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1 GUJARAT NRE COKING COAL LIMITED Independent Expert s Report OPINION: NOT FAIR BUT REASONABLE 26 August 2013

2 Financial Services Guide 26 August 2013 BDO Corporate Finance (WA) Pty Ltd ABN ( we or us or ours as appropriate) has been engaged by Gujarat NRE Coking Coal Limited ( Gujarat ) to provide an independent expert s report on a number of funding transactions including a proposed placement at 20 cents per share to Jindal Steel & Power (Mauritius) Limited ( Jindal Mauritius ) and a top up offer to eligible shareholders not associated with the Jindal Group or Gujarat Group to raise a total of approximately $68.8 million. You will be provided with a copy of our report as a retail client because you are a shareholder of Gujarat. Financial Services Guide In the above circumstances we are required to issue to you, as a retail client, a Financial Services Guide ( FSG ). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees. This FSG includes information about: Who we are and how we can be contacted; The services we are authorised to provide under our Australian Financial Services Licence, Licence No ; Remuneration that we and/or our staff and any associates receive in connection with the general financial product advice; Any relevant associations or relationships we have; and Our internal and external complaints handling procedures and how you may access them. Information about us BDO Corporate Finance (WA) Pty Ltd is a member firm of the BDO network in Australia, a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN to represent it in BDO International). The financial product advice in our report is provided by BDO Corporate Finance (WA) Pty Ltd and not by BDO or its related entities. BDO and its related entities provide services primarily in the areas of audit, tax, consulting and financial advisory services. We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and BDO (and its related entities) might from time to time provide professional services to financial product issuers in the ordinary course of business. Financial services we are licensed to provide We hold an Australian Financial Services Licence that authorises us to provide general financial product advice for securities to retail and wholesale clients. When we provide the authorised financial services we are engaged to provide expert reports in connection with the financial product of another person. Our reports indicate who has engaged us and the nature of the report we have been engaged to provide. When we provide the authorised services we are not acting for you. General Financial Product Advice We only provide general financial product advice, not personal financial product advice. Our report does not take into account your personal objectives, financial situation or needs. You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. BDO CORPORATE FINANCE (WA) PTY LTD

3 Financial Services Guide Page 2 Fees, commissions and other benefits that we may receive We charge fees for providing reports, including this report. These fees are negotiated and agreed with the person who engages us to provide the report. Fees are agreed on an hourly basis or as a fixed amount depending on the terms of the agreement. The fee payable to BDO Corporate Finance (WA) Pty Ltd for this engagement is approximately $40,000. Except for the fees referred to above, neither BDO, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report. Remuneration or other benefits received by our employees All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report. We have received a fee from Gujarat for our professional services in providing this report. That fee is not linked in any way with our opinion as expressed in this report. Referrals We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide. Complaints resolution Internal complaints resolution process As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing addressed to The Complaints Officer, BDO Corporate Finance (WA) Pty Ltd, PO Box 700 West Perth WA When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination. Referral to External Dispute Resolution Scheme A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Ombudsman Service ( FOS ). FOS is an independent organisation that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial service industry. FOS will be able to advise you as to whether or not they can be of assistance in this matter. Our FOS Membership Number is Further details about FOS are available at the FOS website or by contacting them directly via the details set out below. Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Toll free: Facsimile: (03) info@fos.org.au Contact details You may contact us using the details set out on page 1 of the accompanying report.

4 TABLE OF CONTENTS 1. Introduction 1 2. Summary and Opinion 2 3. Scope of the Report 9 4. Outline of the proposed transactions Profile of Gujarat Profile of Jindal Group Economic analysis Industry analysis Fairness approach adopted Valuation approach adopted Post-Transaction Valuation of Gujarat Pre-Transaction Valuation of Gujarat Valuation of other components of the Relevant Transactions Are the Relevant Transactions Fair? Are the Relevant Transactions reasonable? Conclusion Sources of information Independence Qualifications Disclaimers and consents 69 Appendix 1 Glossary Appendix 2 Valuation Methodologies Appendix 3 Discount Rate Appendix 4 - Independent Technical Specialist Report prepared by RungePincockMinarco Limited

5 26 August 2013 The Directors Gujarat NRE Coking Coal Limited Lot 1, Princess Highway Russell Vale NSW 2517 Dear Sirs INDEPENDENT EXPERT S REPORT 1. Introduction On 1 August 2013, Gujarat NRE Coking Coal Limited ( Gujarat or the Company ) announced it had recently entered into agreements with Jindal Steel & Power (Mauritius) Limited ( Jindal Mauritius ), Jindal Steel and Power Limited ( Jindal ), Gujarat NRE Wonga Pty Limited ( Gujarat Wonga ) and Gujarat NRE Coke Limited ( Gujarat Coke ). Jindal and Gujarat Coke are companies incorporated in India. For the purposes of this report: a) Jindal Mauritius, Jindal and Jindal Steel and Power (Australia) Pty Ltd ( Jindal Australia ) are collectively referred to as the Jindal Group ; and b) Gujarat Coke, Wonga Coal Pty Ltd, Gujarat NRE Limited, Gujarat NRE India Pty Ltd, NRE Resources Pty Ltd, Mr Arun Kumar Jagatramka, Mrs Mona Jagatramka and any persons or entities related to the above named persons or entities, are collectively referred to as the Gujarat Group. The proposed agreements are: the issue of a convertible note to Jindal Mauritius with a face value of up to $45 million ( Convertible Note ) maturing on 6 October 2013 to be approved as Resolution 1 in Gujarat s Notice of Meeting document dated on or around the date of this report ( Notice of Meeting ) a placement to Jindal Mauritius of million shares at $0.20 per share with a free attaching unlisted transferable 5-year option exercisable at nil consideration for every share issued ( the Placement ), or up to an additional 225 million shares and 225 million options to be issued upon the conversion of the Convertible Note, to be approved as Resolution 2 in Gujarat s Notice of Meeting an agreement between the Company and Gujarat Wonga to enter into an option offtake agreement with Jindal ( Jindal Offtake Agreement ) for the sale of up to 60% of the run of mine crushed coal produced from Gujarat s mines ( Product ) ( Jindal Offtake Transaction ) to BDO Corporate Finance (WA) Pty Ltd ABN AFS Licence No is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN , an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

6 replace the existing off-take agreement between those parties, to be approved as Resolution 4 in Gujarat s Notice of Meeting an agreement between the Company and Gujarat Wonga to enter into an option offtake agreement with Gujarat Coke ( Gujarat Offtake Agreement ) for the sale of up to 40% of the Product ( Gujarat Offtake Transaction ) to replace the existing off-take agreement between those parties, to be approved as Resolution 5 in Gujarat s Notice of Meeting the granting of a security interest to Jindal Mauritius over all assets and undertakings of the Company to secure repayment of all monies owing to Jindal Mauritius ( Secured Monies ) under a General Security Deed ( Security Transaction ), to be approved as Resolution 6 in Gujarat s Notice of Meeting a top up offer to eligible shareholders not associated with the Jindal Group or the Gujarat Group of one share for every four shares held at $0.20 per Share, together with one free attaching unlisted transferable 5-year option exercisable at nil consideration for every one share subscribed for and issued ( Top Up Offer ), to be approved as Resolution 7 in Gujarat s Notice of Meeting. We refer to the above proposed agreements collectively as the Transaction. All dollar amounts are in Australian dollars unless otherwise indicated. 2. Summary and Opinion 2.1 Purpose of the report The directors of Gujarat have requested that BDO Corporate Finance (WA) Pty Ltd ( BDO ) prepare an independent expert s report ( our Report ) to express an opinion as to whether the transactions to be approved under Resolutions 2, 3, 4, 5 and 6 ( Relevant Transactions ) are fair and reasonable to the non associated shareholders of Gujarat ( Shareholders ). Our Report is prepared pursuant to the following sections of the Corporations Act and/or ASX listing rule ( ASX Listing Rule ) and is to be included in the Notice of Meeting for Gujarat in order to assist the Shareholders in their decision whether to approve the Relevant Transactions: Resolution 2 section 611 (item 7) of the Corporations Act as a result of the Jindal Group increasing its voting power in the Company from its current position at 31.49% to up to 53.63% under the proposed Placement or if shares and options are issued upon the conversion of the Convertible Note (which is an unlikely scenario) Resolution 3 ASX Listing Rule as a result of the Company issuing shares and options under the Placement (as approved under Resolution 2) to a party whose relationship with the Company is such that approval under ASX Listing Rule is required Resolution 4 ASX Listing Rule 10.1 as a result of the Company disposing a substantial asset (being the grant of the right to purchase up to 60% of the Product) to a substantial holder (being the Jindal Group who currently holds a relevant interest of 31.49% of Gujarat s issued share capital Resolution 5 ASX Listing Rule 10.1 as a result of the Company disposing a substantial asset (being the grant of the right to purchase up to 40% of the Product) to a substantial holder (being the Gujarat Group who currently holds a relevant interest of 63.96% of Gujarat s issued share capital 2

7 a) Resolution 6 section 260B(2) of the Corporations Act and ASX listing rule 10.1 as a result of the Company entering into a General Security Deed to grant security to Jindal Mauritius to secure repayment of the Secured Monies. Whilst our Report is required specifically to provide an opinion on Resolutions 2, 4, 5 and 6 on balance, the Notice of Meeting states that if Resolutions 1 to 7 are not approved, the Transaction will not proceed. Therefore, we have also considered whether the Transaction on the whole, to be approved under all the resolutions contained in the Notice of Meeting ( Overall Transaction ) is fair and reasonable to the Shareholders. 2.2 Approach Our Report has been prepared having regard to Australian Securities and Investments Commission ( ASIC ), Regulatory Guide 74 ( RG 74 ), Acquisitions approved by members, Regulatory Guide 111 ( RG 111 ), Content of Expert s Reports and Regulatory Guide 112 ( RG 112 ) Independence of Experts. In arriving at our opinion, we have assessed the terms of the Transaction as outlined in the body of this report. We have considered: How the value of the assets being acquired compares to the value of the consideration to be paid for the assets How the value of a Gujarat share prior to the Transaction compares to the value of a Gujarat share following the Transaction The likelihood of a superior alternative offer being available to Gujarat Other factors which we consider to be relevant to the Shareholders in their assessment of the Transaction The position of Shareholders should the Transaction not proceed. In addition to the above, we have considered the Relevant Transactions individually as follows: Placement to be approved under Resolution 2 - how the value of a Gujarat share prior to the Placement compares to the value of the cash consideration Jindal Offtake Transaction and Gujarat Offtake Transaction (collectively to be referred to as the Offtake Transactions ) to be approved under Resolutions 4 and 5 - how the value of the proceeds of the sale of the Product to Jindal and to Gujarat Coke under the Jindal Option Offtake Agreement and the Gujarat Option Offtake Agreement respectively compare to the value of the Product sold Security Transaction to be approved under Resolution 6 - how the value of the proceeds of the sale of the secured assets that would be provided to Jindal Mauritius under a General Security Deed in relation to the Secured Monies in the event of a default compare to the value of the liabilities that would be settled. 3

8 2.3 Opinion We have considered the terms of the Transaction as outlined in the body of this report and have concluded that, in the absence of a superior offer, the: Placement is not fair but reasonable to Shareholders Jindal Offtake Transaction is fair and reasonable to Shareholders Gujarat Offtake Transaction is fair and reasonable to Shareholders Security Transaction is fair and reasonable to Shareholders The Overall Transaction is not fair but reasonable to Shareholders. In our opinion, the Overall Transaction is not fair because the Post-Transaction Value (on a minority interest basis) of a Gujarat share is lower than the Pre-Transaction Value (on a control basis) of a Gujarat share. However, we consider the Overall Transaction to be reasonable because the advantages of the Transaction to Shareholders are greater than the disadvantages. In particular, the Transaction provides the required funding that Gujarat needs to repay monies owned to Jindal Mauritius, to recapitalise the Company and to expand its production at its NRE No.1 and Wongawilli Projects. 2.4 Fairness In section 14 we determined that the value of a Gujarat share prior to the Transaction (on a control basis) is higher than the value of a Gujarat share after the Transaction (on a minority interest basis), as detailed hereunder. Ref Low $ Mid $ High $ Value of a Gujarat share prior to the Transaction Value of a Gujarat share after the Transaction Source: BDO analysis The above valuation ranges are graphically presented below: Value of a Gujarat share prior to the Transaction Value of a Gujarat share after the Transaction Valuation Summary Value ($) Source: BDO analysis 4

9 We also concluded that: the cash consideration from the Placement is lower than the value of a Gujarat share prior to the Placement the value of the sale proceeds from the Product to Jindal under the Jindal Option Offtake Agreement is equivalent to the value of the Product sold the value of the sale proceeds from the Product to Gujarat Coke under the Gujarat Option Offtake Agreement is equivalent to the value of the Product sold the value of the proceeds of the sale of the secured assets that would be provided to Jindal Mauritius under the General Security Deed in relation to the Secured Monies in the event of a default is equivalent or lower than the value of the liabilities that would be settled The above pricing indicates that, in the absence of any other relevant information, and a superior offer: the Placement is not fair to Shareholders the Jindal Offtake Transaction is fair to Shareholders the Gujarat Offtake Transaction is fair to Shareholders the Security Transaction is fair to Shareholders the Overall Transaction is not fair to Shareholders. 2.5 Reasonableness We have considered the analysis in section 15 of this report, in terms of both advantages and disadvantages of the Relevant Transactions; and other considerations, including the position of Shareholders if the Relevant Transactions do not proceed and the consequences of not approving the Relevant Transactions. In our opinion, the position of Shareholders if the Relevant Transactions are approved is more advantageous than the position if the Relevant Transactions are not approved: the Placement is reasonable to Shareholders the Jindal Offtake Transaction is reasonable to Shareholders the Gujarat Offtake Transaction is reasonable to Shareholders the Security Transaction is reasonable to Shareholders the Overall Transaction is reasonable to Shareholders. Accordingly, in the absence of any other relevant information and/or a superior proposal we believe that the Overall Transaction is reasonable for Shareholders. 5

10 The respective advantages and disadvantages considered are summarised below: ADVANTAGES AND DISADVANTAGES Section Advantages Section Disadvantages Placement The Placement provides the required funding that Gujarat needs to repay monies owned to Jindal Mauritius, to recapitalise the Company and to expand its production at its NRE No.1 and Wongawilli Projects The Placement will increase Jindal s vested interest in the Company further, which may likely increase its major shareholder support in the future The Placement will recapitalise the Company which is crucial to its ability to refinance existing banking facilities and stop being in breach of its banking covenants The Placement, along with the Top Up Offer, are expected to enable Gujarat to reduce the level of debt, thus strengthening the balance sheet of the Company going forward The Placement is not fair Shareholders interests will be significantly diluted The Placement will result in a further loss of control as the increased shareholding of Jindal Group would put the Jindal Group in a position to exert significant influence on the operations of the Company Decreases the likelihood of a takeover offer in the future due to the significant holdings by a major shareholder With the presence of a major shareholder with a 52.8% ownership, Gujarat s shares may have a materially lower free float on a proportional basis, which may reduce its current low level of liquidity even further 6

11 ADVANTAGES AND DISADVANTAGES Section Advantages Section Disadvantages Offtake Transactions The Offtake Transactions are fair. RG 111 states that an offer is reasonable if it is fair Fixed Price Factor does not relate directly to actual quality and expected yield for the actual shipment and the Company will be disadvantaged if the expected yield for its Products exceeds the 0.55 Price Factor The Offtake Transactions secure off take for Gujarat s Products and provides increased certainty for the Company s mining operations, particularly as there are limited markets and customers for unwashed coal Gujarat will bear minimal and known counterparty risks if it sells most, if not all, of its Products to Jindal and Gujarat Coke, who are major shareholders of the Company The pricing formula for the sale of Gujarat s Products at a fixed Price Factor reduces the risk of lower than expected yields from its Products and provides more certainty in part of its pricing and revenue it receives ADVANTAGES AND DISADVANTAGES Section Advantages Section Disadvantages Security Transactions The Security Transaction is fair. RG 111 states that an offer is reasonable if it is fair Onerous restrictions placed on the Company s ability to deal with its assets The provision of security enables the Company to obtain the debt funding that it requires and the provision of security for debt funding purposes is not unusual 7

12 ADVANTAGES AND DISADVANTAGES Section Advantages Section Disadvantages Overall Transaction If the Transaction does not proceed, Gujarat will not be able to achieve its objectives of the expansion plans for its Projects and it will have to immediately repay all monies owing to the Jindal Group and bank debts that are maturing as it is unlikely to be able to refinance these bank debts without obtaining alternative funding The Transaction is significantly dilutive for Shareholders and transfers greater control to the Jindal Group following the Placement in particular. If the Transaction does not proceed, Gujarat may not be able to obtain alternative funding within the short time frame that it requires, and may continue to be in breach of its banking covenants, leading to the Company being in default and possibly be placed into administration The Transaction may result in an increased bargaining power of the Jindal Group and Gujarat Coke, as proportionately more of Gujarat s Products may be sold to them under their respective proposed off take agreements The Overall Transaction is not fair Other key matters we have considered include: Section Description 15.1 Alternative Proposal We are unaware of any alternative proposal that might offer the Shareholders of Gujarat a premium over the value resulting from the Transaction Practical level of control If the Transaction is approved then the Jindal Group will hold a controlling interest of approximately 52.8% in Gujarat. Jindal Group has also nominated one member to the Board of Gujarat and also has the option to appoint a Chief Financial Officer Potential decline in share price Trading in Gujarat s shares has been suspended since 26 June It is possible that if the Transaction is not approved that Gujarat s shares may not be allowed to commence trading again until an alternative funding source is found and if trading does recommence it may be at lower levels than before. 8

13 3. Scope of the Report 3.1 Purpose of the Report Placement The current shareholders of the Jindal Group together own 31.49% of the shares in Gujarat. Section 606 of the Corporations Act 2001 (Cth) ( the Act ) expressly prohibits the acquisition of further shares by a party who already holds (with associates) more than 20% of the issued shares of a public company, unless a full takeover offer is made to all shareholders. Section 611 (item 7) of the Act permits such an acquisition if the shareholders of that entity have agreed to the issue of such shares. This agreement must be by resolution passed at a general meeting at which no votes are cast in favour of the resolution by any party who is associated with the party acquiring the shares, or by the party acquiring the shares. Section 611 (item 7) of the Act states that shareholders of the company must be given all information that is material to the decision on how to vote at the meeting. Regulatory Guide 74 issued by ASIC deals with "Acquisitions Agreed to by Shareholders". It states that the obligation to supply shareholders with all information that is material can be satisfied by the nonassociated directors of Gujarat, by either: undertaking a detailed examination of the Placement themselves, if they consider that they have sufficient expertise; or by commissioning an Independent Expert's Report. The directors of Gujarat have commissioned this Independent Expert's Report to satisfy this obligation. Offtake Transactions and Security Transaction ASX Listing Rule 10.1 requires that a listed entity must obtain shareholders approval before it acquires or disposes of a substantial asset, when the consideration to be paid for the asset or the value of the asset being disposed constitutes more than 5% of the equity interest of that entity at the date of the last audited accounts. ASX Listing Rule 10.1 applies where the vendor or acquirer of the relevant assets is a related party or a substantial holder of the listed entity. The Jindal Group is a substantial holder through its relevant interest of 31.49% in the issued share capital of Gujarat. The Gujarat Group is also a substantial holder through its relevant interest of 63.96% in the issued share capital of Gujarat. ASX Listing Rule requires the Notice of Meeting for shareholders approval to be accompanied by a report by an independent expert expressing their opinion as to whether the transaction is fair and reasonable to the shareholders whose votes are not to be disregarded in respect of the transaction (nonassociated shareholders). Accordingly, an independent experts report is required for the Offtake Transactions and Security Transaction. The report should provide an opinion by the expert stating whether or not the terms and conditions in relation thereto are fair and reasonable to non-associated shareholders of Gujarat. 3.2 Regulatory guidance Neither the ASX Listing Rules nor the Act defines the meaning of fair and reasonable. In determining whether the Relevant Transactions are fair and reasonable, we have had regard to the views expressed by 9

