

Picture 3: Shows furniture exports. The domestic market for furniture is also showing strength, especially in lower to medium income classes. These income classes are showing a significant potential for growth. Newly opened credit facilities for these income groups have recently allowed them to acquire residential property for the first time. Traditional regions for furniture production are located in Brazil's southern states of Paraná, Santa Catarina and Rio Grande do Sul. However, these companies compete with the production of charcoal and cellulose.


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Furthermore, areas for reforestation in these traditional wood producing states are now competing for land with other highly profitable agricultural commodities, especially sugarcane for the production of ethanol. MDF Medium Density Fiberboard (MDF) is a relatively new phenomenon in Brazil, with the first factory established in 1997 in the State of São Paolo. Since then, the country has seen the establishment of 240 additional MDF factories. National consumption has had an average increase of 20% per year since its inception. MDF is taking the place of lumber for many traditional uses both in Brazil and internationally. The primary driver in Brazil for market growth, however, has been the changing consumer profile in Brazil, especially among middle and lower class buyers. Molded Doorskin Panels (MDP) is a combination of reconstituted wood products and veneers. Products such as face frames, doors, and drawer fronts are being used extensively in residential, commercial, office and hotel installations. This market is expected to grow dramatically. Due to increased competition in the southern states of Brazil from both cellulose companies and other non-structural wood users, MDF manufacturers are looking for alternative areas in which to establish facilities. In recent months, leaders of the reforestation sector in the region of Barreiras have met with companies and consultants keen to analyze the region as a possibility for a new facility. It is estimated that only 20,000 hectares of timber production are needed to warrant a factory. Structural Wood Products Without an alternative supply readily available locally, it is a sad fact that lumber is still being illegally harvested in the Amazon rainforest of Pará and transported over 1,600 km to supply the growing north eastern economy. New advances are being made in tree genetics and composition and in manufacturing techniques for the purpose of using eucalyptus as a structural wood product. Given further advances in this technology, eucalyptus could be used in construction to build houses and provide an alternative supply to native forests. Additional tertiary markets that may be of interest to the project are: Cellulosic Ethanol As green fuels emerge to replace fossil fuels, the need for additional sources of input to produce these fuels will continue to grow. Currently, the primary ingredients in green fuel energy are corn and sugarcane. While these commodities can satisfy a portion of the need, they are also essential components of the world’s food supply. Scientists realize that the growing demand for green fuels will require the development of cellulosic ethanol from abundant grass and forest resources that can be grown on vast areas of marginal land unsuitable for crop production. Development of cellulosic technology sufficient to convert the cellulose in trees on a commercial scale is anticipated to be available in the next 5-10 years. Eucalyptus, with the density of its cellulose, is expected to be a major input source for cellulosic ethanol. .


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In order to progress the 2009-2010 eucalyptus project, it was decided that an ideal location would be in and around the township of Barreiras. This decision was made taking into account a number of planning factors based on agricultural ideals and logistical location when supplying the bordering state of Minas Gerais, as well some speculative information such as the potential for an approved rail link through the state and information relating to a possible split of the Bahia region, effectively creating a potential need for a new regional capital. The township of Barreiras is located in an area surrounded by plateaux. It offers abundant rainfall of 1200mm (rainfall maps for the region can be found in appendix I), a solid transport infrastructure and abundant degraded and pasture land available for conversion. The township has also recently benefited from governmental schemes that have increased investment in electricity and road infrastructure. It was felt that the area offered the right logistical location to effectively supply the bordering state of Minas Gerais with charcoal produced from the project’s 2009 eucalyptus plantations. The major market objective of the 2009-2010 project is to facilitate participation in the development of the secondary markets, described in the previous section. It is anticipated that as the wood product industry develops in the region, additional value will be created for the timber.

Picture 4: Shows the relative location of the projects location in the Bahia region.