14 ASIC in RG 111. This regulatory guide provides guidance as to what matters an independent expert should consider to assist security holders to make informed decisions about transactions. Placement A control transaction RG 111 suggests that where the transaction is a control transaction, the expert should focus on the substance of the control transaction rather than the legal mechanism to affect it. RG 111 suggests that where a transaction is a control transaction, it should be analysed on a basis consistent with a takeover bid. In our opinion, the Placement is a control transaction as defined by RG 111 and we have therefore assessed the Placement as a control transaction to consider whether, in our opinion, it is fair and reasonable to Shareholders. Offtake Transactions and Security Transaction Related party transactions RG 111 suggests that, where an expert assesses whether a related party transaction is fair and reasonable for the purposes of ASX Listing Rule 10.1, this should not be applied as a composite test that is, there should be a separate assessment of whether the transaction is fair and reasonable, as in a control transaction. An expert should not assess whether the transaction is fair and reasonable based simply on a consideration of the advantages and disadvantages of the proposal. We do not consider the Offtake Transactions and Security Transaction to be control transactions. 3.3 Adopted basis of evaluation RG 111 states that a transaction is fair if the value of the offer price or consideration is greater than the value of the securities, the subject of the offer. This comparison should be made assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm s length. RG 111 states that when considering the value of the securities subject of the offer in a control transaction the expert should consider this value inclusive of a control premium. Further to this, RG 111 states that a transaction is reasonable if it is fair. It might also be reasonable if despite being not fair, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid. Placement Having regard to the above, BDO has completed this comparison in two parts: A comparison between the Placement consideration for each Gujarat share and the value of each Gujarat share being acquired (fairness see section 14 Are the Relevant Transactions Fair? ); and An investigation into other significant factors to which Shareholders might give consideration, prior to approving the resolution, after reference to the value derived above (reasonableness see section 15 Are the Relevant Transactions Reasonable? ). Offtake Transactions and Security Transaction In the case of the Offtake Transactions, the sale of Product to Jindal and Gujarat Coke is the subject of the offer. 10

15 In the case of the Security Transaction, the provision of a security interest to Jindal Mauritius over all assets and undertakings of the Company to secure repayment of the Secured Monies under a General Security Deed is the subject of the offer. As stated in Section 3.2, we do not consider that the Offtake Transactions and the Security Transaction are control transactions. As such, we have not included a premium for control when considering the value of the relevant assets of Gujarat to be disposed. Having regard to the above, BDO has completed this comparison in two parts: A comparison between the value of the assets being disposed and the value of the consideration (fairness see section 14 Are the Relevant Transactions Fair? ); and An investigation into other significant factors to which Shareholders might give consideration, prior to approving the resolution, after reference to the value derived above (reasonableness see section 15 Are the Relevant Transactions Reasonable? ). Overall Transaction Having regard to the above, BDO has completed this comparison in two parts: A comparison between the value of a Gujarat share including a premium for control prior to the Transaction and the value of a Gujarat share on a minority interest basis after the Transaction (fairness see section 14 Are the Relevant Transactions Fair? ); and An investigation into other significant factors to which Shareholders might give consideration, prior to approving the resolution, after reference to the value derived above (reasonableness see section 15 Are the Relevant Transactions Reasonable? ). Valuation assignment This assignment is a Valuation Engagement as defined by Accounting Professional & Ethical Standards Board professional standard APES 225 Valuation Services ( APES 225 ). A Valuation Engagement is defined by APES 225 as follows: an Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the Engagement or Assignment available to the Valuer at that time. This Valuation Engagement has been undertaken in accordance with the requirements set out in APES

16 4. Outline of the proposed transactions On 1 August 2013, Gujarat announced it had recently entered into agreements with the Jindal Group to secure financing for the Company to help secure its financial position. 4.1 Issue of a Convertible Note (to be approved under Resolution 1) Gujarat will issue a Convertible Note to Jindal Mauritius with a face value of up to $45 million pursuant to a convertible note deed which the Company entered into on 29 July 2013 (subsequently varied by letter of agreement dated 7 August 2013), where Jindal Mauritius had already advanced $15 million to the Company ( Tranche 1 ) and on the request of the Company, Jindal Mauritius may advance a further $30 million ( Tranche 2 ) ( Convertible Note Deed ). As at the date of our Report, we understand that Jindal Mauritius has advanced to the Company $16 million of the Tranche 2 amount. Key terms under the Convertible Note are: Term of the Convertible Note is 90 days from 8 July 2013, resulting in an effective maturity date of the Convertible Note to be 6 October 2013 Interest calculated at a rate of 30% per annum until the repayment date or until the date of conversion of the Convertible Note; any capitalised portion of the interest amount will be added to and form part of the monies owing on the date of repayment Jindal Mauritius may convert all of any part of the monies owing under the Convertible Note into Gujarat shares at the issue price of $0.20 per share together with one free attaching unlisted transferable 5-year option exercisable at nil consideration for each share issued. The Convertible Note will be secured by all the assets and undertakings of the Company to secure the repayment of the Convertible Note, which is subject to shareholder approval pursuant to Resolution 6 contained in the Notice of Meeting The monies owing under the Convertible Note Deed will be repaid by off-setting the monies owing against the subscription obligations of Jindal Mauritius under the Placement, after which the Company s liability under the Convertible Note Deed will be distinguished Monies owing under the Convertible Note Deed must be repaid immediately, where, amongst other things, if shareholder approval is not obtained; and the Convertible Note will consequently not be issued. 4.2 Placement (to be approved under Resolutions 2 and 3) On 29 July 2013, Gujarat entered into a binding term sheet with Jindal Mauritius pursuant to which the Company has agreed to undertake a Placement and Top Up Offer to raise up to $68,824,766 ( Jindal Subscription Agreement ). Under the Placement, Jindal Mauritius will subscribe for million shares at an issue price of $0.20 per share, together with a free attaching unlisted transferable 5-year option exercisable at nil consideration for every share subscribed. This could result in Jindal Mauritius acquiring a further million shares upon the exercise of the options issued. The monies owing under the Convertible Note Deed will be repaid by off-setting the monies owing against the subscription obligations of Jindal Mauritius under the Placement, after which the Company s liability under the Convertible Note Deed will be distinguished. 12

17 Pursuant to the Convertible Note, Jindal Mauritius may potentially acquire up to 225 million shares and 225 million options upon conversion of the Convertible Note in accordance with its terms. Any monies provided by Jindal Mauritius under the Convertible Note Deed shall be offset against the subscription obligation of Jindal Mauritius under the Placement, and the Convertible Note will be deemed to be repaid. As such the Convertible Note would only be converted into shares and options where shareholder approval is not obtained for the Placement. The Placement will result in the Jindal Group increasing its shareholding interest to 53.63% while an issue of shares upon the Convertible Note will increase the voting power of the Jindal Group in the Company to 48.37% if the Placement is not approved. Placement dilution only: Other Jindal Group Shareholders Total Issued shares (as at 15 August 2013) 433,313, ,824,806 1,376,138,678 Maximum number of shares to be issued pursuant to the Placement 657,000, ,000,000 Maximum number of shares on issue following the Transaction 1,090,313, ,824,806 2,033,138,678 % holdings (as at 15 August 2013) 53.63% 46.37% % Convertible Note dilution only: Issued shares (as at 15 August 2013) 433,313, ,824,806 1,376,138,678 Maximum number of shares issued under the Convertible Note 450,000, ,000,000 Maximum number of shares on issue following the Transaction 883,313, ,824,806 1,826,138,678 % holdings (as at 15 August 2013) 48.37% 51.63% % Source: Transaction agreements and BDO analysis The Top Up Offer is described in section 4.6 of our Report. Other key terms of the Jindal Subscription Agreement are as follows: a) the Company must lodge a prospectus with ASIC for the Placement and the Top Up Offer; b) the Company must seek shareholder s approval: i) pursuant to Item 7 Section 611 of the Corporations Act for the maximum increase in Jindal Mauritius relevant interest in the Company; ii) for the Jindal Option Offtake Agreement; iii) for the Gujarat Option Offtake Agreement; and iv) for the Top Up Offer; c) the Company will apply for quotation of the shares, and the relevant shares issued on exercise of the options, issued under the Placement and the Top Up Offer; d) upon execution of the Jindal Subscription Agreement, the Company agrees: i) to appoint one nominee of Gujarat Coke to the Board of the Company (subject to the Gujarat Group holding not less than 700,000,000 shares in the Company); ii) to appoint one nominee of Jindal Mauritius to the Board of the Company; and 13

18 iii) Mr Andrew Firek and Mr Maurice Anghie will resign from the board of the Company should they be requested to do so by Jindal Mauritius after Jindal Mauritius has subscribed for securities under the Placement. On their resignation, Jindal Mauritius will have the right to appoint two independent directors to the Board; e) upon execution of the Jindal Subscription Agreement, Jindal Mauritius has a right to nominate a new chief financial officer to Gujarat, and upon such nomination, the Company must appoint a new chief financial officer; and f) the Company provided certain warranties and indemnities to Jindal Mauritius, and the Jindal Subscription Agreement otherwise contains provisions considered standard for an agreement of this nature, including terms relating to confidentiality, procedures for settlement, GST and governing laws. 4.3 Jindal Offtake Transaction (to be approved under Resolution 4) The Company and Gujarat Wonga will enter into a new option off-take agreement pursuant to which the Company and Gujarat Wonga will grant to Jindal an option to off take up to 60% of the run of mine crushed coal produced from Gujarat s coal mines located in New South Wales ( Jindal Offtake Option ). The existing off-take agreement (entered into in May 2012) will continue until such time as Jindal exercises the Jindal Offtake Option. Key terms of the Jindal Offtake Agreement are: a) the Company must seek Shareholder approval pursuant to ASX Listing Rule 10.1 to authorise the transactions contemplated by the Jindal Offtake Agreement b) Subject to the exercise of the exercise of the Jindal Offtake Option, the maximum quantity of Product which the Gujarat and Gujarat Wonga will sell and deliver to Jindal will be determined as follows: i) where the Gujarat Group shareholding in the Company is 40% or more, 60% of the Product in tonnes produced in an option year; or ii) where the Gujarat Group shareholding in the Company is less than 40%, the Product in tonnes produced by the Company in an option year minus the lesser of: (1) 40% of the coal product in tonnes produced by the Company in an option year; and (2) 1,000,000 tonnes of Product. Jindal shall advise the quantity of Product it proposes to take during the ensuing calendar quarter and the time schedule for deliveries during that calendar quarter. c) The quarterly free on board ( FOB ) price of the Product in United States dollars shall be determined based on the following formula: FOB Price = Benchmark Rate x 0.55 where: Benchmark Rate means: (1) if the Product meets the agreed specifications, the FOB rate of German Creek prime hard coking coal of Anglo American for Japanese Steel Mills for a calendar quarter; or 14

19 (2) if the Product does not meet the agreed specifications, the rate as mutually agreed to by the parties which shall be based on the prevailing market price of similar coal landed at any east coast port in India. 4.4 Gujarat Offtake Transaction (to be approved under Resolution 5) The Company and Gujarat Wonga will enter into a new option off-take agreement pursuant to which the Company and Gujarat Wonga will grant to Gujarat Coke an option to off take up to 40% of the run of mine crushed coal produced from Gujarat s coal mines located in New South Wales ( Gujarat Offtake Option ). The existing off-take agreements (entered in May 2007 and November 2007) will continue until such time as Jindal Offtake Agreement commences. Key terms of the Gujarat Offtake Agreement are: a) the Company must seek Shareholder approval pursuant to ASX Listing Rule 10.1 to authorise the transactions contemplated by the Gujarat Offtake Agreement b) Subject to the exercise of the Gujarat Offtake Option, the maximum quantity of Product which Gujarat and Gujarat Wonga will sell and deliver to Gujarat Coke will be determined as follows: i) where the Gujarat Group shareholding in the Company is 40% or more, 40% of the Product in tonnes produced by Gujarat and Gujarat Wonga in an option year; or ii) where the Gujarat Group shareholding in the Company is less than 40%, the lesser of: (1) 40% of the coal product in tonnes produced by the Company in an option year; and (2) 1,000,000 tonnes of Product. Gujarat NRE Coke shall advise the quantity of Product it proposes to take during the ensuing calendar quarter and the time schedule for deliveries during that calendar quarter. c) The quarterly FOB price of the Product in United States dollars shall be determined based on the following formula: FOB Price = Benchmark Rate x 0.55 where the Benchmark Rate is as previously defined. 4.5 Security Transaction (to be approved under Resolution 6) The Company will grant a security interest to Jindal Mauritius over all assets and undertakings of the Company to secure repayment of the Secured Monies under a General Security Deed. Key terms under the General Security Deed are: b) In consideration of Jindal Mauritius entering into the Convertible Note Deed and providing financial accommodation to or at the request of the Gujarat, Gujarat will grant a security interest in secured property to Jindal Mauritius to secure the repayment of Secured Monies c) Secured property will be all present and future property, assets, undertakings and rights of Gujarat ( Secured Assets ). Jindal Mauritius, as the secured party, will have the rights and privileges which are standard for a security arrangement of this type d) The Company, as grantor, will be subject to covenants, restrictions and obligations which are standard for a security arrangement of this type. 15

20 4.6 Top Up Offer (to be approved under Resolution 7) Pursuant to the Jindal Subscription Agreement, Gujarat has agreed to undertake a further top up issue to each Shareholder (other than the Gujarat Group, Jindal Mauritius and Jindal Australia) on a pro rata basis of one new Gujarat share for every four Gujarat shares held, at an issue price of $0.20 per share, together with one free attaching unlisted transferable 5-year option exercisable at nil consideration for every share subscribed for and issued. This is expected to result in the issue of additional 15,587,411 shares and a further 15,587,411 shares if all the free attaching options for every share subscribed for and issued are exercised. The Placement and the Top Up Offer will together raise approximately $68.8 million for Gujarat before associated capital raising costs. 4.7 Shareholding in Gujarat following the Transaction The number of shares and options proposed to be issued under the individual transactions are summarised in the following table. Shares Number Existing Shares on issue 1,376,138,678 Shares issued on conversion of the Convertible Note* 225,000,000 Shares issued pursuant to Placement 328,500,000 Shares issued pursuant to Top Up Offer 15,587,411 Total shares 1,945,226,089 Options Number Existing Options on issue 22,638,000 Options issued on conversion of the Convertible Note* 225,000,000 Options issued pursuant to Placement 328,500,000 Options issued pursuant to Top Up Offer 15,587,411 Total options 591,725,411 * it is proposed that the Convertible Note will be repaid by the Company and therefore no shares or options will be issued to Jindal Mauritius under the Convertible Note Source: Transaction agreements and BDO analysis If Shareholders approve the issue of the Convertible Note to Jindal Mauritius, monies received by Gujarat under the Placement will be set-off against the full amount of the monies owing under the Convertible Note Deed, after which, the Convertible Note Deed will be deemed to be repaid. Therefore, the likely scenario would be that no conversion under the Convertible Notes will take place. While there are 22,638,000 options on issue, only 530,000 options are in-the-money as they are options with nil exercise prices. The remaining options are out-of-the-money and we expect that they are unlikely to be exercised. 16

21 If the Transaction is approved, existing Shareholders interests will be diluted. The table below details the resultant shareholding of Gujarat in the likely scenario following the Transaction. Jindal Other Group Shareholders Total Existing shareholding: Issued shares (as at 15 August 2013) 433,313, ,824,806 1,376,138,678 % holdings (as at 15 August 2013) 31.49% 68.51% % Likely scenario: Issued shares as at the date of this Report 433,313, ,824,806 1,376,138,678 Maximum number of shares issued under the Convertible Note* Maximum number of shares to be issued pursuant to the Placement 657,000, ,000,000 Maximum number of shares to be issued pursuant to the Top Up Offer - 31,174,822 31,174,822 Maximum number of shares to be issued on existing options - 530, ,000 Maximum number of shares on issue following the Transaction 1,090,313, ,529,628 2,064,843,500 % holdings following the Transaction 52.80% 47.20% % Source: Transaction agreements and BDO analysis From the table above, the maximum number of new Gujarat shares to be issued is 688,704, Use of funds The total net funds raised under the Transaction will be used to set off amounts owing under the Convertible Note, which as at the date of our Report is $31 million, amounts owing to Ultrabulk A/S and US$15 million (A$16,612,500 at an exchange rate of A$ to US$1 as at 23 August 2013) owing to Jindal Mauritius under Jindal s existing offtake agreement. Use of funds Amount $ Funds raised under the Placement 65,700,000 Funds raised under Top Up Offer 3,117,482 Less: Repayment of Convertible Note (drawn as at date of our Report) (31,000,000) Less: Repayment of Ultrabulk A/S (2,500,000) Less: Repayment of monies advanced by Jindal Mauritius under Jindal's existing offtake agreement (16,612,500) Funds remaining for other uses 18,704,982 Source: Transaction agreements, Gujarat s management and BDO analysis The funds remaining for other uses are approximately $18.7 million. 17

22 5. Profile of Gujarat 5.1 History The company was founded in 2004 under the name of Gujarat NRE Minerals Limited and listed on the ASX on 10 July It changed its name to Gujarat NRE Coking Coal Limited in February The Company is based in Russel Vale, New South Wales. The Board consists of Mr Arun Kumar Jagatramka as Executive Chairman and Maurice Anghie and Andrew Firek as Independent Directors. As announced to the ASX on 1 August 2013, Jasbir Singh, being the nominee director of Jindal has been appointed to the Board effective 29 July 2013, following the resignation of Mona Jagatramka. Mr Sanjay Sharma is the Company Secretary. 5.2 Operations The Company owns and operates hard coking coal mines in the NRE No. 1 colliery and NRE Wongawilli colliery. The mines are located in the southern coal fields of New South Wales and have a potential mine life of over 30 years. Most of Gujarat s coal production is sold to its parent company Gujarat Coke, at market price on arm s length terms. Gujarat Coke is an Indian publicly listed company that is the largest independent manufacturer of metallurgical coke in India. NRE No.1 colliery ( NRE No.1 or NRE No. 1 Project ) The project was acquired through its subsidiary Gujarat NRE Australia Pty Ltd. in December The mines are located in the Southern Coalfields of New South Wales, which is a part of the Sydney Basin, approximately 10 kilometres north of Wollongong and around 60 kilometres south of Sydney. The Sydney basin is largely of Permo-Triassic age, and extends from Batemans Bay in the south, to Newcastle in the north, and from Lithgow in the west, to Murrurundi in the north-west. The colliery holding is adjacent to the south-eastern margin of the basin. The mine is spread over 6,421 hectares and comprises three coal seams, the Bulli seam, which occurs at the top of the Illawarra Coal Measures, the Balgownie seam, some 8 to 10 metres below it, and the Wongawilli seam, which lies between 22 and 25 metres below the Balgownie seam. Two minor seams, the Cape Horn seam and the Hargraves seam lie between the Balgownie and Wongawilli seams, but are too thin to have any economic significance. The average seam thickness of the Bulli, Balgownie and Wongawilli seams are 2.01 metres, 1.25 metres, and 9.75 metres respectively, though only the base 2.5 metres of the Wongawilli seam is regarded as the working section. The Bulli seam has been worked extensively in the mine area for almost 120 years, the Balgownie seam was worked between 1967 and 1982 and again in There has been no systematic production from the Wongawilli seam in this colliery. Both the Balgownie and the Wongawilli seams are largely untapped resources. NRE Wongawilli ( Wongawilli or Wongawilli Project ) Gujarat acquired the Wongawilli mine from BHP Billiton in The mine is located approximately 15 kilometres south west of Wollongong and 80 kilometres south west of Sydney. Historically, mining has been conducted using longwall mining. The future of the Wongawilli mine involves the development of a set of roadways from the escarpment within the Bulli seam. This will provide access to a large resource of Wongawilli seam coal to the northwest and south areas of the mine holding. 18

23 5.3 Historical Balance Sheet Audited as at Audited as at Audited as at 31-Mar Mar Mar-11 Statement of Financial Position $'000 $'000 $'000 CURRENT ASSETS Cash and cash equivalents 2,913 3,750 71,855 Trade and other receivables 59,618 36,135 21,924 Inventories 17,347 15,084 18,474 Financial assets at fair value through profit or loss - 9,688 14,960 TOTAL CURRENT ASSETS 79,878 64, ,213 NON-CURRENT ASSETS Deposits Available for sale financial assets 5,063 5,934 13,370 Property, plant and equipment 999, , ,275 Deferred tax asset 87,303 33,206 18,767 Exploration licenses 360 5,600 5,600 TOTAL NON-CURRENT ASSETS 1,092,559 1,023, ,349 TOTAL ASSETS 1,172,436 1,088, ,563 CURRENT LIABILITIES Trade and other payables 110,188 69,302 65,536 Derivatives 1,067 1,904 1,796 Working capital facilities from banks 48,821 24,579 - Loans 312,999 36,615 20,728 Provisions 14,801 13,651 9,719 TOTAL CURRENT LIABILITIES 487, ,051 97,779 NON-CURRENT LIABILITIES Loans 15, , ,684 Bonds 10,444 9,570 8,768 Restoration guarantee 15,526 15,526 15,015 Deferred tax liability 55,110 36,282 19,898 Loan from related party TOTAL NON-CURRENT LIABILITIES 97, , ,365 TOTAL LIABILITES 585, , ,145 NET ASSETS 587, , ,418 EQUITY Contributed capital 639, , ,238 Reserves 20,871 19,769 16,453 Accumulated Profit / (Losses) (73,095) 3,503 (6,273) TOTAL EQUITY 587, , ,418 Source: Audited Financial Statements of Gujarat for the years ended 31 March 2011, 31 March 2012 and 31 March

24 We note the following in relation to the balances above: Cash decreased from $71.86 million at 31 March 2011 to $3.75 million at 31 March 2012, mainly as a result of payments of $ million relating to mine development costs and payments for property, plant and equipment of $78.45 million, partly offset by proceeds from borrowings of $ million. The cash balance decreased to $2.91 million at 31 March 2013, with outflows of $ million relating to payments to suppliers and employees and $ million for mine development costs. These outflows were partly offset by receipts from customers of $ million and proceeds from issue of share capital and exercise of options totalling $77.39 million. Exploration licenses have been impaired from $5.60 million at 31 March 2012 to $0.36 million at 31 March The expenditure was written off as a result of an independent valuation of the Cethana project tenements. The valuation was conducted using both the Attributable Value of Exploration Expenditure and Comparable Market methods of valuation. Gujarat s 30% interest in the tenement was valued at $0.36 million. Property, plant and equipment at 31 March 2013 mainly comprises mine development assets of $ million, mining leases of $ million and fixed assets of $ million. Trade and other payables include a USD10 million facility received from Jindal as advance against the Jindal coal off-take agreement in place prior to the Transaction. It also includes a $19.18 million advance against shipment. Current loans have increased from $36.61 million at 31 March 2012 to $ million at 31 March 2013 due to reclassification of $ million of non-current loans as current, on account of the breach of some of its financial covenants in accordance with AASB 101. The Company has made requests to all of its lenders for a waiver of the breach of covenants and a revision of the terms going forward. Gujarat has not received any official responses in relation to this and has not received any Event of Default notices at 31 March The calculation of restoration liability (and corresponding capitalised closure cost assets where necessary) is based on an estimate of the present value of costs required to rehabilitate and restore disturbed areas of land to their original condition. These estimates are reviewed regularly. Contributed capital increased between 31 March 2011 and 31 March 2012 as a result of the exercise of 3,000 options at an exercise price of $0.65. The increase from $ million at 31 March 2012 to $ million at 31 March 2013 was mainly by a rights issue of million shares at $0.18 per share to raise approximately $44.71 million and other raisings of million shares at $0.25 per share to raise approximately $33.54 million. This was partially offset by capital raising costs of $0.85 million. 20

25 5.4 Historical Statement of Comprehensive Income Statement of Comprehensive Income Revenue Revenue from continuing operations Other income Expenses Audited for the Audited for the Audited for the year ended 31-Mar-13 year ended 31-Mar-12 year ended 31-Mar-11 $'000 $'000 $' , , , ,463 Cost of sales (128,771) (118,852) (160,242) Administrative expenses (13,486) (14,000) (12,401) Distribution expenses (31,200) (22,996) (32,000) Environmental expenses (2,619) (3,010) (3,697) Finance cost (18,451) (8,612) (16,602) Unrealised exchange gain/(loss) 968 (772) - Realised exchange gain/(loss) (1,626) 2,444 - Loss on sale of assets/impairment (83,792) (5,622) (37) Loss from continuing operations before income tax (112,182) 13,848 25,906 Income tax expense 35,584 (4,072) (1,260) Loss from continuing operations after income tax (76,599) 9,776 24,646 Other comprehensive income Increase/(decrease) in fair value of available for sale financial assets 1,050 (7,086) 5,332 Income tax on item of other comprehensive income (315) 2,126 (1,599) Total comprehensive loss for the year (75,864) 4,816 28,378 Source: Audited Financial Statements of Gujarat for the years ended 31 March 2011, 31 March 2012 and 31 March 2013 We note the following in relation to Gujarat s Statement of Comprehensive Income above: Revenue from continuing operations decreased in 2013, mainly caused by a decrease in export sales from $ million for the year ended 31 March 2012 to $ million for the year ended 31 March Other income comprises scrap sales, lease rental, interest and profit on sale of other assets. Finance costs increased from $8.61 million in 2012 to $18.45 million in 2013, explained predominantly by the increase in interest expenses from $7.50 million to $14.81 million. Loss on sale of assets/impairment for the year ended 31 March 2013 mainly relate to the impairment of mining assets of $61.46 million. 21

26 5.5 Capital Structure The share structure of Gujarat as at 15 August 2013 is outlined below: Number Total ordinary shares on issue 1,376,138,678 Top 20 shareholders 1,325,024,440 Top 20 shareholders - % of shares on issue 96.29% Source: Share registry information The range of shares held in Gujarat as at 15 August 2013 is as follows: Range of Shares Held Number of Ordinary Shareholders Number of Ordinary Shares Percentage of Issued Shares (%) 1-1, , % 1,001-5, ,588, % 5,001-10, ,471, % 10, , ,776, % 100,001 - and over 129 1,354,176, % TOTAL 1,709 1,376,138, % Source: Share registry information The ordinary shares held by the most significant shareholders as at 15 August 2013 are detailed below: Name Number of Ordinary Shares Held Percentage of Issued Shares (%) Jindal Group 433,313, % Gujarat Group 880,138, % Subtotal 1,313,452, % Others 62,686, % Total ordinary shares on issue 1,376,138, % Source: Share registry information 22

27 6. Profile of Jindal Group 6.1 Overview Jindal is a steel production and power generation company incorporated in India and is considered a key market participant in the mining and infrastructure sector. The Board comprises the following members: Chairperson Emeritus: Savitri Jindal Chairman: Naveen Jindal Directors: Shallu Jindal and Ratan Jindal Managing Director and CEO: Ravi Uppal Managing Director: Sushil Maroo Independent Directors: R. V Shahi, Arun Kumar, Haigreve Khaitan, Hardip Singh Wirk, Shri Arun Kumar Purwar and S.K Garg Nominee Director: Ajit M. Ingle Wholetime Director: Shri D. K. Saraogi Jindal operates through its wholly-owned subsidiaries, Jindal Australia and Jindal Mauritius. Jindal Australia is an Australian exploration company focussed on coal assets. Jindal Australia was incorporated on 15 June 2010 and is headquartered in Queensland. The Board comprises two directors Bhatia Rajesh and Singh Jasbir. Jindal Australia has six exploration permits in Queensland which cover an area of more than 1,300 km 2, with a potential of producing coking and thermal coal. These tenements are located in the Bowen, Suarat and Maryborough basins and are all connected through rail to strategic ports. Jindal has commenced its initial exploration activities. Jindal Australia is wholly owned by Jindal Mauritius. Jindal Mauritus is a steel plant trading in steel and minerals. Jindal Mauritius was incorporated in 2007 and is based in Mauritius. 6.2 Operations Jindal produces angles and channels, fabricated structures, hot rolled plates and coils, parallel flange beams, rails, thermomechanically treated rebars, wire rods and power. Jindal has mining activities across India, Indonesia, Australia and Africa. It holds coal exploration licenses over 100 km 2 in Indonesia and over 1,300 km 2 in Australia. Jindal has an anthracite coal mine in South Africa with an annual production capacity of approximately 1 million tonnes. Jindal is also developing a coal mine in Mozambique and three iron mines as well as a coal mine in India. The total annual production capacity in India is 2 million tonnes of iron ore and 6 million tonnes of coal. In addition, Jindal is exploring steel production and mining projects in Brazil and Mongolia. Jindal produces angles and channels, fabricated structures, hot rolled plates and coils, parallel flange beams, rails, thermomechanically treated rebars, wire rods and power through the following facilities: 23

28 Raigarh Plant is the largest coal-based sponge iron plant in the world with a sponge iron capacity of 1.37 million tonnes per annum, a pig iron capacity of 1.67 million tonnes per annum and a steel capacity of 3 million tonnes per annum. In addition, Jindal also produces rail and universal beam mill, plates mill, medium end light section mill, fabricated structures, ferro alloys and power through its Raigarh Plant. Angul Plant has a production capacity per annum of 1.5 million tonnes of plate mill, 40,000 tonnes of fabricated structures and 540 million watts of power. Patratu Plant has a production capacity per annum of 1.7 million tonnes of coke oven, 1 million tonnes of bar mill and 0.6 million tonnes of wire rod. Barbil Plant is a pellet plant with a capacity of 4.5 Million tonnes per annum for different grades of pellets. Oman Plant is a gas-based Hot Briquetted Iron plant with a capacity of 1.5 million tonnes per annum. The plant was acquired through the acquisition of Shadeed Iron & Steel Co. LLC by its wholly owned subsidiary Jindal Mauritius. Raipur Plant forms part of Jindal s heavy machinery division. 24

29 6.3 Historical Balance Sheet Audited as at Audited as at Audited as at Statement of Financial Position 31-Mar Mar Mar-11 $'000 $'000 $'000 CURRENT ASSETS Cash and cash equivalents 35,413 28, ,579 Trade and other receivables 345, , ,067 Notes receivable 1,429, , ,552 Inventory 800, , ,195 Other current assets 75, , ,193 TOTAL CURRENT ASSETS 2,686,315 2,311,082 2,000,586 NON-CURRENT ASSETS Property, plant and equipment 6,808,475 5,672,003 5,239,583 Long-term investments 148,102 74,039 66,847 Goodwill and other intangibles 27,295 57,422 33,599 Loans receivable 428,472 19,543 12,800 Other assets , ,557 TOTAL NON-CURRENT ASSETS 7,412,689 6,216,918 5,822,386 TOTAL ASSETS 10,099,004 8,528,000 7,822,972 CURRENT LIABILITIES Trade and other payables 247, , ,980 Short-term borrowings 1,459,338 1,120,045 1,429,636 Current tax liability - 740, ,483 Other current liabilities 1,466, , ,543 TOTAL CURRENT LIABILITIES 3,172,790 2,660,700 2,861,642 NON-CURRENT LIABILITIES Long-term debt 2,725,320 2,118,309 1,599,247 Deferred tax liability 236, , ,957 Other liabilities 105,197 33,273 34,839 TOTAL NON-CURRENT LIABILITIES 3,067,018 2,377,432 1,852,043 TOTAL LIABILITES 6,239,808 5,038,132 4,713,685 NET ASSETS 3,859,196 3,489,868 3,109,287 EQUITY Share capital 16,541 17,712 20,253 Additional paid in capital - 24,106 26,756 Retained earnings 3,744,046 3,389,861 3,011,673 Minority interest 98,609 58,189 50,605 TOTAL EQUITY 3,859,196 3,489,868 3,109,287 Source: Capital IQ 25

30 We note the following in relation to the balances above: Jindal s reporting currency is the Indian Rupee, however for comparative purposes we have expressed the balance sheet in Australian Dollars. The Indian Rupee amounts have been converted at the closing exchange rate at balance date, sourced from Capital IQ Total assets have increased from $8.53 billion at 31 March 2012 to billion at 31 March This was primarily due to an increase in trade and other receivables, inventory and property, plant and equipment Note receivables increased from $0.47 billion at 31 March 2012 to $1.43 billion at 31 March 2013 as a result of a reclassification into notes receivable from the other assets line item. Similarly, other assets have decreased from $ million at 31 March 2012 to $75.03 million at 31 March 2013 Property, plant and equipment mainly comprises machinery, land and capital work in progress Long term receivables increased mainly due to the reclassification from other long term assets Share capital has decreased from $20.25 million at 31 March 2011 to $16.54 million at 31 March This decrease arises due to exchange rate movements between balance dates which have resulted in a movement in the balance on translation of the financial statements into Australian Dollars. The balance in Indian Rupee has remained at Rs93,480 million at each of the above balance dates. 6.4 Historical Statement of Comprehensive Income Audited for the Audited for the Audited for the Statement of Comprehensive Income year ended 31-Mar-13 year ended 31-Mar-12 year ended 31-Mar-11 $'000 $'000 $'000 Revenue 3,460,077 3,450,154 2,842,314 Other Revenue 30,126 57,429 40,059 Total Revenue 3,490,203 3,507,583 2,882,373 Cost Of Goods Sold (1,686,360) (1,700,755) (1,100,658) Gross Profit 1,803,843 1,806,828 1,781,715 Operating expenses Selling, general & admin expenses (113,512) (247,322) (199,285) Research and development expenses - (1,224) (1,257) Depreciation & amortisation (272,365) (262,707) (249,502) Other operating (expense)/income (480,187) (135,866) (135,195) Interest expense (151,900) (101,000) (77,800) Other expenses (100,473) (71,735) (34,250) Profit Before Tax 685, ,974 1,084,426 Income Tax Expense (163,118) (224,787) (256,447) Profit After Tax 522, , ,979 Source: Capital IQ 26

31 We note the following in relation to Gujarat s Statement of Comprehensive Income above: Jindal s profit before tax fell from approximately $1.08 billion for the year ended 31 March 2011 to $0.69 billion for the year ended 31 March This 36% decrease in profit comes in spite of a 21% increase in revenue over the same period. This is a result of a decrease in gross profit margin from 61% to 51%, an increase in other expenses from $34.25 million to $ million and an increase in interest expense from $77.80 million to $ million The increase in revenue is primarily attributable to a 22% increase in production of finished steel and semi-steel products, a 35% increase in power generation and a 34% increase in pellet production over the period 2011 to 2013 Other operating expenses increased to $ million in the 12 months to 31 March 2013 as a result of a change in classification of expenses which selling and general administration activities being captured in other operating expenses in This explains the decrease in selling and general administration expenses from $ million in 2012 to $ million in 2013 Included in other expenses for the year ended 30 June 2012 was a $17.4 million loss on sale of investments after Jindal sold its interest in its diamond exploration business which had previously been expanded to explore tenements in the Democratic Republic of Congo Interest expense increased from $77.80 million to $ million due to a 45% increase in debt. 6.5 Capital Structure A breakdown of the ordinary shares held in the Jindal Group as at 31 March 2012 is detailed below: Group No. of Ordinary Shares Held Percentage of Issued Shares (%) Promoters 550,703, % Financial institutions 64,365, % Corporate bodies 29,252, % NRI's/OCB's/FII/Trust/Foreign National 216,630, % Public 73,881, % Total 934,833, % Source: Jindal FY12 annual report The following table provides a breakdown of shareholdings of the Jindal Group as at 31 March 2013: Percentage of Issued Group No. of Ordinary Shares Held Shares (%) Shares held by promoter and promoter groups 552,248, % Shares held by public shareholders 382,584, % Total Ordinary Shares on Issue 934,833, % Source: Jindal FY13 results press release Jindal Group has not provided us with up to date share registry information, therefore our analysis is limited to publicly available information. 27

32 7. Economic analysis Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year. Commodity prices have declined but, overall, remain at high levels by historical standards. Inflation has moderated over recent months in a number of countries. Globally, financial conditions remain very accommodative, though the recent reassessment by markets of the outlook for US monetary policy has seen a noticeable rise in sovereign bond yields, from exceptionally low levels. Volatility in financial markets has increased and has affected a number of emerging market economies in particular. In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment. The unemployment rate has edged higher. Recent data confirms that inflation has been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the recent depreciation of the exchange rate. The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values, and further effects can be expected over time. The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households. The Australian dollar has depreciated by around 15 per cent since early April, although it still remains at a historically high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy. The Reserve Bank of Australia has previously noted that the inflation outlook could provide some scope to ease policy further, should that be required to support demand. Source: Statement by Glenn Stevens, Governor: Monetary Policy Decision 6 August

33 8. Industry analysis 8.1 Overview Coal deposits are found below the earth s surface with the quality of a coal deposit determined by the length of time in formation, commonly known as its organic maturity, temperature and pressure. The rank of coal refers to the physical and chemical properties that coals of different maturities possess. Lower rank coals such as lignite generally possess a much lower organic maturity, have a soft texture, a dull earthly appearance and are characterized by high moisture levels and low energy (carbon) content. Higher ranked coals such as Anthracite, which is the highest ranking coal, are harder, stronger, contain less moisture, and produce more energy. To date coal has been mined by two broad methods, opencast mining and underground mining, the choice of extraction method determined by the geology of the coal deposit. The two major coal types are coking coal and thermal coal. Coking coal is used for the production of metallurgical coke, which is used as a reductant in the production of both iron and steel. It is primarily used because of its high carbon content and coking characteristics, however it is also used for the smelting and casting of base metals. Of the different types of coking coal, hard coal is the most valuable as it produces the highest quality coke. Semi soft coking coal and Pulverised Coal Injection are used more in blending with hard coking coal to be used as an auxiliary fuel source to increase the effectiveness of blast furnaces. Thermal coal, also referred to as steaming coal generally contains less carbon than coking coal therefore it cannot be used in the production of steel. It is therefore primarily used as an energy source for coal fired power plants. The major producers of thermal coal are China, USA and India, with the largest importers being China, Japan, South Korea and India. 8.2 Pricing Coal is a global commodity and, as such, prices are determined by global supply and demand factors. With both the international community and the world s dependency on energy growing, fuel products are the single most important input affecting global economic growth. The fastest growing fuels are forecast to be renewable, nuclear and hydro. During , elevated demand for coal as the cheapest source of power caused prices to increase by around 200%. This diverged from historical trends where coal has generally traded at a lower, more stable price than more volatile commodities such as oil and gas. Speculation about sustainability of prices in light of the economic slowdown and a slackening steel market caused the correction from the highs experienced, however in comparison to an average between US$20/t to US$40/t throughout the 1990 s, the current price is still well above historical levels. 29

34 USD/t Coking Coal Quarterly Contract Prices Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Quarterly Coking Coal Spot Price Quarterly Coking Coal Forecast Price Source: Bloomberg and BDO analysis Coal prices have retracted since the commodity boom of 2007 and This spike was not only fuelled by the surge in demand from developing economies such as China but was also exacerbated by supply side factors. Disruptions to global supply occurred as a result of extremely heavy snowfall in China and long term power shortages in South Africa. Prices are expected to remain fairly stable at current levels as is shown by the consensus forecast in the chart above. China and India s coal demand growth is forecast to be slower in this decade than it has been in the last decade driven by efficiency improvements and a movement towards less coal intensive economic activities. 8.3 Outlook Prices are expected to remain fairly stable at current levels as is shown by the consensus forecast in the chart above. China and India s coal demand growth is forecast to be slower in this decade than it has been in the last decade driven by efficiency improvements and a movement towards less coal intensive economic activities. Growing imports are expected to drive further expansion and integration of global coal markets. With China and India forecast to account for majority of the global coal growth in the coming decades and the growth in China and India forecast to slow, the outlook remains flat for coal. Global coal supply is forecast to grow by 1% per annum. Coal s share in fuels used to generate power is forecast to decline over the next two decades, whilst consumption in the industrial sector is also expected to flatten. 30