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While development of the secondary markets will be an additional goal of the market strategy, focus will remain on the existing primary market for the production of charcoal for sale to the pig iron producers in the state of Minas Gerais. Negotiations between representatives of Greenwood Management and representatives of a number of these secondary markets have already taken place in order to promote new investment in the area and to create available secondary markets. Negotiations have already confirmed that a possible secondary market for the project will be the sale of eucalyptus to be used as feedstock to American company, Verdant Energy Solutions. The eucalyptus that will be supplied, should this option be utilized, will be processed into bio-coal tablets, which can then be co-fired with traditional coal whilst dramatically reducing Co2 emissions. A draft letter of intent to supply between Greenwood Management and Verdant Energy Solutions can be found in Appendix II. REGION OF BARREIRAS It is estimated that thirty to forty thousand hectares are planted within a radius of 200 km of Barreiras. Of those, over half are attributed to production financed or undertaken by firewood consumers such as Bunge, Cargill and Galvani. Other production in the immediate region has typically been done on a small scale, either by farm developers as experiments or by small producers utilizing little technology. The only large and independent project in the area is Vitoria Régia, located in Baianópolis, and managed by Flora Nativa. The plantation started the project in 2005, planting 3,600 hectares of eucalyptus. Today, they have 4,300 hectares planted and have expectations to plant another 550 hectares. The market goals of the Vitoria Régia project are aligned with that of the secondary market, with plans to harvest in the eight year. The group has done significant lobbying with non-structural wood producers for the immediate area of Barreiras. Flora Nativa has also undertaken several research partnerships with prominent federal universities. The project went on to identify a number of rural degraded or pasture properties that were for sale, which offered the correct environment for the success of the project’s in 2009-2010. A number of these properties were subsequently turned down before three properties were identified as having the correct attributes for the project within the Cristopolis/Baianopolis region. The following were sites that were chosen and felt to have the right potential for the project:

Fazenda Vale do Buriti – 363 hectares

Fazenda Passagem de Pedra II (renamed Fazenda Barrinhas I ) – 200 hectares

Fazenda Passagem de Pedra III (renamed Fazenda Barrinhas II) – 381 hectares This meant that the total area to be converted into a full-time eucalyptus tree farm for the 2009-2010 in the Barreiras region for the projects would equate to a total plantable area of 944 hectares. The sites identified all had clear title and had been used for pasture by the previous owner upon agreement of the purchase price and confirmation of good deed title. The properties were then closed in a timely manner. Extracts of the legal paperwork for these properties can be found in Appendix III.


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Picture 5: Shows the relation of the projects in relation to Vitoria Régia, Cargill soy bean crushing plant, and the seedling supplier contacted.


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III- SITE INSPECTION

Greenwood Management ApS eucalyptus project site visits consisted of 3.5 contact days scouting, mapping and assessing soil quality and conditions, and two contact days networking and establishing local industry contacts. One day was also allocated for travel.

Networking activities consisted of visiting two eucalyptus tree plantations in the area, with one of these visits accompanied by a representative of Verdant Energy Solutions. Networking also included visits to several organizations in the township of Barreiras so as to become familiar with the various provincial, federal, and institutional agencies that serve the natural resource community in the region.

The sites were firstly assessed by remote sensing, before progressing with the sale of the properties, allowing for a scheduled site visit in early August 2009. Upon the closing of the three properties, soil analysis was conducted by a local specialist in Barreiras. Following this, recommendations for all the properties were collated and logged. Surface soil was sampled from various locations across the properties, whilst areas of similar surface soils were combined to produce a blended sample. In general two to three soil samples were combined in the field to form the base of each analyzed sample. Results of the soil analysis demonstrated in general that the soils would require the replacement of some essential soil nutrients. Fertilizers and lime would be required to bring the sites into alignment for efficient seedling establishment. Therefore this section focuses briefly on these site visits.