35 9. Fairness approach adopted RG 111 states that an offer transaction is fair if the value of the offer price or consideration is greater than the value of the securities subject of the offer. RG 111 suggests that a proposed related party transaction is fair if the value of the financial benefit to be provided by the entity to the related party is equal to or less than the value of the consideration being provided to the entity. These comparisons should be made assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm s length. 9.1 Placement In the case of the Placement, the value of the securities, the subject of the offer relates to the value of the Gujarat shares prior to the Transaction to be issued to Jindal Mauritius ( Placement Share ). The value of the consideration being provided to the entity relates to the cash that Gujarat will raise from Jindal Mauritius, being $65.7 million ( Placement Consideration ). The Placement is fair if the value of the Placement Consideration per share is equal to or greater than each Placement Share issued to Jindal Mauritius. 9.2 Offtake Transactions In the case of the Offtake Transactions, the value of the financial benefit to be provided by the entity to the related party relates to the value of the proceeds from the sale of the Product that would be provided under the Jindal Offtake Agreement and the Gujarat Offtake Agreement ( Product Sale Proceeds ). The value of the consideration being provided to the entity relates to the value of the Product that will be sold to Jindal and Gujarat under the Jindal Offtake Agreement and Gujarat Offtake Agreement respectively ( Product Sold ). The Offtake Transactions are fair if the value of the Product Sale Proceeds is equal to or greater than the value of the Product Sold to Jindal and Gujarat under the Jindal Offtake Agreement and Gujarat Offtake Agreement respectively. 9.3 Security Transaction In the case of the Security Transaction, the value of the financial benefit to be provided by the entity to the related party relates to the value of the proceeds of the sale of Secured Assets that would be provided as settlement of amounts payable to Jindal Mauritius in the event of a default under the General Security Deed ( Security Provided ). The value of the consideration being provided to the entity relates to amounts payable to Jindal Mauritius that would be settled by the sale of the Secured Assets, including the principal amount drawn down and related interest accrued ( Liabilities Settled ). The Security Transaction is fair if the value of the Security Provided to Jindal Mauritius is equal to or less than the value of the Liabilities Settled by this security in the event of default under the General Security Deed. 31

36 9.4 Overall Transaction In determining the fairness of the Overall Transaction, the value of a Gujarat share including a premium for control prior to the Transaction ( Pre-Transaction Value ) is compared to the value of a Gujarat share on a minority interest basis after the Transaction ( Post-Transaction Value ). The Overall Transaction is fair if the Post-Transaction Value of each Gujarat share is equal to or greater than the Pre-Transaction Value of each Gujarat share. 10. Valuation approach adopted There are a number of methodologies which can be used to value a business or the shares in a company. The principal methodologies which can be used are as follows: Capitalisation of future maintainable earnings ( FME ) Discounted cash flow ( DCF ) Quoted market price basis ( QMP ) Net asset value ( NAV ) Market based assessment A summary of each of these methodologies is outlined in Appendix 2. Different methodologies are appropriate in valuing particular companies, based on the individual circumstances of that company and available information. It is possible for a combination of different methodologies to be used together to determine an overall value where separate assets and liabilities are valued using different methodologies. When such a combination of methodologies is used, it is referred to as a sum-of-parts ( Sum-of-Parts ) valuation. The approach using the Sum-of-Parts involves separately valuing each asset and liability of the company. The value of each asset may be determined using different methods as described above. The component parts are then valued using the NAV methodology, which involves aggregating the estimated fair market value of each individual company s assets and liabilities Valuation of Gujarat after the Transaction In our assessment of the value of Gujarat s shares after the Transaction, we have chosen to employ the following methodologies: Sum-of-Parts method, as our primary method, which estimates the market value of a company by separately valuing each asset and liability of the company. The value of each asset may be determined using different methods and the component parts are then aggregated using the NAV methodology QMP approach as our secondary method. Sum of Parts In determining the fair market value of Gujarat s underlying assets, we have used the Sum-of-Parts method in estimating the fair market value of Gujarat prior to the Transaction by aggregating the estimated fair market values of its underlying assets and liabilities, having consideration to the following: 32

37 The value of Gujarat s NRE No. 1 Project and Wongawilli Project (collectively the Projects ) (using the DCF method) The value of remaining resources of the NRE No. 1 and Wongawilli mines, not included in the life of mine cash flows of the Projects used in the DCF approach (having reliance on an independent specialist report) The value of other assets and liabilities of Gujarat (using the cost approach under the NAV method) The additional capital that Gujarat will be raising under the Transaction and the impact that the number of shares to be issued will have on the value of Gujarat per share following the Transaction. Methodologies adopted We have chosen these methodologies for the following reasons: Cash flows generated from the Projects form Gujarat s core value and the Projects are in production, with historical information available on which to reasonably base forecasts The Company has completed cash flow forecasts for the expansion phase of the Projects based on the estimated extended life of mine for the Projects Cash flows from the Projects have a finite life and these cash flows may vary substantially from year to year, rendering it suitable for the DCF valuation There are remaining resources (indicated and inferred) at the NRE No. 1 and Wongawilli mines that have not been included in the life of mine of the Projects, which are appropriate to be separately valued by an independent specialist using methods other than the DCF method Other component parts of Gujarat are valued using NAV method QMP has been adopted as our secondary method and as a cross check to our primary valuation method. The QMP basis is a relevant methodology to consider because Gujarat s shares are listed on the ASX. This means there is a regulated and observable market where Gujarat s shares can be traded. However, in order for the QMP methodology to be considered appropriate, the Company s shares should be liquid and the market should be fully informed as to Gujarat s activities. We have considered these factors in section Technical expert In performing our valuation of Gujarat s Projects using the DCF method, we have relied on the Independent Technical Specialist Report prepared by RungePincockMinarco Limited ( RPM ) as at August 2013 ( Independent Technical Specialist Report ) based on RPM s review of the technical project assumptions contained in the cash flow models of the Projects. We also instructed RPM to value all of the remnant resources that are not included in the DCF valuation of the Projects, in accordance with the Code of Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports ( the Valmin Code ) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves ( JORC Code ). RPM has used the following methods in valuing the resource potential of the licence area: Comparable market value method which analyses resource bases in conjunction with comparable transactions, to derive a dollar per tonne of coal to apply to the remnant coal resources 33

38 The value of these remaining resources reflect mining beyond the life of mine for the Projects and represents the value of these resources at the end of the life of mine of the Projects Therefore, the values provided by RPM have to be discounted to present value by the respective life of mine years for each of the NRE No. 1 Project and the Wongawilli Project RPM has also considered, in its valuation, the reduction in coking coal quality and yields relative to previous mined areas and the uncertainty of mining other seams. We are satisfied with the valuation methodologies adopted by RPM, which we believe are in accordance with industry practices and compliant with the requirements of the Valmin Code. A copy of RPM s report is attached at Appendix Valuation of Gujarat prior to the Transaction In our assessment of the value of Gujarat s shares prior to the Transaction, we have considered the following methodologies: Sum-of-Parts method NAV approach QMP approach We also considered previous capital raisings conducted by Gujarat since its listing on the ASX in Sum of Parts The assumptions that we undertook in the Sum-of-Parts valuation approach differed in that the Pre- Transaction Value takes into account the additional capital that Gujarat will have to raise without the Transaction taking place, that is, Gujarat is in advanced stages of discussions for a $210 million debt syndication and has obtained sanctions for $76 million of debt financing with the balance expected to be forthcoming. Of the $210 million, only $60 million is additional debt. The balance relates to the refinancing of existing loans. To finance the Projects in the absence of the Transaction, additional funds need to be raised by further debt and equity in a secondary raising or similar. In relation to raising equity, we have considered the likely price at which Gujarat will have to place its shares to a third party. To determine the likely placement price, we considered the volume weighted average price of Gujarat s share and the discount at which shares have been issued by ASX listed companies when compared with the companies share prices the day prior to the announcement of the placements. We also considered the more recent capital raisings conducted successfully by Gujarat in the past 12 months. The Pre-Transaction Value of a Gujarat share is calculated based on the assumption that funding for the expansion of the Projects through a placement to a third party or current shareholders under a rights issue may be achieved. In the absence of such funding, the Projects mine lives will be curtailed as the Projects are not achieving sufficient economies of scale to enable Gujarat to fund further expansion of its mines. Methodologies adopted We have chosen these methodologies for the following reasons: If the Projects can be funded on the funding assumptions described above, the Company is expected to proceed into the expansion phase in the same way that the Projects are funded by the Transaction, except that the dilution of shareholders value may differ as a result of a different funding option. If 34

39 so, valuing the Projects using the DCF approach is appropriate, and the Sum-of-Parts method used to aggregate the remaining assets of Gujarat The NAV approach has been applied to determine the value of Gujarat on a going concern basis where the assets may become passive investments if the Company s expansion plans cannot go ahead due to the lack of funding The QMP approach has been adopted to consider the trading prices of Gujarat up to the date just prior to the announcement of the Transaction. The value of a Gujarat share after the announcement may include effects of any change in value as a result of the Transaction. However, in order for the QMP methodology to be considered appropriate, the Company s shares should be liquid and the market should be fully informed as to Gujarat s activities We also considered previous capital raisings conducted by Gujarat since its listing on the ASX in 2007, and referring to the more recent capital raisings completed in the past 12 months as a closer indication of its value prior to the Transaction. 11. Post-Transaction Valuation of Gujarat We have employed the Sum-of-Parts method in estimating the fair market value of Gujarat by aggregating the estimated fair market values of its underlying assets and liabilities, having consideration to the: Value of Gujarat s interest in the Projects (on the basis of a 100% interest) Value of remaining resource not included in the life of mine cash flow forecasts of the Projects Value of other assets and liabilities of Gujarat. We considered the QMP approach as our secondary valuation method. Gujarat is listed on the ASX which provides an indication of the market value where an observable market for the securities exists, provided that there is a deep market for the trading of its securities Sum-of-Parts Valuation of Gujarat The value of Gujarat s assets on a going concern basis is reflected in our valuation below: Low value Mid value High value Summary of Assessment Section $'000 $'000 $'000 DCF value of Projects , ,000 1,120,000 Less: Net debt (618,983) (618,983) (618,983) Value of Projects to equity holders 131, , ,017 Value of remaining resources ,697 18,697 18,697 Other assets and liabilities (excluding net debt) 11.4 (41,792) (41,792) (41,792) Options 'in the money' Less: Present value of corporate costs Value of Gujarat under Sum-of-Parts method 107, , ,922 Number of Gujarat shares ,064,844 2,064,844 2,064,844 Value per share Minority discount % 23% 20% Minority value per share Source: BDO analysis 35

40 The table above indicates that the value of a Gujarat share on a minority basis is between $0.04 and $0.18, with a midpoint value of $ Discounted Cash Flow Valuation Future Cash Flows The management of Gujarat has prepared a summary cash flow model, which incorporates cash flows relating to Gujarat s No. 1 Project and Wongawilli Project ( the Model ). We have reviewed the Model and the material assumptions that underpin it. The Model has been adjusted by us to reflect any changes to technical assumptions as a result of RPM s review and any changes to the economic and other input assumptions from our research to arrive at an adjusted model ( the Adjusted Model ). The Adjusted Model has been prepared on a real basis. The Adjusted Model includes recommendations made by RPM. RPM provided independent expert advice on the reasonableness of the following assumptions and inputs within the model: Quantum of reserves and resources; Mining schedule; Production profiles; Product qualities and recoveries; Expected life of mine; Capital costs; Transport costs; and Closure costs. BDO has undertaken an analysis of the Model which has involved: Analysing the Model to confirm its integrity and mathematical accuracy; Reviewing the reasonableness of the assumptions adopted by Gujarat; Calculating appropriate discount rates; and Preparing the Adjusted Model. We have not undertaken a review of the cash flow forecasts in accordance with Australian Auditing Standard AUS 804 The Audit of Prospective Financial Information and do not express an opinion on the reasonableness of the assumptions or their achievability. However, nothing has come to our attention as a result of our procedures to suggest that the assumptions on which the Model has been based have not been prepared on a reasonable basis. Assumptions The main assumptions underlying the Adjusted Model include: Mining and production volumes Yields Commodity prices Operating costs Sustaining capital expenditure 36

41 Foreign exchange rates Royalties Discount rate. We have set out the key assumptions used in the Adjusted Model below: Revenue Assumptions Benchmark coking coal prices used in the Adjusted Model are sourced from Consensus Economics on an FOB basis. We have analysed historical seaborne hard coking coal quarterly contracts sourced from Bloomberg relative to the historical quarterly Benchmark Rate, being the FOB rate of German Creek prime hard coking coal of Anglo American for Japanese steel mills, provided by Gujarat. Based on quarterly data from October 2010 to June 2013, we observed an average discount of 2% between seaborne hard coking coal contracts and the Benchmark Rates provided. As such we have applied a discount of 2% to the forecast coal prices obtained from Consensus Economics. Based on our analysis we have adopted the following the coal pricing assumptions in the Adjusted Model: Forecast coal prices US$/t (real) Benchmark Rate $US/t (after discount) FOB selling price $US/t (with a 0.55 factor) Source: Consensus Economics, Bloomberg and BDO analysis Under the Jindal Offtake Agreement and Gujarat Offtake Agreement, Gujarat has the right to sell unwashed coal to Jindal and Gujarat Coke at 55% of the benchmark coal price. We understand that the factor of 0.55 of the Benchmark Rate was set based on historical yields from the coal washing process conducted by Gujarat Coke Freight charges are included in the selling price received by Gujarat. The Adjusted Model captures these freight charges on a cost per ton sold basis All prices are denominated in US dollars, however in the Adjusted Model, we have converted these to Australian Dollars using the following forward exchange rates: AUD:xUSD Source: Bloomberg and BDO analysis RPM has provided us with production volumes over the lives of each of Gujarat s two mines. The life of the NRE No.1 mine extends to 2035, with production peaking in 2028 and tapering off thereafter. The life of the Wongawilli mine extends to 2025, with production peaking in The production levels of each of the mines is set out in the chart below:

42 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25 Jan-26 Jan-27 Jan-28 Jan-29 Jan-30 Jan-31 Jan-32 Jan-33 Jan-34 Jan-35 Jan ROM (kt) Total Production 4,000 3,500 3,000 2,500 2,000 1,500 1, NRE No.1 total ROM (kt) Wongawilli total ROM (kt) Source: Adjusted Model The production levels outlined above result in the following revenue forecasts over the life of the mines. A$m 400 Total Revenue Wongawilli revenue from coal sales NRE No.1 revenue from coal sales Source: Adjusted Model Operating Cost and Operating Assumptions The Adjusted Model includes the operating and maintenance cost assumptions in each of the following areas: RPM have provided us with Free on truck ( FOT ) mining costs on a cost per tonne of coal produced. Mining costs mainly comprise development costs, longwall costs and outbye services. Mining costs on a per unit basis relating to the NRE No.1 and Wongawilli mines are higher over the 38

43 first three years of the forecast period due to roadway development requirements and lower longwall production output Royalty payments are to be made to the New South Wales Government under the New South Wales Mining Regulation 2010 ( NSW Mining Regulations ). A royalty rate of 7.2% of the value of total sales was used in the Adjusted Model for coal recovered by underground mining Levies are included in the Adjusted Model and are calculated at $0.15 per tonne for the NRE No. 1 Project and $0.25 per tonne for the Wongawilli Project Carbon taxes are included in the Adjusted Model at a forecast rate of $2.75 per tonne of coal produced for the Wongawilli Project and $3.00 for the NRE No.1 Project RPM estimates that transport costs, including weightbridge fees are $4.80 per tonne. Capital Expenditure Assumptions The major capital expenditure over the initial years is for the extension of conveyors, services and the drifts for the Wongawilli Seam operations. A provision has also been allowed for gas drainage and a vacuum pump system for pre-draining the west area of the NRE No.1 mine Capital expenditure for the Wongawilli and NRE No.1 mines are set out in the chart below: A$m 120 Capital expenditure Wongawilli capital expenditure NRE No.1 capital expenditure Source: Adjusted Model Closure costs are provided at $50 million in 2026 for the Wongawilli mine and $110 million in 2036 for the NRE No.1 mine. Other Assumptions The Adjusted Model assumes that Gujarat will be taxed at the Australian corporate tax rate of 30% once all brought forward tax losses have been absorbed The Model expresses all revenues and costs in real terms. 39

44 Discount Rate In selecting our range of discount rates we considered the following: Are cash flows pre or post tax/debt? Real or nominal cash flows? To what extent cash flows are risk adjusted. We reviewed the weighted average cost of capital of companies listed on the ASX that have an exposure to the Australian coal mining industry. A detailed description of these companies is attached as Appendix 3. We considered the similarities of comparable companies used to estimate an approximate risk premium to be applied to the operations of Gujarat. In particular we considered: The debt to equity ratios of the companies; The stage of development of the coal mine projects; The size of the operations; The location of the operations; The diversity of operations; and The post tax real discount rate applied to the Adjusted Model is 6.8%. A detailed consideration of how we arrived at the adopted discount range is shown in Appendix 3. Sensitivity Analysis The estimated value of the Projects is derived under the DCF approach. Our valuation is highly sensitive to changes in the forecast coal prices and discount rate. We have therefore included an analysis to consider the value of the Projects under various pricing scenarios and in applying: A change of +/- 20% to production levels A change of +/- 20% to coal price A change of +/- 20% to operating expense A change of +/- 20% to capital expenditure A discount rate in the range of 4.8% to 8.8%. The following table sets out the valuation outcomes from our DCF analysis. 40

45 Change NPV ($ 000) NPV ($ 000) NPV ($ 000) NPV ($ 000) NPV ($'000) NPV ($'000) Change Production Coal Price Operating expense Capital expenditure Exchange Rate Discount Rate Discount rate 20.00% 1,587,467 1,608, , , , , % 15.00% 1,424,966 1,440, , , , , % 10.00% 1,262,351 1,272, , , , , % 5.00% 1,098,705 1,103, , , , , % 0.00% 934, , , , , , % -5.00% 769, ,409 1,028, ,998 1,112, , % % 603, ,697 1,120, ,188 1,310,243 1,046, % % 435, ,506 1,213,856 1,025,303 1,529,526 1,105, % % 263, ,128 1,305,987 1,055,384 1,776,219 1,169, % Source: BDO analysis The Adjusted Model extends over 23 years for the NRE No.1 Project and 13 years for the Wongawilli Project. As such, the level of production will have a significant impact on the value derived. This is evident from our sensitivity analysis above with the value increasing from approximately $935 million to approximately $1.6 billion as a result of a 20% increase in the level of production. Similarly the value of the Projects is highly sensitive to the coal price, with a 20% increase in the price causing the value of the Projects to increase from approximately $935 million to approximately $1.6 billion. Considering the valuation outcomes above, we estimate the fair market value of the Projects to be in the range of $750 million to $1,120 million, with a midpoint value of $935 million Outstanding debt The outstanding debt (including bonds) as at 31 July 2013, in Australian Dollars and converted at the exchange rate as at 31 July 2013 was $453.3 million. Cash flows of the Projects indicate that Gujarat expects negative cash flows totalling about $184.4 million over the first four years. Section 4.7 indicates that funds from the Placement and Top Up Offer will be approximately $18.7 million. Therefore, additional debt funding of $165.7 million will be required, bringing total debt to $619 million Value of remaining resources We instructed RPM to provide an independent market valuation of all of Gujarat s resources which are not included in the life of mine cash flows of the Projects. RPM used the Comparable Transactions method with appropriate discount or premium based on underlying factors associated with the property. RPM assessed that there are additional resources remaining within the mine lease between the limit of the planned workings and the west boundary of the area. These resources are a combination of Indicated and Inferred and are contained in the Bulli, Balgownie and Wongawilli seams. These remaining resources can only be mined following the progression of the existing mine plan. RPM also assessed that there are additional resources within the mine lease to the northwest and extending southwest to the former Huntley and Avon areas of the Wongawilli mine. These resources have been estimated within the Bulli, Wongawilli and Tongarra Upper seams. These remaining resources can only be mined following the progression of the existing mine plan. Therefore, their values have to be discounted to present value from the respective end dates of the life of mine for the Projects. 41

46 RPM provided the valuation estimates for both mines remaining resources in the following table. A copy of the Independent Technical Specialist Report is attached in Appendix 4. Mine Valuation point $m NRE No.1 At the end of Wongawilli At the end of Total 70.0 Source: Independent Technical Specialist Report We discount these values from the respective valuation points to present value at the same discount rate as that we used in our DCF valuation of the Projects. On this basis, the value of Gujarat s remaining resources is approximately $18.7 million Other Assets and Liabilities Other assets and liabilities represent the assets and liabilities which have not been specifically adjusted. From review of these other assets and liabilities, outlined in the table below, we do not believe that there is a material difference between their book value and their fair value unless an adjustment has been noted below. We have deducted debt from the value of the Projects separately, therefore it has been excluded from the table below. A summary of other assets and liabilities identified is as follows. Audited as at Value of other 31-Mar-13 assets & liabilities Other assets and liabilities Note $'000 $'000 CURRENT ASSETS Cash and cash equivalents (a) 2,913 1,870 Trade and other receivables (b) 59,618 59,618 Inventories (b) 17,347 17,347 TOTAL CURRENT ASSETS 79,878 78,835 NON-CURRENT ASSETS Deposits (b) Available for sale financial assets (c) 5,063 5,063 Property, plant and equipment (d) 999,467 - Deferred tax asset (e) 87,303 - TOTAL NON-CURRENT ASSETS 1,092,199 5,429 TOTAL ASSETS 1,172,077 84,264 CURRENT LIABILITIES Trade and other payables (b) 110, ,188 Derivatives (f) 1,067 1,067 Provisions (g) 14,801 14,801 TOTAL CURRENT LIABILITIES 126, ,056 NON-CURRENT LIABILITIES Restoration guarantee (h) 15,526 - Deferred tax liability (e) 55,110 - TOTAL NON-CURRENT LIABILITIES 70,636 - TOTAL LIABILITES 196, ,056 NET ASSETS 975,385 (41,792) Source: Gujarat s audited accounts as at 31 March 2013 and BDO analysis 42

47 The following adjustments were made to determine the value of other assets and liabilities that have not been accounted for in the Model. Note a: Cash & cash equivalents We have been advised by Gujarat that the cash balance as at 31 July 2013 was $1.87 million which has decreased from $2.9 million as at 31 March Note b: Accounts receivables, payables and inventories As accounts receivable, payables and inventories have not been included in the DCF valuation, these amounts have been included in the valuation of other assets and liabilities. The Company has confirmed that there has not been material movement of accounts receivables and accounts payables since 31 March Note c: Available for sale financial assets Available for sale financial assets are surplus assets which have not been included in the DCF valuation. Available for sale financial assets relates to Gujarat s investments in Rey Resources Limited, Shree Minerals Limited and Port Kembla Coal Terminal. These investments have been fair valued at 31 March The Company has confirmed that there has not been material change to the fair value of these investments since 31 March Note d: Property, Plant and Equipment A portion of this balance has been included in the value of the Projects determined under section 11.2 and the value of remaining resources under section 11.4 and has therefore been excluded in the valuation of other assets and liabilities. The Company has confirmed that there has not been material movement of other property, plant and equipment since 31 March Note e: Deferred tax asset and liability Tax losses and liabilities carried forward have been included in the DCF valuation of the Projects and therefore excluded in the valuation of other assets and liabilities. Note f: Derivatives Derivatives relate to interest rate swap contracts held by the Company. Management confirm that there has not been material movement in derivatives since 31 March Note g: Provisions Provisions relate to sick leave and annual leave which have not been included in the DCF valuation. Therefore, this amount has been included in the valuation of other assets and liabilities. The Company has confirmed that there has not been material movement of provisions since 31 March Note h: Restoration guarantee Closure costs have been included in the DCF valuation and therefore excluded in the valuation of other assets and liabilities. 43

48 11.6 Options that are in the money There are currently million options on issue, exercisable to varying prices. Of these only 530,000 options are in-the-money and are exercisable for nil consideration. We have assumed that these options will be exercised however due to the nil exercise price it will not provide a cash injection. The remaining options are out-of-the-money and we expect that they are unlikely to be exercised at these values Corporate costs Gujarat has advised that all corporate costs have been allocated to the Projects and therefore, all corporate costs have been accounted for in the life of mine cash flows of the Projects Shares on Issue The Transaction will result in 688,704,822 new shares as determined in section 4.7 of our Report. Including existing shares of 1,376,138,678, the total number of shares would be 2,064,843,500 or approximately 2,065 million Quoted Market Prices for Gujarat Securities To provide a comparison to the valuation of Gujarat in Section 11.1, we have also assessed the quoted market price for a Gujarat share. The quoted market value of a company s shares is reflective of a minority interest. A minority interest is an interest in a company that is not significant enough for the holder to have an individual influence in the operations and value of that company. RG suggests that when considering the value of a company s shares for the purposes of approval under Item 7 of s611 the expert should consider a premium for control. An acquirer could be expected to pay a premium for control due to the advantages they will receive should they obtain 100% control of another company. These advantages include the following: control over decision making and strategic direction; access to underlying cash flows; control over dividend policies; and access to potential tax losses. Whilst the Jindal Group will not be obtaining 100% of Gujarat, RG 111 states that the expert should calculate the value of a target s shares as if 100% control were being obtained. RG states that the expert can then consider an acquirer s practical level of control when considering reasonableness. Reasonableness has been considered in Section 15. Therefore, our calculation of the quoted market price of a Gujarat share including a premium for control has been prepared in two parts. The first part is to calculate the quoted market price on a minority interest basis. The second part is to add a premium for control to the minority interest value to arrive at a quoted market price value that includes a premium for control. Minority interest value Our analysis of the quoted market price of a Gujarat share is based on the pricing prior to the announcement of the Transaction. This is because the value of a Gujarat share after the announcement may include the effects of any change in value as a result of the Transaction. However, we have 44

49 Share Price ($) Volume (millions) considered the value of a Gujarat share following the announcement when we have considered reasonableness in Section 15. Information on the Transaction was announced to the market on 1 August Therefore, the following chart provides a summary of the share price movement over the 12 months to 31 July 2013 which was the last trading day prior to the announcement. Gujurat NRE share price and trading volume history Volume Closing share price Source: Bloomberg The daily price of Gujarat shares from 31 July 2012 to 31 July 2013 has ranged from a low of $0.15 on 24 June 2013 to a high of $0.225 on 1 February Gujarat s shares have been infrequently traded. The highest volume of shares traded during the period related to Jindal s on market acquisition of shares in Gujarat between 19 February 2013 and 28 March During this period a number of announcements were made to the market. The key announcements are set out in the following table: 45

50 Date Announcement Closing Share Price on Closing Share Price Three Day of Announcement Days After Announcement $ Movement $ Movement 28/06/2013 Suspension from Official Quotation % % 26/06/2013 Trading Halt % % 30/05/2013 Appendix 4E - GNM % % 23/05/2013 Prospectus Rights Issue GNM % % 6/05/2013 Announcement of Non-Renounceable Rights Issue % % 1/05/2013 Fourth Quarter Activities Report % % 22/03/2013 Jindal update on close date to offer period % % 8/03/2013 Extension of Offer Period % % 13/02/2013 TARGET STATEMENT GNM % % 5/02/2013 On Market Takeover Bid % % 1/02/2013 Jindal's Bid-TAKE NO ACTION % % 31/01/2013 Quarterly Activities Report December % % 31/01/2013 Jindal Bidders Statement - Market bid % % 31/01/2013 Jindal launches on-market cash offer to acquire GNM % % 16/01/2013 Key Approvals Received and Longwall 5 in production % % 30/11/2012 Half Yearly Report and Accounts % % 20/11/2012 Rights Issue Close of Issue and Subscriptions % % 31/10/2012 Pro-rata Rights Despatch of Prospectus Completed % % 18/10/2012 Letter to Shareholders- Rights Issue % % 17/10/2012 Letter to Option Holders % % 16/10/2012 Prospectus Rights Issue % % 16/10/2012 Appendix 3B- Rights Issue % % 16/10/2012 Non-Renounceable Rights Issue % % 11/10/2012 Quarterly Activities Report Sep % % 22/08/2012 Further Investment by Jindal & increase in Off Take Agreement % % 20/08/2012 Trading Halt % % 31/07/2012 Quarterly Activities Report June % % Source: Bloomberg On 11 October 2012, Gujarat s share price rose 6% following the announcement of Quarterly Activities Report for the September 2012 quarter in which Gujarat announced the highest coal production in a quarter, a successful capital raising and the strengthening of the strategic relationship between the Jindal Group and Gujarat. On 31 January 2013, following the announcement of Jindal Australia s on-market cash offer to acquire Gujarat, the share price improved 8% to $0.19 and continued to improve by 10% to $0.22 on 1 February 2013 following further details regarding Jindal Australia s offer being released to the market. 46

51 On 6 May 2013, following the announcement of a non-renounceable rights issue; the share price increased 6% before declining 12% to $0.15 before settling at $0.17 just before the announcement of the Transaction. To provide further analysis of the market prices for a Gujarat share, we have also considered the weighted average market price for 10, 30, 60 and 90 day periods to 31 July Share Price per unit 31-Jul Days 30 Days 60 Days 90 Days Closing price $0.170 Volume weighted average price (VWAP) $0.170 $0.163 $0.172 $0.199 Source: BDO analysis The above weighted average prices are prior to the date of the announcement of the Transaction, to avoid the influence of any increase in price of Gujarat shares that has occurred since the Transaction was announced. An analysis of the volume of trading in Gujarat shares for the twelve months to 31 July 2013 is set out below: Trading days Share price Share price Cumulative volume As a % of low high traded Issued capital 1 Day $0.170 $ % 10 Days $0.170 $ % 30 Days $0.150 $ , % 60 Days $0.150 $ ,199, % 90 Days $0.150 $ ,855, % 180 Days $0.150 $ ,515, % 1 Year $0.150 $ ,714, % Source: BDO analysis This table indicates that Gujarat s shares display a low level of liquidity, with 19.02% of the Company s current issued capital being traded in a twelve month period. For the quoted market price methodology to be reliable there needs to be a deep market in the shares. RG indicates that a deep market should reflect a liquid and active market. We consider the following characteristics to be representative of a deep market: Regular trading in a company s securities; Approximately 1% of a company s securities are traded on a weekly basis; The spread of a company s shares must not be so great that a single minority trade can significantly affect the market capitalisation of a company; and There are no significant but unexplained movements in share price. A company s shares should meet all of the above criteria to be considered deep, however, failure of a company s securities to exhibit all of the above characteristics does not necessarily mean that the value of its shares cannot be considered relevant. In the case of Gujarat, there is not a deep market for its shares. Gujarat s shares are closely held and the majority of the volume of shares traded over the period related to on market acquisitions of Gujarat shares by the Jindal Group. 47

52 Our assessment is that a range of values for Gujarat shares based on market pricing (on a minority interest basis), after disregarding post announcement pricing, is between $0.16 and $0.20. Control Premium We have reviewed the control premiums paid by acquirers of target companies within the coal industry listed on the ASX. We have summarised our findings below: Year Number of Transactions (with announced premium) Average Deal Value (AU$m) Average Control Premium N/A N/A Source: Bloomberg Median Mean In arriving at an appropriate control premium to apply we note that observed control premiums can vary due to the: Nature and magnitude of non-operating assets; Nature and magnitude of discretionary expenses; Perceived quality of existing management; Nature and magnitude of business opportunities not currently being exploited; Ability to integrate the acquiree into the acquirer s business; Level of pre-announcement speculation of the transaction; Level of liquidity in the trade of the acquiree s securities. Based on the table above, we observe that an average control premium of 31.04% has been paid when acquiring coal companies between 2006 and Taking the factors above into consideration in applying a control premium to Gujarat s quoted market share price we believe an appropriate range to be 25% to 35%. Quoted market price including control premium Applying a control premium to Gujarat s quoted market share price results in the following quoted market price value including a premium for control: 48

53 Low Midpoint High $ $ $ Quoted market price value Control premium 25% 30% 35% Quoted market price valuation including a premium for control Source: BDO analysis Therefore, our valuation of a Gujarat share based on the quoted market price method and including a premium for control is between $0.20 and $0.27, with a midpoint value of $ Assessment of Gujarat Value In accordance with RG 111, the Post-Transaction Valuation of a Gujarat share has to be assessed on a minority interest basis. The results of the valuations performed are summarised in the table below: Low $ Midpoint $ High $ Sum-of-Parts (section 11.1) ASX market prices (section 11.9) Source: BDO analysis Having ascertained that there is an absence of a sufficiently deeply traded market for Gujarat shares, we placed reliance on the Sum-of-Parts approach, being our primary valuation method. Accordingly, we consider the value of a Gujarat share to be between $0.04 and $0.18, with a midpoint value of $

54 12. Pre-Transaction Valuation of Gujarat 12.1 Valuation under the DCF Valuation approach The enterprise value of Gujarat does not change between the pre and post Transactions scenarios. The only change is to the funding of the Company. In section 12 we considered the post-transaction position under which the Company would receive funding from Jindal Group if the Transaction is approved. To derive the same value on a pre-transaction basis the Company will still need to obtain funding. Gujarat is in advanced stages of discussions for a $210 million debt syndication and has obtained sanctions for $76 million of debt financing with the balance expected to be forthcoming. Of the $210 million, only $60 million is additional debt. The balance relates to the refinancing of existing loans. To finance the Projects in the absence of the Transaction, additional funds need to be raised by further debt and equity in a secondary raising or similar. Additional debt is assumed to be obtained on the same basis as set out in section 11.3 of our Report. In relation to raising equity, we have considered the likely price at which Gujarat will have to place its shares to a third party. To determine the placement price at which equity is to be raised, we considered the discount at which shares have been issued by ASX listed companies when compared to the companies share prices the day prior to the announcement of the placements. We considered the discount at which shares have been issued by ASX listed companies with market capitalisation of between A$100 million to A$500 million (a band in which Gujarat s market capitalisation falls under). From a pool of 60 companies (many of which were mining companies), the average discount was 8%. This indicates that any fundraising on the ASX is likely to be at this level of discount of approximately 8% to the prevailing listed market price. Given the tightly held shareholding of Gujarat and the financial situation of the Company, we expect a higher discount to be applied in the case of Gujarat. We also considered the more recent capital raisings conducted successfully by Gujarat in the past 12 months. We have been advised that Gujarat has been engaging with advisers and investment banks in the past two years in attempts to raise capital. The capital raisings conducted by Gujarat since its listing on the ASX in 2007 are listed below. Date Type Number of shares Price per share Amount raised 06-Jul-07 Initial listing 493,678, Dec-09 Placement 77,000, Feb-11 Placement 100,000, May-12 Placement 100,000, Oct-12 Non-renounceable rights issue 280,700, Jan-13 Rejected takeover May-13 Unsuccessful entitlements issue Source: Capital IQ and Company announcements We note that the only successful raising in the past 12 months was the non-renounceable rights issue in October 2012, undertaken at $0.18 per share. We were advised that the Gujarat Group had the financial capacity to participate in the rights issue at that time but was not in the position to do so in the ($m) 50

55 unsuccessful entitlements issue in May We further note that the current market conditions have deteriorated since October 2012 and in particular since May As a result of the unsuccessful capital raising in May 2013, the Jindal Group, as a major shareholder, has assisted in providing the funding that the Company required. The proposed Transaction was since negotiated and the resultant Placement price was agreed at an effective price of $0.10 per share. The shares of Gujarat have been subject to a trading halt since 25 June They closed at $0.17 per share on that date. The volume weighted average price of Gujarat s share determined under section 11.8 of our Report was between $0.16 per share and $0.20 per share, with a midpoint value of $0.18 per share. Given that there is an absence of a deeply traded market for Gujarat shares, the recent price at $0.17 per share and the midpoint volume weighted average price of $0.18 per share may not be indicative of the fair value of Gujarat s shares. The recent unsuccessful entitlements issue and the significantly lower placement price to Jindal Mauritius may indicate that $0.10 per share may be a realistic placement price from an alternative funding source. To raise an equivalent $68 million to provide funding and recapitalise the Company to undertake expansion plans of the Projects, 688,174,822 new shares will need to be issued at $0.10 per share. Including the existing 1,376,138,678 shares on issue and 530,000 in-the-money options that may be exercised, the total number of Gujarat shares would be 2,064,843,500 or approximately 2,065 million. The Pre-Transaction Value of a Gujarat share on a control basis is as follows. Low value Mid value High value Summary of Assessment Section $'000 $'000 $'000 DCF value of Projects , ,000 1,120,000 Less: Net debt (618,983) (618,983) (618,983) Value of Projects to equity holders 131, , ,017 Value of remaining resources ,697 18,697 18,697 Other assets and liabilities (excluding net debt) 11.4 (41,792) (41,792) (41,792) Options 'in the money' Less: Present value of corporate costs Value of Gujarat under Sum-of-Parts method 107, , ,922 Number of Gujarat shares ,064,844 2,064,844 2,064,844 Value per share Source: BDO analysis 12.2 Valuation under the NAV approach Based on the net asset position of Gujarat as at 31 March 2013 of $ million and 1,376 million shares outstanding, the net asset value per share is approximately $ Valuation under the QMP approach The value of a Gujarat share valued on a control basis using the QMP approach set out in section 11.8 of our Report is between $0.20 and $0.27 per share. The movement of Gujarat s price since its listing on ASX in 2007 is represented below. 51

56 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 $2.50 Gujarat share price since listing $2.00 $1.50 $1.00 $0.50 $0.00 Source: Bloomberg 12.4 Assessment of the Pre-Transaction Value of a Gujarat share In accordance with RG 111, the Pre-Transaction Value of a Gujarat share has to be assessed on a control basis. The results of the valuations performed are summarised in the table below:. Low value Mid value High value Pre-Transaction Value (per share) $ $ $ Sum-of-Parts approach NAV approach QMP approach Recent capital raising Source: BDO analysis We note that the value obtained from the NAV approach is significantly higher than the value obtained from the DCF and QMP approaches. It is also substantially higher than the placement share price of Gujarat s recent capital raising in the past 12 months. The difference between the valuation obtained under the NAV and the other approaches can be explained by the following: The Sum-of-Parts approach takes into account the cash flow generating ability of the Company and would appropriately represent a fair market value of the share of Gujarat prior to the Transaction. However, it is dependent on the ability to raise sufficient equity capital to fund the expansion phase of the Projects The NAV approach does not take into account the going concern issues and the deteriorating financial performance of the Company, nor does it take into account the uncertainty around the Projects and coal prices 52

57 The NAV approach that we have undertaken is on a going concern basis and does not take into account any realisation costs in the event of an orderly realisation of assets or in a liquidation scenario. The valuation obtained under the NAV approach will be lower when realisation costs and the funding required to realise the value of the coal resources in a liquidation scenario are taken into account. These costs are not determinable at this stage Particularly in the situation where a company is not achieving economies of scale for its Projects and consequently unable to generate sufficient cash to continue its mining activities, it is not unreasonable to expect the entity s value to trade below the realisable value of its assets However, we also note that Gujarat s shares are tightly held and a deep and liquid market for the trading of Gujarat shares is absent. Therefore, the QMP approach may not necessarily provide a reliable value of the Pre-Transaction Value of a Gujarat share The unsuccessful capital raising in May 2013, the deterioration of the financial market conditions and the resultant Placement price eventually agreed with Jindal Mauritius at an effective price of $0.10 per share indicate that the value of a Gujarat share is likely to be significantly lower than the value obtained from the NAV approach. For all the reasons described above, we conclude that the value obtained under the DCF approach is more reflective of the Pre-Transaction Value of a Gujarat share. The high range of which is also consistent with the placement prices of Gujarat s recent capital raisings in the past 12 months. Therefore, we consider the Pre-Transaction Value of a Gujarat share on a control basis to be between $0.05 per share and $0.23 per share with a midpoint value of $0.14 per share. 13. Valuation of other components of the Relevant Transactions 13.1 Valuation of Pre-Transaction Value of Gujarat and Placement Consideration Value of the Pre-Transaction Value of Gujarat Based on section 12 above, the Pre-Transaction Value of Gujarat on a per share basis is between $0.05 per share and $0.23 per share with a midpoint value of $0.14 per share Value of the Placement Consideration Under the Placement, Jindal Mauritius will subscribe for 328,500,000 new fully paid ordinary Gujarat shares at $0.20 per share and receive 328,500,000 free attaching options will nil exercise price, to raise $65.7 million. Accordingly, the effective Placement Consideration is $0.10 per share Valuation of the Product Sale Proceeds and Product Sold under the Offtake Transactions Under the Jindal Offtake Agreement, the Company and Gujarat Wonga have granted to Jindal a right to off take up to 60% of the run of mine crushed coal produced from Gujarat s mines to replace the existing off-take agreement between those parties. Further details of this agreement are set out in section 4 of our Report. Under the Gujarat Offtake Agreement, the Company and Gujarat Wonga have granted to Gujarat Coke a right to off take up to 40% of the run of mine crushed coal produced from Gujarat s mines to replace the 53