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Fazenda Passagem de Pedra II and Fazenda Passagem de Pedra III The two sites, Fazenda Passagem de Pedra II and Fazenda Passagem de Pedra III, had originally been part of a wider area owned by two brothers. This area had been divided into three parcels and cleared of debris some year ago, whilst one of the brothers retained approximately 500 hectares of this area for farming. The site visit confirmed that the entrance was easily found off the main highway and had been fenced off. A visit to the owner’s brother’s fazenda next door to the two parcels confirmed that eucalyptus was currently growing effectively. This was evident in the rows of eucalyptus that had been planted on this neighboring property along the drive. All the property markers were noted as correct at the time of the visit. A proportion of this area had also been converted to agricultural condition several years ago, whilst the balance of the property showed a healthy and vigorous regenerating area, with soil areas that could easily be improved with little concern. Recently the area had been used for the raising of cattle.

Picture 6: The Google map above shows both Fazenda Passagem de Pedra II (renamed Fazenda Barrinhas I) – 200 hectares and Fazenda Passagem de Pedra III (renamed Fazenda Barrinhas II) – 381 hectares. This map also shows (highlighted in blue) both the main asphalt highway connecting the region to the port of Salvador as well as the local markets in the township of Barreiras, whilst the lighter blue line at the bottom of the screen shows the approved plans for a new rail line which, it is believed, may open up new markets for the projects in the future.


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Fazenda Vale do Buriti – 363 hectares The Fazenda Vale do Buriti site was chosen for its proximity to the other two sites. This allows for an effective radius to share both the labor pool and the machinery but also offers additional pest, disease and fire control due to the separation of the sites. It was confirmed through legal checks that this site had recently had a small debt levied on the property by the owner. It was agreed that this debt would be paid off before the financial transaction and title transfer took place. On inspection of the site it was found to be located easily a short distance down a dirt road off from the main highway. The area was not found to be fenced off on the visit. This would be rectified in the development stages of the program. All boundaries had been registered with the local authorities. The site showed strong signs of re-growth of vegetation.

Picture 7: Shows the plan of Fazenda Vale do Buriti with its boundaries registered with the local authorities


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Application was made to the correct authorities to convert the three sites to agriculture, under the province's current incentive programs. Options exist on the method and technique to clear any existing vegetation from the site. The decision to proceed with the site development would also include arrangements for a gate to be installed at Fazenda Vale do Buriti to control access to the property, once investment into the site occurs. Upgrade and maintenance of the sites would be required to ensure the entire parcel is accessible. Capital improvements are recommended for the entrance to the Fazenda Vale do Buriti property to protect access.

Environmental Licenses

The first step to be taken after closing on the properties would be the acquisition of environmental licenses. The law requires that a certified forest engineer and agronomist individually, and sometimes jointly, submit license applications. The licenses are obtained through the Secretary of the Environment and Water Resources (SEMARH) for the state of Bahia. The major licenses are:

LEGALIZATION OF A RESERVE AREA.

ENVIRONMENTAL LICENSE - This license is necessary to suppress existing vegetation. SEMARH inspections verify if the area has been previously deforested, a special requirement for reforestation projects.

REFORESTATION PROJECT - The project plan will be registered and submitted, followed by scheduled progress inspections to guarantee reforestation credits.


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IV- SPECIES SELECTION AND PLANT SPACING

Species selection - E.Urophylla Three tree subspecies are predominantly used for charcoal production in this region. These are E.Urophylla, E.Grandis and. E. Urograndis. It is recommended that E.Urophylla should be grown and it is understood to perform particularly well in this region. The subspecies E.Urophylla is a fast-growing tree that reaches 45m in height and around 2m in diameter, although E.Urophylla is generally harvested at diameters of lower than 40cm. Although most species of eucalyptus are native to Australia, E.Urophylla is only native on seven islands in eastern Indonesia at altitudes ranging from 180m to 3000m. This subspecies was introduced to Brazil in 1919. In western Bahia, the trees can usually be harvested after five years to produce charcoal for local industries. A local nursery noted to be a quality supplier of E.Urophylla in the region was located and agreements with this supplier were commenced. Fertilization and Correct Planting Recommendations

The analysis of the site samples from the areas showed near identical composition due to their proximity. It will be necessary to fertilize the site. The nutrients required will consist of limestone, gypsum, rock phosphate and NPK. It is recommended that the trees be planted at a spacing allowing for 1,660 trees per hectare.