58 existing off-take agreement between those parties. Further details of this agreement are set out in section 4 of our Report Value of Product Sale Proceeds The Product Sale Proceeds under the Jindal Offtake Agreement and the Gujarat Offtake Agreement are determined by the product of the quantity of Product sold and the quarterly FOB price of the Product in United States dollars based on the following formula: FOB Price = Benchmark Rate x 0.55 where the Benchmark Rate is defined in sections 4.3 and 4.4 of our Report. The Benchmark Rate is based on a washed coal product which represents the market price of washed coal. The value of Product Sale Proceeds is determined by the product of the following components: FOB price of unwashed product (0.55 x Benchmark Rate) volume of unwashed product (in tonnes) the factor of 0.55 of the washed product Benchmark Rate being the adjustment factor between an unwashed product and the washed product ( Price Factor ) used to determine the FOB price of the unwashed product. Given that the Benchmark Rate is the market price of washed coal, the only other determinant of whether the Offtake Transactions are at arm s length would be the Price Factor. Since the volume of washed coal is based on a yield factor that would produce washed coal from unwashed coal through a coal handling and preparation plant, we did not consider the need to value the actual Product Sale Proceeds received from the Product Sold. The relevant analysis would be to compare the Price Factor with the average yield of washed coal produced from a coal handling and preparation ( CHP ) process, as if Gujarat itself conducted it Value of Product Sold The value of washed coal is determined by the product of the following components: average yield of unwashed product (in percentage terms) volume of unwashed product (in tonnes) market price of washed coal (in dollars) However, Gujarat will sell unwashed coal to both Jindal and Gujarat Coke under the Jindal Offtake Agreement and Gujarat Offtake Agreement respectively. Accordingly, the sale price for Gujarat s unwashed coal is sold at a Price Factor of 0.55, which is equivalent to reducing the sale price to 55% of the market price of washed coal. As discussed above, we did not consider the need to value the actual value of Product Sold as the relevant analysis would be to compare the Price Factor with the average yield of washed coal produced from a CHP process, as if Gujarat conducted the process itself. Yield achieved from CHP plants vary depending on the quality of unwashed coal fed into the CHP plants. 54

59 Overall, for a Price Factor of 0.55 to be a reasonable adjustment, the average yields should be approximately 55%. For this Price Factor to be fair, the average yields should be equal to 55% or less, then the value of Product Sale Proceeds will be higher than the value of Product Sold. To determine the average yields of washed coal produced from a CHP process, we considered: Historical yield levels of unwashed coal achieved by Gujarat Coke Reliance on RPM s opinion on yield levels achievable by Gujarat s coal from its Projects Historical yields The historical yields for the Wongawilli mine and NRE No.1 mine were obtained from Gujarat. The equivalent coking yield has been calculated by weighting the historical product coal prices for both coking and thermal coals on the assumed sale date, with their respective yields. The tables below show that historical equivalent coking yield averaged 51.13% for the Wongawilli mine and 35.22% for the NRE No.1 mine. The weighted average equivalent coking yield of the two mines, based on the data we obtained was 49.38%. The table below shows that historical equivalent coking yield averaged 51.13% for the Wongawilli mine. Wongawilli shipments Sale date Coking coal yield Thermal coal yield Equivalent coking yield % % % Shipment 1 May Shipment 2 July Shipment 3 July Shipment 4 August Shipment 5 September Shipment 6 October Shipment 7 November Shipment 8 December Shipment 9 December Shipment 10 February Shipment 11 February Shipment 12 April Shipment 13 May Shipment 14 May Shipment 15 June Average Source: Gujarat s management and BDO analysis 55

60 % Yield % Yield The table below shows that historical equivalent coking yield averaged 35.22% for the NRE No.1 mine. NRE No.1 shipments Sale date Coking coal yield Thermal coal yield Equivalent coking yield % % % Shipment 1 May Shipment 2 July Shipment 3 September Shipment 4 March Shipment 5 April Shipment 6 July Average Source: Gujarat s management and BDO analysis The yields can be represented graphically as follows Historical Equivalent Coking Product Value Yield (Wongawilli mine) Coking Yield Thermal Yield Equivalent Coking Yield Source: Gujarat s management and BDO analysis Historical Equivalent Coking Product Value Yield (NRE No.1 mine) Coking Yield Thermal Yield Equivalent Coking Yield Source: Gujarat s management and BDO analysis 56

61 Forecast yields RPM s technical report states that indications are that coking yields from the Wongawilli mine are trending below 40% with a higher ash thermal yield fraction yielding upwards of 20%. Coking yields from the NRE No. 1 mine are 34% to 60% while a secondary thermal coal product yields vary between 20% and 35%. The projected coking coal and thermal yields for the NRE No. 1 Project and the Wongawilli Project have been provided in the table below. Coking Coal Yield NRE No.1 Project Thermal Coal Yield Equivalent Coking Yield Coking Coal Yield Wongawilli Project Thermal Coal Yield Equivalent Coking Yield % % % % % % Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Average Source: Independent Technical Specialist Report and BDO analysis The equivalent coking yield has been calculated by weighting the product coal prices for both coking and thermal coals with their respective yields. Using forecast coal prices obtained from our research, we obtained the equivalent coking yields that average 59.15% for the NRE No. 1 Project and 59.53% for the Wongawilli Project. 57

62 % Yield % Yield The yields can be represented graphically as follows Equivalent Coking Product Value Yield (NRE No.1 mine) Coking Yield Thermal Yield Equivalent Coking Product Value Yield Source: Independent Technical Specialist Report and BDO analysis Equivalent Coking Product Value Yield (Wongawilli mine) Coking Coal yield Thermal Coal Yield Equivalent Coking Coal Yield Source: Independent Technical Specialist Report and BDO analysis Yield analysis Based on the above historical and forecast analysis, Gujarat s average equivalent coking coal yields is in the range of approximately 50% to 60% or a midpoint yield of 55%. However, we note that, in addition to the average yield, the costs of establishing and operating a CHP plant have not been taken into account as they are not determinable at this point. Another major cost is the cost required to dispose of the rejects that flow out of the CHP plant. These are costs that do not have to be borne by Gujarat as it is only selling unwashed products. If included, these associated costs have to be applied to the Benchmark Rate, which will reduce the net receipts to Gujarat. 58

63 13.3 Valuation of the Security Provided and Liabilities Settled under the Security Transaction Value of Security Provided as settlement in the event of a default Gujarat has provided the Secured Assets to Jindal Mauritius under the General Security Deed. In the event of default, Jindal Mauritius is only entitled to recover the principal and interest of the Secured Monies and not all the proceeds from the sale of the Secured Assets in the event of default. Therefore, we did not consider the value of the Company or the Secured Assets for this purpose. We therefore consider the value of the security provided to be less than or equal to the value of the liabilities settled Value of Liabilities Settled by the provision of the security Under the General Security Deed, secured amounts include all debt and interest payable on the Secured Monies to Jindal Mauritius. Jindal Mauritius has provided, and Gujarat has drawn down, $15 million under the Convertible Note Deed. Jindal Mauritius has also agreed to advance a further $30 million under the Convertible Note Deed when requested by the Company. As at the date of our Report, we understand that Gujarat has drawn $16 million under Tranche 2. Subject to Shareholders approval, Gujarat will issue a Convertible Note to Jindal Mauritius for the $15 million already drawn and any part of the Tranche 2 amount drawn, a total of $20 million as at the date of our Report. Interest is calculated at a rate of 30% per annum until the repayment date or until the date of conversion of the Convertible Note. Any capitalised portion of the interest amount will be added to and form part of the monies owing on the date of repayment. The term of the Convertible Note is 90 days from 8 July 2013, resulting in an effective maturity date of the Convertible Note to be 6 October 2013 but Jindal Mauritius has the option to convert all of any part of the monies owing under the Convertible Note into Gujarat shares at the issue price of $0.20 per share together with one free attaching option for each share issued. The nominal value of the total secured amounts (including amounts relating to the principal funds drawn down and interest) represents the valuation of liabilities settled by provision of security. 59

64 14. Are the Relevant Transactions Fair? To assess if the Relevant Transactions are fair, the respective values for the Placement, Offtake Transactions and Security Transaction are compared as follows Placement The value of the Placement is compared below: Ref Low $ Mid $ High $ Value of a Gujarat share (prior to the Placement) Value of the Placement Consideration Source: BDO analysis We note from the table above that the Placement Consideration is within the range of the value of a Gujarat share but the midpoint value of a Gujarat share is higher than the value of the Placement Consideration. Therefore, we consider that the Placement is not fair Offtake Transactions The value of the Offtake Transactions is compared below: Yield versus pricing comparison Value of Product Sold Value of Product Sale Proceeds Product of: Average yield of unwashed product Volume of unwashed product Market price of washed coal Product of: FOB price of unwashed product (0.55 x Benchmark Rate) Volume of unwashed product Source: Project Model, Jindal Offtake Agreement and Gujarat Offtake Agreement The value comparison can be determined by comparing the average yield of unwashed product, to the Price Factor used to determine the FOB price of the unwashed product. As noted in section , associated costs with washing the Products have not been included in our analysis. Ref Low Midpoint High Average yield of unwashed product % 55% 60% Price Factor % 55% 55% Source: BDO analysis We note from the tables above that the Price Factor is within the yield range of unwashed product and the midpoint yield is equivalent to the Price Factor. Accordingly, the value of the Product Sold is equivalent to the value of the Product Sale Proceeds. Therefore, we consider that the Offtake Agreements are fair. 60

65 14.4 Security Transaction As stated in section 9.3, the Security Transaction is fair if the value of the Security Provided is equal to or less than the value of the Liabilities Settled in the event of default under the Convertible Note Deed. In the scenario that the value of the Secured Assets is greater than or equal to the amounts owed to Jindal Mauritius, and there is an event of default, then Jindal Mauritius would only be entitled to recover the principal and interest outstanding under the Convertible Note Deed. In a scenario that the value of Secured Assets is less than the amounts owed to Jindal Mauritius, in an event of default, then the Secured Assets would be sold and the proceeds provided to Jindal Mauritius. This can be summarised as follows: Scenario Consequence Fairness Secured Assets > Liabilities to be settled Security provided = Liabilities Settled Fair Secured Assets = Liabilities to be settled Security provided = Liabilities Settled Fair Secured Assets < Liabilities to be settled Security provided < Liabilities Settled Fair Therefore on the terms of the General Security Deed, specifically if there is an event of default, then Jindal Mauritius is only entitled to be repaid the principal and interest outstanding under the Convertible Note Deed, we consider that the Security Transaction is fair in all scenarios Overall Transaction We also assessed if the Overall Transaction is fair by comparing the Pre-Transaction Value with the Post- Transaction Value of Gujarat as follows. Ref Low $ Mid $ High $ Pre-Transaction Value (on a control basis) Post-Transaction Value (on a minority interest basis) Source: BDO analysis We note from the table above that the Post-Transaction Value of a Gujarat share is less than the Pre- Transaction Value. Therefore, we consider that the Overall Transaction is not fair Conclusion on fairness We concluded that: the Placement is not fair to Shareholders the Jindal Offtake Transaction is fair to Shareholders the Gujarat Offtake Transaction is fair to Shareholders the Security Transaction is fair to Shareholders the Overall Transaction is not fair to Shareholders. 61

66 15. Are the Relevant Transactions reasonable? 15.1 Alternative Proposal We are unaware of any alternative proposal that might offer the Shareholders of Gujarat a premium over the value ascribed to, resulting from the Transaction Practical Level of Control If the Transaction is approved then on a fully diluted basis under the likely scenario, the Jindal Group is likely to hold an interest of approximately 52.8% in Gujarat. In addition to this, Gujarat will have one Board member nominated by the Jindal Group, being Mr Jasbir Singh, who was appointed to the Board of Gujarat effective 29 July When shareholders are required to approve an issue that relates to a company there are two types of approval levels. These are general resolutions and special resolutions. A general resolution requires 50% of shares to be voted in favour to approve a matter and a special resolution required 75% of shares on issue to be voted in favour to approve a matter. If the Transaction is approved then the Jindal Group will be able to block special and general resolutions and pass general resolutions. Prior to the Transaction, Gujarat s Board comprised three members. Jindal Mauritius has nominated one additional director which has taken Gujarat s Board to four directors. This means that the Jindal Group s nominated directors make up 25% of the Board. If the Transaction is approved, Jindal Mauritius will also have the right to appoint a Chief Financial Officer, however as at the date of this report no appointment has been made. Jindal Group s control of Gujarat following the Transaction will be significant when compared to all other shareholders. The Jindal Group will be able to block and pass general resolutions, block special resolutions and can influence the Board with its 25% representation. Therefore, in our opinion, while the Jindal Group will be able to significantly influence the activities of Gujarat, it will not be able to exercise a similar level of control as if it held 100% of Gujarat. As such, the Jindal Group should not be expected to pay a similar premium for control as if it were acquiring 100% of Gujarat Potential decline in share price The Transaction was announced to the market on 1 August Trading in Gujarat s shares has been suspended since 26 June It is possible that if the Transaction is not approved then Gujarat s share price may decline if and when trading recommences. 62

67 Share Price ($) Volume (millions) Gujarat share price and trading volume history Announcement date Volume Closing share price Source: Bloomberg 15.4 Advantages of Approving the Transactions We have considered the following advantages when assessing whether the Transactions are reasonable. Placement Provides the required funding The Placement provides Gujarat with the funding required to repay monies owed to Jindal Mauritius and to recapitalise the Company. Importantly, it also provides Gujarat with the necessary funding to expand its production at its NRE No.1 and Wongawilli mines which are not operating at a level that would achieve economies of scale. Gujarat needs to achieve approximately 6 million tonnes per annum from the Projects to achieve the required economies of scale, and it would only be possible with the necessary funding. If the Placement is not approved, alternative funding would be required and the Company would seek either debt or equity funding. Given the currently high gearing and the Company s breach of financial covenants on its debt, it is unlikely that further debt financing would be available. Given current state of the coal market and financial market conditions, it may also be difficult to raise the required level of funding from equity markets, particularly within a short time frame that the Company requires Major shareholder support As at the date of our Report, we understand that Jindal Mauritius has advanced $31 million under the Convertible Note and an additional US$15 million under Jindal s existing off take arrangements. Gujarat has had strong financial support from Jindal as a major shareholder as evidenced by its current funding arrangements. The Placement will increase Jindal s voting interest in the Company further, which accordingly, is likely to increase its major shareholder support in the future. 63

68 Additionally, the Company undertook a non-renounceable entitlements issue to raise up to approximately $68 million. However, only minimal applications were received under the entitlements issue. Jindal, as a major shareholder, has assisted in providing the funding that the Company required Ability to refinance existing banking facilities The Placement, along with the Top Up Offer, will help to recapitalise the Company which is crucial for its debt refinancing as a number of its banking facilities are drawing close to maturity. Gujarat has also breached its financial covenants and is currently seeking a waiver of the breach of covenants from its lenders. If these banking facilities are not refinanced or if the financial covenants continue to be breached, the Company will be in default and possibly be placed into administration immediately Strengthening of the Company s balance sheet The Placement, along with the Top Up Offer, are expected to provide an additional $68.8 million in cash to the Company. This would allow Gujarat to repay monies owing to Jindal Mauritius, repay the bond to Ultrabulk A/S, refinance existing bank loans and decrease the level of debt on its balance sheet. High gearing levels increase the risk of default in companies and decrease the ability of companies to take on further debt when required. The debt reduction will assist in strengthening the balance sheet of the Company going forward. The Offtake Transactions The Offtake Transactions are fair The Offtake Transactions are fair. RG 111 states that an offer is reasonable if it is fair Secures offtake for the Company s Products If Jindal exercises its option under the Jindal Offtake Agreement, Gujarat will be able to sell up to 60% of its Products to Jindal. If Gujarat Coke exercises its option under the Gujarat Offtake Agreement, the Company will be able to sell up to 40% of its Products to Gujarat Coke. Securing off take allocations to both Jindal and Gujarat Coke provides increased certainty for the Company s mining operations, particularly as there are limited markets and players for unwashed coal Minimise counterparty risks Gujarat will bear minimal and known counterparty risks if it sells most, if not all, of its Products to Jindal and Gujarat Coke, who are both major shareholders of the Company Reduction of uncertainty in a fixed Price Factor The pricing formula for the sale of its Products at a fixed Price Factor reduces the risk of lower than expected yields from its Products. Whilst this may limit the upside profit potential for Gujarat, it provides more certainty in part of its pricing and revenue it receives. Security Transaction The Security Transaction is fair The Security Transaction is fair. RG 111 states that an offer is reasonable if it is fair. 64

69 Supports debt funding The provision of security enables the Company to obtain the debt funding that it requires. If Gujarat seeks alternative funding through bank debt, it is most likely that there will be a requirement by bank lenders to request the provision of security to secure the bank debt it seeks. Therefore, the provision of security for debt funding purposes is not unusual. Overall Transaction Approval for all proposed transactions is required for the Transaction to proceed For the Transaction to proceed, Gujarat is required to obtain approval for, not only the Relevant Transactions, but for all the proposed transactions to be approved under Resolutions 1 to 7: The proposed Convertible Note (to be approved under Resolution 1) provides interim debt funding before it is repaid through the Placement. It is a short-term facility of 90 days, expiring on 6 October The process of obtaining an alternative short-term debt funding from a bank is not as flexible as Gujarat s arrangements with Jindal, who have been advancing funds under the Convertible Note Deed at the request of the Company. The Placement (to be approved under Resolutions 2 and 3) is then used to offset the amounts owing under the Convertible Note, which will then be deemed to be repaid. The advantages of the Placement are detailed in sections to of our Report. The Offtake Transactions (to be approved under Resolutions 4 and 5) provide further stability for the Company s mining operations as they provide increased certainty to the off take of its Products, minimise counterparty risks and increases the support from its major shareholders due to the vested interests they have in Gujarat. The Security Transaction (to be approved under Resolution 6) enables the Company to obtain the debt funding that it requires and is not unusual when a company seeks debt. The Top Up Offer (to be approved under Resolution 7) provides shareholders other than the Jindal Group and the Gujarat Group to participate in subscribing for shares on the same basis as the Placement, being $0.20 per share and receiving a free attaching option with nil exercise price. The Top Up Offer provides further capital injection to the Company of approximately $3.1 million. If the Transaction does not proceed, Gujarat will not be able to achieve its objectives of the expansion plans for the Projects and it will have to immediately repay all monies owing to the Jindal Group. The Company will also be required to repay the debts that are maturing as it is unlikely to be able to refinance these bank debts without obtaining alternative funding. Gujarat can prima facie continue to operate as it did before proposing the Transaction and continue to seek alternative funding sources. However, in reality, the Company is unlikely to be successful in obtaining such funding within the short time frame that it requires, and may continue to be in breach of its banking covenants that will lead to the Company being in default and possibly be placed into administration immediately. 65