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V- IMPLIMENTATION PLAN AND COSTING

Site Preparation

Areas targeted for conversion to a eucalyptus tree farm require the conversion of the land to an agricultural condition. This cultivation makes the site more uniform, permitting mechanical planting and thus better spacing control to optimize utilization of productive land. Uniform conditions enable the grower to have greater control over site conditions, vegetative competition, and more efficient access for maintenance and tending of the plantation. The conversion to an agricultural condition requires the removal of existing vegetation, roots, other debris, and cultivating of the land. An environmental licence must be obtained in order to do this and an inspection of the sites is required to confirm the amount of natural vegetation currently growing. Upon clearing any debris from the site, it would be disked and fertilized.

This effort is followed by the application of herbicides to control the re-establishment of brush and tree species. It is also possible to establish some agricultural crops such as beans during the initial years to generate some revenues during plantation establishment.

Access Road

Good access is required and needs to be developed to support maintenance and tending activities and to ensure that the product can be effectively harvested, processed and hauled to market. Improvement of the existing trail and extension of this trail into all three sites is recommended. This work will be accomplished during the site preparation phase of the project.

All costs presented in the table below are for the effective development of Fazenda Vale do Buriti, Fazenda Passagem de Pedra II (renamed Fazenda Barrinhas I) and Fazenda Passagem de Pedra III (renamed Fazenda Barrinhas II) for the year 2009-2010. The fertilizer and soil correction consists of 2 tons per hectare of limestone, 0.5 tons per hectare of gypsum, 0.33 tons per hectare of rock phosphate, and 200g of NPK per tree. The correct plant spacing recommended is 1,660 trees per hectare and accounts for a 10% replant.


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Table 1: Below shows the expected inputs and costing for the projects development and planting.


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Additional works will also be required to control access to the properties and to develop the existing road infrastructure for effective harvest planning. These additional cost estimates are listed below:

Access Road Only a portion of the Fazenda Vale do Buriti property is accessed well. Good access is required and needs to be developed to support maintenance and tending activities and to ensure that the product can be effectively harvested, processed and hauled to market. Improvement of the existing trail and extension of this trail into the property is recommended. This work will be accomplished during the site preparation phase of the project. It is estimated R$4,000 is required for maintenance and establishment of the access trail. Both Fazenda Passagem de Pedra II (renamed Fazenda Barrinhas I) and Fazenda Passagem de Pedra III (renamed Fazenda Barrinhas II) will also need access trails. Expanding this is estimated to cost R$6,000 for both these properties. Access Control A gate controlling access to Fazenda Passagem de Pedra II (renamed Fazenda Barrinhas I) and Fazenda Passagem de Pedra III (renamed Fazenda Barrinhas II) is currently in place. However, it is recommended that a gate to control access to Fazenda Vale do Buriti be installed at the entrance to the site. One other access point occurs in the midpoint of Fazenda Passagem de Pedra II (renamed Fazenda Barrinhas I) and Fazenda Passagem de Pedra III (renamed Fazenda Barrinhas II) permitting access to both abutting properties. Consultation with the owner of the abutting property would be appropriate to determine suitable access controls. Subject to access controls on the neighboring properties, such control may not be required. Contact with adjacent neighbors has not occurred at this time. In the event access control with the neighboring property is desired, physical barriers such as beams or ditching can be used to create this access control. This type of access control can be built into the site clearing work. Planting A recognized professional in the industry, known to be a quality grower of eucalyptus tree planting stock, has been identified and following negotiations it has been agreed that he will supply and plant the selected stock. Planting stock is projected at R$0.60/seedling. 1,660 trees will be planted for each hectare, with an additional replant forecast totalling 1,833 seedlings per hectare. Seedling procurement is therefore projected to cost R$1,099.80 per hectare. Planting will be undertaken by mechanical planting machine, creating a consistent spacing and planted position in the soil. Note: There will also be a number of additional licensing requirements that will require a fee payable to progress.


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VI- APPENDIX I – IRRIGATION CHARTS FOR WESTERN BAHIA CTION

CTION


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VI- APPENDIX I – IRRIGATION CHARTS FOR WESTERN BAHIA


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VII- APPENDIX II – EXTRACTS KEY TERMS UNDER LOI VERDANT ENERGY SOLUTIONS

1. Introduction Whereas the Buyer is a new company which is contemplating establishing a factory in Brazil to produce a biomass-based coal equivalent (“Bio-Coal”), suitable for use as a clean fuel which, when co-fired with coal, shall have the effect of reducing CO2 production, while reducing other pollutants commonly associated with the burning of coal as a fuel. Whereas, the Seller is an existing company operating in and under the laws of Denmark, which purchases land and develops tree plantations for the production of forestry products, including biomass fuel feedstock (“Product”), and wishes to expand the market for such forestry Product. Whereas the Buyer’s energy industry knowledge and business connections may present an opportunity to purchase a portion of the Seller’s Product for use as a biomass-based feedstock to create a renewable fuel provided that the Product meets the Buyer’s specifications, is priced competitively with existing materials used for the purpose; and further provided that the Seller warrants the suitability of the Product for this use, and can ensure a steady and consistent supply at a point in the future, mutually agreed upon by the Parties. 2. Product Specifications: The Buyer shall provide the Seller with printed specifications, which the Product will be required to meet, in order to ensure the suitability of the Product to satisfy the Buyer’s intended end use. 3. Joint Marketing The Buyer shall, at its own expense, test sample quantities of the Seller’s Product in a third-party laboratory for the purpose of evaluation by the Buyer, and provide such analysis to the Seller for marketing purposes. The Buyer shall, at its own expense, contact end-use customers and enter into long term off-take agreements for bio-coal while at the same time enter into corresponding long-term off-take agreements for the Seller’s Product, and thus create additional renewable energy marketing opportunities for both Parties. 4. Definitive Purchase Agreement All of the terms and conditions of a formal transaction will be stated in the Purchase Agreement, to be negotiated, agreed upon and executed by you and us. Neither party intends to be bound by any oral or written statements or correspondence concerning the Purchase Agreement arising before or during the course of negotiations. 5. Estimate of Quantity to be Purchased The Seller has conveyed to the Buyer its intention to build a factory in Brazil to manufacture the Product for the use of the Buyer, among others. It is expected that the Product will be available for sale approximately twelve months after funding is received. It is imperative that the Seller be able to prove to investors and other sources of capital that it can sell sufficient volume of the Product to render the investment viable from a financial standpoint. To cooperate with the Seller in this regard, as it is in the interests of the Buyer to ensure the availability of multiple sources of supply, the Buyer agrees to provide to the Seller a good faith estimate of the quantity of Product it intends to purchase annually in the future. 6. Delivery Point: The Delivery Point for the Product will be at the Fazenda Vallas farm gate, located at KM 748 on BR 242 in the Municipality of Angical in the state of Bahia in Brazil.


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VII- APPENDIX II – EXTRACTS KEY TERMS UNDER LOI VERDANT ENERGY SOLUTIONS

Extract from the original LOI with Verdant Energy Solutions.


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VII- APPENDIX III – LEGAL DESCRIPTION AND PROPERTY PAPERWORK

Bottom page of the land transfer for Fazenda Vale do Buriti


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Below shows extracts from the copy of the legal description of Fazenda Vale do Buriti.


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Bottom half of the land deed showing the transfer for Fazenda Passagem de Pedra II (renamed Fazenda Barrinha I


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Registered map of Fazenda Passagem de Pedra II


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Registered map of Fazenda Passagem de Pedra II

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