70 15.5 Disadvantages of Approving the Transaction The potential disadvantages to Shareholders include those listed below: Placement The Placement is not fair As set out in section 14.1 of our Report, the Placement Consideration is within the range of the value of a Gujarat share but the midpoint value of a Gujarat share is higher than the value of the Placement Consideration. Therefore, we consider that the Placement is not fair Shareholders interests will be diluted The Placement will result in the interests of existing Shareholders to be diluted from 68.51% to 47.20% in the most likely scenario. However, it is important to note that without additional funds Gujarat will not be able to complete its stated objectives for its expansion plans for the Projects and any alternative funding would also be likely to dilute the interest held by Shareholders Further loss of control The Placement will result in the Jindal Group holding approximately 52.8% of the shares in Gujarat. The increased voting power of the Jindal Group would put the Jindal Group in a position to exert significant influence on the operations of the Company. The Jindal Group will have the ability to pass and block general resolutions and block special resolutions. In addition, the Jindal Group has appointed one member to the Board of Gujarat, giving it a 25% representation, and will also have the power to appoint a new Chief Financial Officer Decreases the likelihood of a takeover offer The Placement will result in the Jindal Group holding approximately 52.8% of the shares in Gujarat. Shareholders should note that if this occurs it may have the potential to discourage any other potential bidder from making a takeover bid for the Company in the future. This may have an adverse effect on the share price of Gujarat and reduces the opportunity for Shareholders to receive a takeover premium in the future. We have been advised by the Company that as at the date of this report, Gujarat has not received any approaches nor alternate or superior offers Reduced liquidity If the Placement is approved, then trading in Gujarat shares may be negatively affected by the presence of a major shareholder with a 52.8% ownership. We note in section 11.9 of our Report that trading in the Company s shares already demonstrate a low level of liquidity. The shares will have a materially lower free float on a proportional basis which may reduce liquidity further. Offtake Transactions Fixed Price Factor does not relate directly to actual quality and expected yield of Gujarat s Products The price received for the Company s Products is not directly related to the actual quality and expected yield for the actual shipment. Therefore, the Company will be disadvantaged if the expected yield for its 66

71 Products exceeds the 0.55 Price Factor negotiated under the Jindal Offtake Agreement and the Gujarat Offtake Agreement. Security Transaction Onerous restrictions on dealing with the Company s assets The General Security Deed, and common to most security deeds, place onerous restrictions on the Company s ability to deal with its assets. Overall Transaction Significantly dilutive for Shareholders Overall, the Transaction is significantly dilutive for Shareholders and transfers greater control to the Jindal Group following the Placement in particular. Whilst shareholders other than the Jindal Group and the Gujarat Group are given the opportunity to participate in subscribing for shares on the same basis as the Placement, being at $0.20 per share and receiving a free attaching option with nil exercise price under the Top Up Offer, the effect of the dilution is, nevertheless, significant. Notwithstanding, Shareholders were provided with the first opportunity to participate in a non-renounceable entitlements issue in May 2013 to raise approximately $68 million, which was poorly received Increased bargaining power of the Jindal Group and the Gujarat Group The Transaction may result in an increased bargaining power of the Jindal and Gujarat Coke, as proportionately more of Gujarat s Products may be sold to these two parties under the newly proposed Jindal Offtake Agreement and Gujarat Offtake Agreement The Overall Transaction is not fair As set out in section 14.5 of our Report, the Post-Transaction Value is lower than the Pre-Transaction Value of Gujarat and therefore, the Overall Transaction is assessed to be not fair. 16. Conclusion We have considered the terms of the Transaction as outlined in the body of our Report and have concluded that, in the absence of a superior offer, the: Placement is not fair but reasonable to Shareholders Jindal Offtake Transaction is fair but reasonable to Shareholders Gujarat Offtake Transaction is fair but reasonable to Shareholders Security Transaction is fair and reasonable to Shareholders The Overall Transaction is not fair but reasonable to Shareholders. 67

72 17. Sources of information This report has been based on the following information: Draft Notice of General Meeting and Explanatory Statement on or about the date of this report; Convertible Note Deed; Jindal Subscription Agreement; Jindal Offtake Agreement; Gujarat Offtake Agreement; Audited financial statements of Gujarat for the years ended 31 March 2011, 31 March 2012 and 31 March 2013; Independent Technical Specialist Report of Gujarat s mineral assets dated August 2013 performed by RPM; Historical coal yields for the NRE No. 1 and Wongawilli mines Cash flows for the Projects Share registry information; Information in the public domain; and Discussions with Directors and Management of Gujarat. 18. Independence BDO Corporate Finance (WA) Pty Ltd is entitled to receive a fee of $40,000 (excluding GST and reimbursement of out of pocket expenses). The fee is not contingent on the conclusion, content or future use of this Report. Except for this fee, BDO Corporate Finance (WA) Pty Ltd has not received and will not receive any pecuniary or other benefit whether direct or indirect in connection with the preparation of this report. BDO Corporate Finance (WA) Pty Ltd has been indemnified by Gujarat NRE Coking Coal Limited in respect of any claim arising from BDO Corporate Finance (WA) Pty Ltd's reliance on information provided by the Gujarat NRE Coking Coal Limited, including the non provision of material information, in relation to the preparation of this report. Prior to accepting this engagement BDO Corporate Finance (WA) Pty Ltd has considered its independence with respect to Gujarat NRE Coking Coal Limited and Jindal Steel and Power Limited and any of their respective associates with reference to ASIC Regulatory Guide 112 Independence of Experts. In BDO Corporate Finance (WA) Pty Ltd s opinion it is independent of Gujarat NRE Coking Coal Limited and Jindal Steel and Power Limited and their respective associates. Neither the two signatories to this report nor BDO Corporate Finance (WA) Pty Ltd, have had within the past two years any professional relationship with Gujarat NRE Coking Coal Limited, or their associates, other than in connection with the preparation of this report. A draft of this report was provided to Gujarat NRE Coking Coal Limited and its advisors for confirmation of the factual accuracy of its contents. No significant changes were made to this report as a result of this review. 68

73 BDO is the brand name for the BDO International network and for each of the BDO Member firms. BDO (Australia) Ltd, an Australian company limited by guarantee, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of Independent Member Firms. BDO in Australia, is a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN to represent it in BDO International). 19. Qualifications BDO Corporate Finance (WA) Pty Ltd has extensive experience in the provision of corporate finance advice, particularly in respect of takeovers, mergers and acquisitions. BDO Corporate Finance (WA) Pty Ltd holds an Australian Financial Services Licence issued by the Australian Securities and Investment Commission for giving expert reports pursuant to the Listing rules of the ASX and the Corporations Act. The persons specifically involved in preparing and reviewing this report were Sherif Andrawes and Adam Myers of BDO Corporate Finance (WA) Pty Ltd. They have significant experience in the preparation of independent expert reports, valuations and mergers and acquisitions advice across a wide range of industries in Australia and were supported by other BDO staff. Sherif Andrawes is a Fellow of the Institute of Chartered Accountants in England & Wales and a Member of the Institute of Chartered Accountants in Australia. He has over twenty five years experience working in the audit and corporate finance fields with BDO and its predecessor firms in London and Perth. He has been responsible for over 200 public company independent expert s reports under the Corporations Act or ASX Listing Rules. These experts reports cover a wide range of industries in Australia with a focus on companies in the natural resources sector. Sherif Andrawes is the Chairman of BDO in Western Australia, Corporate Finance Practice Group Leader of BDO in Western Australia and the Natural Resources Leader for BDO in Australia. Adam Myers is a member of the Australian Institute of Chartered Accountants. Adam s career spans 15 years in the Audit and Assurance and Corporate Finance areas. Adam has considerable experience in the preparation of independent expert reports and valuations in general for companies in a wide number of industry sectors. 20. Disclaimers and consents This report has been prepared at the request of Gujarat NRE Coking Coal Limited for inclusion in the Explanatory Memorandum which will be sent to all Gujarat NRE Coking Coal Limited Shareholders. Gujarat NRE Coking Coal Limited engaged BDO Corporate Finance (WA) Pty Ltd to prepare an independent expert's report to consider the Transaction. BDO Corporate Finance (WA) Pty Ltd hereby consents to this report accompanying the above Explanatory Memorandum. Apart from such use, neither the whole nor any part of this report, nor any reference thereto may be included in or with, or attached to any document, circular resolution, statement or letter without the prior written consent of BDO Corporate Finance (WA) Pty Ltd. BDO Corporate Finance (WA) Pty Ltd takes no responsibility for the contents of the Explanatory Memorandum other than this report. We have no reason to believe that any of the information or explanations supplied to us are false or that material information has been withheld. It is not the role of BDO Corporate Finance (WA) Pty Ltd acting 69

74 as an independent expert to perform any due diligence procedures on behalf of the Company. The Directors of the Company are responsible for conducting appropriate due diligence in relation to the Transaction. BDO Corporate Finance (WA) Pty Ltd provides no warranty as to the adequacy, effectiveness or completeness of the due diligence process. The opinion of BDO Corporate Finance (WA) Pty Ltd is based on the market, economic and other conditions prevailing at the date of this report. Such conditions can change significantly over short periods of time. The forecasts provided to BDO Corporate Finance (WA) Pty Ltd by Gujarat NRE Coking Coal Limited and its advisers are based upon assumptions about events and circumstances that have not yet occurred. Accordingly, BDO Corporate Finance (WA) Pty Ltd cannot provide any assurance that the forecasts will be representative of results that will actual be achieved. BDO Corporate Finance (WA) Pty Ltd disclaims any possible liability in respect of these forecasts. We note that the forecasts provided do not include estimates as to the effect of any future emissions trading scheme should it be introduced as it is unable to estimate the effects of such a scheme at this time. With respect to taxation implications it is recommended that individual Shareholders obtain their own taxation advice, in respect of the Transaction, tailored to their own particular circumstances. Furthermore, the advice provided in this report does not constitute legal or taxation advice to the Shareholders of Gujarat NRE Coking Coal Limited, or any other party. BDO Corporate Finance (WA) Pty Ltd has also considered and relied upon independent valuations for mineral assets held by Gujarat NRE Coking Coal Limited. The valuer engaged for the mineral asset valuation, RungePincockMinarco Limited, possess the appropriate qualifications and experience in the industry to make such assessments. The approaches adopted and assumptions made in arriving at their valuation are appropriate for this report. We have received consent from the valuer for the use of their valuation report in the preparation of this report and to append a copy of their report to this report. The statements and opinions included in this report are given in good faith and in the belief that they are not false, misleading or incomplete. The terms of this engagement are such that BDO Corporate Finance (WA) Pty Ltd has no obligation to update this report for events occurring subsequent to the date of this report. Yours faithfully BDO CORPORATE FINANCE (WA) PTY LTD Sherif Andrawes Director Adam Myers Director 70

75 Appendix 1 Glossary of Terms Reference The Act The Adjusted Model Definition The Corporations Act The Model adjusted by BDO to reflect any changes to technical assumptions as a result of RPM s review and any changes to the economic and other input assumptions from our research APES 225 Accounting Professional & Ethical Standards Board professional standard APES 225 Valuation Services ASIC ASX BDO Australian Securities and Investments Commission Australian Securities Exchange BDO Corporate Finance (WA) Pty Ltd Benchmark Rate (1) if the Product meets the agreed specifications, the FOB rate of German Creek prime hard coking coal of Anglo American for Japanese Steel Mills for a calendar quarter; or (2) if the Product does not meet the agreed specifications, the rate as mutually agreed to by the parties which shall be based on the prevailing market price of similar coal landed at any east coast port in India. CAPM CHP The Company Convertible Note DCF EBIT EBITDA FME FOB FOS The capital asset pricing model A coal handling and preparation Gujarat NRE Coking Coal Limited Convertible note to Jindal Mauritius with a face value of $45 million Discounted Future Cash Flows Earnings before interest and tax Earnings before interest, tax, depreciation and amortisation Future Maintainable Earnings Free on Board Financial Ombudsman Service 71

76 Reference Definition FOT Free on truck FSG Financial Services Guide Gujarat Gujarat NRE Coking Coal Limited Gujurat Coke Gujarat NRE Coke Limited The Gujarat Group Gujarat NRE Coking Coal Limited, Wonga Coal Pty Ltd, Gujarat NRE Limited, Gujarat NRE India Pty Ltd, NRE Resources Pty Ltd, Mr Arun Kumar Jagatramka, Mrs Mona Jagatramka and any other persons or entities related to any of the above named persons or entities Gujarat Offtake Agreement Agreement between the Company and Gujarat Wonga to enter into an option offtake agreement with Gujarat Coke Gujarat Offtake Option Option off-take agreement pursuant to which the Company and Gujarat Wonga will grant to Gujarat Coke an option to off take up to 40% of the run of mine crushed coal produced from Gujarat s coal mines located in New South Wales Gujarat Offtake Transaction Sale of up to 40% of the run of mine crushed coal produced from Gujarat s mines Gujurat Wonga Gujarat NRE Wonga Pty Limited Jindal Jindal Steel and Power Limited Jindal Australia Jindal Steel and Power (Australia) Pty Ltd The Jindal Group Jindal, Jindal Mauritius and Jindal Australia Jindal Mauritius Jindal Steel & Power (Mauritius) Limited Jindal Offtake Agreement Agreement between the Company and Gujarat Wonga to enter into an option offtake agreement with Jindal Jindal Offtake Option Option off-take agreement pursuant to which the Company and Gujarat Wonga will grant to Jindal an option to off take up to 60% of the run of mine crushed coal produced from Gujarat s coal mines located in New South Wales Jindal Offtake Transaction Sale of up to 60% of the run of mine crushed coal produced from Gujarat s mines Jindal Subscription Agreement Binding term sheet between Gujarat and Jindal Mauritius pursuant to which the Company has agreed to undertake a Placement and Top Up Offer to raise up to approximately $68,824,766 JORC Code The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore 72

77 Reference Definition Reserves Liabilities Settled NAV Amounts payable to Jindal Mauritius that would be settled by the sale of the Secured Assets, including the principal amount drawn down and related interest accrued Net Asset Value NSW Mining Regulations The New South Wales Mining Regulation 2010 The Adjusted Model The Model Non-PPS Property Notice of Meeting The Offtake Transactions Our Report Overall Transaction The Placement Placement Consideration Placement Share Post-Transaction Value PPS Property Pre-Transaction Value Price Factor A summary cash flow model prepared by the management of Gujarat which incorporates cash flows relating to Gujarat s No. 1 Project and Wongawilli Project, adjusted by BDO A summary cash flow model prepared by the management of Gujarat which incorporates cash flows relating to Gujarat s No. 1 Project and Wongawilli Project Any present and future property, assets, undertakings and rights of Gujarat which is not PPS Property Gujarat s Notice of Meeting document Jindal Offtake Transaction and Gujarat Offtake Transaction This Independent Expert s Report prepared by BDO The Transaction on the whole, to be approved under all the resolutions contained in the Notice of Meeting Placement to Jindal Mauritius of million shares at $0.20 per share with a free attaching option for every share issued The value of the consideration being provided to the entity relates to the cash that Gujarat will raise from Jindal Mauritius, being $65.7 million The value of the securities subject of the offer relates to the value of the Gujarat shares prior to the Transaction to be issued to Jindal Mauritius The value of a Gujarat share on a minority interest basis after the Transaction Property that Gujarat is legally capable under the PPS Legislation of granting a security interest The value of a Gujarat share including a premium for control prior to the Transaction The factor of 0.55 of the washed product Benchmark Rate being the adjustment factor between an unwashed product and the washed product 73

78 Reference Definition Product The run of mine crushed coal produced from Gujarat s mines Product Sale Proceeds The value of the proceeds from the sale of the Product that would be provided under the Jindal Offtake Agreement and the Gujarat Offtake Agreement Product Sold The value of the Product that will be sold to Jindal and Gujarat under the Jindal Offtake Agreement and Gujarat Offtake Agreement respectively The Projects Gujarat s NRE No. 1 Project and Wongawilli Project QMP Quoted market price basis Relevant Transactions The transactions to be approved under Resolutions 2, 3, 4, 5 and 6 RBA Reserve Bank of Australia RG 74 Acquisitions approved by members (March 2011) RG 111 Content of expert reports (March 2011) RG 112 Independence of experts (March 2011) RPM RungePincockMinarco Limited Secured Assets Secured Monies Security Provided Security Transaction Shareholders Sum-of-Parts Independent Technical Specialist Report All present and future property, assets, undertakings and rights of Gujarat granted by the Company to secure the repayment of Secured Monies Alll monies owing to Jindal Mauritius by Gujarat secured under the General Security Deed Proceeds of the sale of Secured Assets that would be provided as settlement of amounts payable to Jindal Mauritius in the event of a default under the General Security Deed Granting of a security interest to Jindal Mauritius over all assets and undertakings of the Company to secure repayment of Secured Monies to be approved under Resolution 6 of the Notice of Meeting Shareholders of Gujarat Combination of different methodologies to be used together to determine an overall value where separate assets and liabilities are valued using different methodologies Independent Technical Specialist Report prepared by RungePincockMinarco Limited as at August

79 Reference Definition Top Up Offer Top up offer to eligible shareholders not associated with the Jindal Group or the Gujarat Group of one share for every four shares held at $0.20 per Share, together with one free option for every one share subscribed for and issued Tranche 1 Advance of $15 million by Jindal Mauritius to the Company Tranche 2 Potential advance of $30 million by Jindal Mauritius to the Company The Transaction All the proposed agreements collectively The Valmin Code Code of Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports Valuation Engagement An Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the Engagement or Assignment available to the Valuer at that time. VWAP Volume Weighted Average Price WACC Weighted average cost of capital 75

80 Appendix 2 Valuation Methodologies Methodologies commonly used for valuing assets and businesses are as follows: 1 Net asset value ( NAV ) Asset based methods estimate the market value of an entity s securities based on the realisable value of its identifiable net assets. Asset based methods include: Orderly realisation of assets method Liquidation of assets method Net assets on a going concern method The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to entity holders, after payment of all liabilities including realisation costs and taxation charges that arise, assuming the entity is wound up in an orderly manner. The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the entity may not be contemplated, these methods in their strictest form may not be appropriate. The net assets on a going concern method estimates the market values of the net assets of an entity but does not take into account any realisation costs. Net assets on a going concern basis are usually appropriate where the majority of assets consist of cash, passive investments or projects with a limited life. All assets and liabilities of the entity are valued at market value under this alternative and this combined market value forms the basis for the entity s valuation. Often the FME and DCF methodologies are used in valuing assets forming part of the overall Net assets on a going concern basis. This is particularly so for exploration and mining companies where investments are in finite life producing assets or prospective exploration areas. These asset based methods ignore the possibility that the entity s value could exceed the realisable value of its assets as they do not recognise the value of intangible assets such as management, intellectual property and goodwill. Asset based methods are appropriate when an entity is not making an adequate return on its assets, a significant proportion of the entity s assets are liquid or for asset holding companies. 2 Quoted Market Price Basis ( QMP ) A valuation approach that can be used in conjunction with (or as a replacement for) other valuation methods is the quoted market price of listed securities. Where there is a ready market for securities such as the ASX, through which shares are traded, recent prices at which shares are bought and sold can be taken as the market value per share. Such market value includes all factors and influences that impact upon the ASX. The use of ASX pricing is more relevant where a security displays regular high volume trading, creating a deep market in that security. 3 Capitalisation of future maintainable earnings ( FME ) This method places a value on the business by estimating the likely FME, capitalised at an appropriate rate which reflects business outlook, business risk, investor expectations, future growth prospects and other entity specific factors. This approach relies on the availability and analysis of comparable market data. 76

81 The FME approach is the most commonly applied valuation technique and is particularly applicable to profitable businesses with relatively steady growth histories and forecasts, regular capital expenditure requirements and non-finite lives. The FME used in the valuation can be based on net profit after tax or alternatives to this such as earnings before interest and tax ( EBIT ) or earnings before interest, tax, depreciation and amortisation ( EBITDA ). The capitalisation rate or "earnings multiple" is adjusted to reflect which base is being used for FME. 4 Discounted future cash flows ( DCF ) The DCF methodology is based on the generally accepted theory that the value of an asset or business depends on its future net cash flows, discounted to their present value at an appropriate discount rate (often called the weighted average cost of capital). This discount rate represents an opportunity cost of capital reflecting the expected rate of return which investors can obtain from investments having equivalent risks. Considerable judgement is required to estimate the future cash flows which must be able to be reliably estimated for a sufficiently long period to make this valuation methodology appropriate. A terminal value for the asset or business is calculated at the end of the future cash flow period and this is also discounted to its present value using the appropriate discount rate. DCF valuations are particularly applicable to businesses with limited lives, experiencing growth, that are in a start up phase, or experience irregular cash flows. 5 Market Based Assessment The market based approach seeks to arrive at a value for a business by reference to comparable transactions involving the sale of similar businesses. This is based on the premise that companies with similar characteristics, such as operating in similar industries, command similar values. In performing this analysis it is important to acknowledge the differences between the comparable companies being analysed and the company that is being valued and then to reflect these differences in the valuation. 6 Resource Multiple The resource multiple is a market based approach which seeks to arrive at a value for a company by reference to its total reported resources and to the enterprise value per tonne/lb of the reported resources of comparable listed companies. The resource multiple represents the value placed on the resources of comparable companies by a liquid market. 77

82 Appendix 3 - Discount Rate Assessment Determining the correct discount rate, or cost of capital, for a business requires the identification and consideration of a number of factors that affect the returns and risks of a business, as well as the application of widely accepted methodologies for determining the returns of a business. The discount rate applied to the forecast cash flows from a business represents the financial return that will be required before an investor would be prepared to acquire (or invest in) the business. The capital asset pricing model ( CAPM ) is commonly used in determining the market rates of return for equity type investments and project evaluations. In determining a business weighted average cost of capital ( WACC ) the CAPM results are combined with the cost of debt funding. WACC represents the return required on the business, whilst CAPM provides the required return on an equity investment. Cost of Equity and Capital Asset Pricing Model CAPM is based on the theory that a rational investor would price an investment so that the expected return is equal to the risk free rate of return plus an appropriate premium for risk. CAPM assumes that there is a positive relationship between risk and return, that is, investors are risk averse and demand a higher return for accepting a higher level of risk. CAPM calculates the cost of equity and is calculated as follows: CAPM K e = R f + β x (R m R f ) Where: K e R f R m R m R f β = expected equity investment return or cost of equity in nominal terms = risk free rate of return = expected market return = market risk premium = equity beta The individual components of CAPM are discussed below. Risk Free Rate (R f ) The risk free rate is normally approximated by reference to a long term government bond with a maturity equivalent to the timeframe over which the returns from the assets are expected to be received. We have used the current yield to maturity on the 10-year Commonwealth Government Bond which was 3.72% per annum as at 31 July Market Risk Premium (R m R f ) The market risk premium represents the additional return that investors expect from an investment in a well-diversified portfolio of assets. It is common to use a historical risk premium, as expectations are not observable in practice. The market risk premium is derived on the basis of capital weighted average return of all members of the S&P 200 Index minus the risk free rate which is dependent on the ten year government bond rates. For the purpose of our report we have adopted a market risk premium of 6%. 78

83 Equity Beta Beta is a measure of the expected correlation of an investment s return over and above the risk free rate, relative to the return over and above the risk free rate of the market as a whole; a beta greater than one implies that an investment s return will outperform the market s average return in a bullish market and underperform the market s average return in a bearish market. On the other hand, a beta less than one implies that the business will underperform the market s average return in a bullish market and outperform the market s average return in a bearish market. Equity betas are normally either an historical beta or an adjusted beta. The historical beta is obtained from the linear regression of a stock s historical data and is based on the observed relationship between the security s return and the returns on an index. An adjusted beta is calculated based on the assumption that the relative risk of the past will continue into the future, and is hence derived from historical data. It is then modified by the assumption that a stock will move towards the market over time, taking into consideration the industry risk factors which make the operating risk of the company greater or less risky than comparable listed companies. It is important to note that it is not possible to compare the equity betas of different companies without having regard to their gearing levels. Thus, a more valid analysis of betas can be achieved by ungearing the equity beta (β a ) by applying the following formula: β a = β / (1+(D/E x (1-t)) In order to assess the appropriate equity beta for the Company s projects, we have had regard to the equity betas of the Company and of listed companies involved in similar activities in similar industry sectors. The geared betas below have been calculated against the All Ordinaries Index. The geared betas below have been calculated using daily data over a two-year period. Company Market Capitalisation 31-Jul-13 ($) Geared Beta (β) Gross Debt/Equity (%) Ungeared Beta (βa) Gujarat NRE Coking Coal Limited 233,973, % 0.64 Whitehaven Coal Limited 2,097,541, % 1.26 Cockatoo Coal Limited 76,582, % 1.04 Yancoal Australia Ltd 715,835, % 0.29 New Hope Corporation Limited 3,223,175, % 0.74 Aquila Resources Limited 926,559, % 2.13 Gloucester Coal Limited 774,295, % 0.81 Kangaroo Resources Limited 65,254, % 0.84 Continental Coal Limited 24,627, % 2.59 Source: Bloomberg Mean 1.15 Median 0.84 Mean (excl outliers & Gujarat)

84 Descriptions of comparable listed companies are summarised as follows. Company Gujarat NRE Coking Coal Limited Whitehaven Coal Limited Cockatoo Coal Limited Yancoal Australia Ltd New Hope Corporation Limited Description Gujarat NRE Coking Coal Limited engages in mining, producing, selling, and exporting coal. It owns and operates two hard coking coal mines comprising NRE No. 1 Colliery and NRE Wongawilli Colliery in the southern coal fields of New South Wales, Australia. The company was formerly known as Gujarat NRE Minerals Limited and changed its name to Gujarat NRE Coking Coal Limited in February The company was founded in 2004 and is based in Russell Vale, Australia. Gujarat NRE Coking Coal Limited operates as a subsidiary of Gujarat NRE Coke Ltd. Whitehaven Coal Limited engages in the exploration, development, and operation of coal mines primarily in New South Wales. The company holds interests in the Gunnedah coal basin that comprises the Tarrawonga, Rocglen, and Sunnyside open cut mines; the Werris Creek mine; and the Narrabri underground mine. Its development projects include the Maules Creek coal project; and the Vickery project. The company also owns interest in the Canyon, Ferndale, Dingo, Sienna, Monto, Ashford, and Oaklands North coal exploration projects. The company serves various customers in China, Japan, India, Korea, Taiwan, the United Kingdom, the United States, Australia, and internationally. Whitehaven Coal Limited was founded in 1999 and is headquartered in Sydney, Australia. Cockatoo Coal Limited engages in the acquisition, exploration, development, production, and operation of coal mining projects. The company primarily focuses on producing metallurgical and thermal coal. It primarily focuses on the exploration of the Baralaba PCI coal mine located in the Bowen basin, central Queensland, as well as various other projects in the Bowen basin. The company also holds interests in the coal projects covering approximately 4,000 square kilometres in the Surat basin region of south eastern Queensland, as well as various other projects in the Sydney basin, New South Wales. It operates in Australia, Japan, South Korea, Switzerland, and Italy. The company is based in Sydney, Australia. Yancoal Australia Ltd engages in the production of coking, metallurgical, and thermal coal for the steel and power industries in Asia, Europe, and the Americas. The company was incorporated in 2004 and is based in Sydney, Australia. New Hope Corporation Limited, an independent energy company, engages in the exploration, development, production, processing, and transportation of coal in Australia. Its projects include New Acland project located approximately 150 kilometres west of Brisbane in the Darling Downs region of Queensland; and Jeebropilly and New Oakleigh coal mines situated near the town of Rosewood. The company produces and sells thermal coal for electricity production, as well as to various general industry processors and manufacturers. It also exports coal to various countries in the Asia-Pacific area through its export ship loading facility at Queensland Bulk Handling at the Port of Brisbane. The company is headquartered in Brookwater, Australia. New Hope Corporation Limited is a subsidiary of Washington H Soul Pattinson And Company Limited. 80

85 Company Aquila Resources Limited Gloucester Coal Limited Kangaroo Resources Limited Continental Coal Limited Source: Bloomberg & Capital IQ Description Aquila Resources Limited, together with its subsidiaries, engages in the exploration, evaluation, and development of coal, iron ore, and manganese resources; and mining of coal resources primarily in Australia. It operates open cut coal mine; explores for and develops coal resources in Queensland, as well as explores for and develops iron ore resources in Western Australia. The company is also involved in the exploration and development of iron ore and manganese resources in South Africa; and the exploration and development of coal resources in Botswana. It sells its products primarily in Japan, South Korea, Taiwan, and China. The company was incorporated in 2000 and is based in Como, Australia. Gloucester Coal Limited engages in the production and marketing of coking and thermal coals primarily in Australia, Japan, Singapore, and the United Kingdom. It holds interests in the Stratford mine comprising the Bowens Road North pit and Roseville pits located in the Gloucester Basin; and the Duralie mine consisting of Weismantel and Clareval pits situated in the southern part of the Gloucester Basin. The company also holds interests in the Middlemount mine, a development mine located in Queensland s Bowen Basin; and Donaldson Open Cut mine situated near the Port of Newcastle. In addition, it owns interests in Tasman underground mine located in the south of Maitland; and Abel underground mine situated near the Port of Newcastle. The company is headquartered in Sydney, Australia. As of June 27, 2012, Gloucester Coal Ltd. operates as a subsidiary of Yancoal Australia Pty Limited. Kangaroo Resources Limited operates as mineral exploration company. The company has coal, iron ore, gold, and base metal exploration assets. It holds interest in the Pakar, a thermal coal project; the Mamahak, a coking coal and thermal coal project; and the GPK, a thermal coal project in Indonesia, as well as the Mt Ruby, a magnetite/hematite resource project in Australia. The company was formerly known as Kangaroo Metals Limited and changed its name to Kangaroo Resources Limited in August Kangaroo Resources Limited is based in Subiaco, Australia. Kangaroo Resources Limited is a subsidiary of PT Bayan Resources Tbk. Continental Coal Limited engages in the production and sale of thermal coal in South Africa. The company primarily holds interests in the Vlakvarkfontein and Ferreira mines. It also holds interests in various development projects in South Africa, as well as exploration projects in Botswana. Selected Beta (β) In selecting an appropriate beta for Gujarat s projects, we have considered the similarities between the comparable companies selected above. The comparable similarities and differences noted are: the comparable companies mining and exploration assets have varying risk profiles depending on the maturity of the assets and the stages and location of production; and several companies have diversified operations, producing and exploring for other commodities including gold, iron ore and copper. Having regard to the above we consider that an appropriate ungeared beta to apply to the projects is between 0.86 and In selecting our ungeared beta, we have excluded Yancoal Australia Ltd and 81

86 Continental Coal Limited as outliers. We have also excluded Gujarat s beta on the basis that our analysis in Section 11.2 indicates that the share is thinly traded and displays a low level of liquidity, therefore we do not consider the observed beta to adequately reflect the inherent risk of the Company s operations. We have selected our beta from the top end of the range of comparable company betas to reflect the higher risk that is associated with Gujarat s expansion of production. We consider it reasonable that a forward looking ungeared beta for Gujarat will reflect that of its peers. The proposed capital structure for the Projects is assumed to be 46% debt and 54% equity. We consider it reasonable to assume that the shareholders of Gujarat determine their required rate of return, for a particular project, by viewing the risks associated with the future cash flows of the project. We have regeared the project beta to a range of 1.38 to Cost of Equity We have assessed the cost of equity to be: Input Value Adopted Low High Risk free rate of return 3.72% 3.72% Equity market risk premium 6.00% 6.00% Beta (geared) Cost of Equity 11.99% 14.61% Source: BDO analysis Weighted Average Cost of Capital The WACC represents the market return required on the total assets of the undertaking by debt and equity providers. WACC is used to assess the appropriate commercial rate of return on the capital invested in the business, acknowledging that normally funds invested consist of a mixture of debt and equity funds. Accordingly, the discount rate should reflect the proportionate levels of debt and equity relative to the level of security and risk attributable to the investment. In calculating WACC there are a number of different formulae which are based on the definition of cash flows (i.e., pre-tax or post-tax), the treatment of the tax benefit arising through the deductibility of interest expenses (included in either the cash flow or discount rate), and the manner and extent to which they adjust for the effects of dividend imputation. The commonly used WACC formula is the post-tax WACC, without adjustment for dividend imputation, which is detailed in the below table. CAPM WACC = E K e + D K d (1 t) Where: K e K d T E D E+D D+E = expected return or discount rate on equity = interest rate on debt (pre-tax) = corporate tax rate = market value of equity = market value of debt (1- t) = tax adjustment 82

87 Gearing Before WACC can be determined, the proportion of funding provided by debt and equity (i.e., gearing ratio) must be determined. The gearing ratio adopted should represent the level of debt that the asset can reasonably sustain (i.e., the higher the expected volatility of cash flows, the lower the debt levels which can be supported). The optimum level of gearing will differentiate between assets and will include: the variability in earnings streams; working capital requirements; the level of investment in tangible assets; and the nature and risk profile of the tangible assets. As described earlier, we understand the capital of structure of Gujarat is proposed to be 46% debt and 54% equity. We calculated a weighted average cost of debt for Gujarat of 5.21% per annum. Calculation of WACC Based on the above inputs we have calculated the real WACC to be between in the range of 5.95% and 6.80%. WACC Value Adopted Low High Cost of equity, K e 11.99% 14.61% Cost of debt, K d 5.21% 5.21% Proportion of equity ((E/(E+D)) 54.05% 54.05% Proportion of debt ((D/(E+D)) 45.95% 45.95% Weighted average cost of capital 8.16% 9.57% Weighted average cost of capital (real)* 5.95% 6.80% Source: BDO analysis * We have converted the nominal WACC to a real WACC using an inflation rate of 2.5% as per the following formula: We have adopted the high end of our assessed range as we consider the proposed expansion of Gujarat s operations to be more risky than the operations of its comparables. Based on this analysis our preferred discount rate for the projects is 6.8%. 83

88 Appendix 4 Independent Technical Specialist Report 84

89 Independent Technical Specialist s Report Gujarat NRE No.1 and Wongawilli Mines BDO Corporate Finance Pty Ltd Report No: ADV-SY Date: August, 2013

90 Document Control Sheet BDO Corporate Finance Client Report Name Independent Technical Specialist s Report Gujarat NRE No.1 and Wongawilli Mines Report No. ADV-SY August 2013 Date Revision No. Authorisations Name Position Signature Date Prepared By: P Mitchell Executive Consultant 21 August 2013 Reviewed By R Mackenzie Executive Consultant 21 August 2013 Approved By Distribution Organisation Recipient No. Of Hard Copies No. Of Electronic Copies BDO Corporate Finance Evelyn Tan 1 Comment Gujarat NRE Coking Coal Ltd Rhys Brett 1 ADV-SY / August 2013 Page i This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

91 IMPORTANT INFORMATION ABOUT THIS DOCUMENT 1. Our Client This report has been produced by or on behalf of RungePincockMinarco ( RPM ) solely for BDO Corporate Finance (WA), (the Client) for the purpose of its inclusion in the Independent Expert s report being prepared by BDO Corporate Finance (WA) in relation to the proposed placement of shares by Gujarat NRE Coking Coal Limited ( Gujarat ) to existing shareholder Jindal Steel and Power (Australia) Pty Ltd Company Limited ( Purpose ). 2. The Client s Use The Client s use and disclosure of this report is subject to the terms and conditions under which RPM prepared the report. 3. Notice to Third Parties RPM prepared this report for the Client and for the Purpose outlined above only. To the extent permitted by law:- RPM does not make and expressly disclaims from making any representation or warranty to you express or implied regarding this report or the conclusions or opinions set out in this report (including without limitation any representation or warranty regarding the standard of care used in preparing this report, or that any forward-looking statements, forecasts, opinions or projections contained in the report will be achieved, will prove to be correct or are based on reasonable assumptions). RPM expressly disclaims any liability to you and any duty of care to you. RPM does not authorise you to rely on this report. If you choose to use or rely on all or part of this report, then any loss or damage you may suffer in so doing is at your sole and exclusive risk. 4. Inputs, subsequent changes and no duty to update RPM has created this report using data and information provided by or on behalf of the Client (and Client s agents and contractors). Unless specifically stated otherwise, RPM has not independently verified that data and information. RPM accepts no liability for the accuracy or completeness of that data and information, even if that data and information has been incorporated into or relied upon in creating this report (or parts of it). The conclusions and opinions contained in this report apply as at the date of the report. Events (including changes to any of the data and information that RPM used in preparing the report) may have occurred since that date which may impact on those conclusions and opinions and make them unreliable. RPM is under no duty to update the report upon the occurrence of any such event, though it reserves the right to do so. 5. Mining Unknown Factors The ability of any person to achieve forward-looking production and economic targets is dependent on numerous factors that are beyond RPM s control and that RPM cannot anticipate. These factors include, but are not limited to, site-specific mining and geological conditions, management and personnel capabilities, availability of funding to properly operate and capitalize the operation, variations in cost elements and market conditions, developing and operating the mine in an efficient manner, unforeseen changes in legislation and new industry developments. Any of these factors may substantially alter the performance of any mining operation. ADV-SY / August 2013 Page ii This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

92 21 August 2013 The Directors BDO Corporate Finance (WA) Pty Ltd 38 Station Street Subiaco, WA 6008 Dear Sirs, INDEPENDENT TECHNICAL SPECIALIST S REPORT OF THE GUJARAT NRE NO.1 AND WONGAWILLI PROJECTS Purpose of Report This report has been prepared at the request of the Directors of BDO Corporate Finance (WA) Pty Ltd ( BDO ) in respect to the placement of shares by Gujarat NRE Coking Coal Limited ( Gujarat ) to existing shareholder Jindal Steel and Power (Australia) Pty Ltd Company Limited. It sets out RungePincockMinarco s ( RPM ) independent review of the coal operations and expansion projects at the NRE No.1 and NRE Wongawilli mines located at Wollongong NSW. RPM has conducted its technical review in recognition of the requirements of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (December 2004) published by the Joint Ore Reserves Committee ( JORC ) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (the JORC Code ) and the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (the VALMIN Code, 2005). This Independent Technical Specialist Report has been prepared in accordance with the relevant requirements of the listing rules of the ASX and the regulatory guidelines RG111 and RG112 issued by the Australian Securities and Investments Commission ( ASIC ) in relation to the preparation of independent expert reports. A draft of this report was provided to BDO and Gujarat for factual checking before delivery of the final report. RPM has not been requested to provide an independent valuation nor has it been asked to provide an opinion on the fairness or reasonableness of the offer. The expert whose signature is attached to this report does not hold an AFS licence and the opinions expressed in this report are solely of a technical nature. The NRE No.1 asset is located approximately 8 km north of Wollongong within the Illawarra district of NSW. The mine entrance, infrastructure and coal handling area are situated at the base of the Illawarra escarpment with the mine workings extending to the west beneath the Sydney Catchment Authority ( SCA ) land that is part of the Sydney metropolitan water supply. The Cataract reservoir is located above the mine lease. RPM concludes from the review of the NRE No.1 mine that: A mining lease is held over the planned mining area together with surface rights for conducting mining activities. The lease expires on 30 December Approvals and licences are in place for carrying out current mining activities. RPM notes that approval for the next section of longwall mining is yet to be granted for which Gujarat expects approval by the end of 2013, however recent proposals for planning and assessment regulatory changes could result in a determination of the project occurring in early A stage 2 approval modification is in place to expand the mine within its Wonga East area Resource and Reserve statements have been prepared in accordance with JORC (2004) and dated April ADV-SY / August 2013 Page iii This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

93 Resources as at April 2010 total 362 Mt (of which 162 are Inferred) of which 182 Mt are within the Wongawilli Seam which is the primary seam being targeted. Although minimal exploration has been undertaken since, RPM considers that these estimates should be revised to reflect the current status of the mine and exclusion zones. Reserves estimated as at April 2010 are wholly within the Wongawilli Seam and total 59 Mt. The reserves require re-estimating due to changes to the mine plan and subsequent production over the last three years. The mine is within an environmentally sensitive area with the surface compound adjacent to residential areas and the mine lease overlain by the SCA land, the Cataract Reservoir and nearby dam. In RPM s review it has been found that environment management plans require review for noise and dust control to meet community standards. This is being addressed. Proposed mine plans described in a current project application to Government are currently being further assessed for environmental implications as a result of submissions from stakeholders. Mine plans have been adjusted to meet revised offset conditions around the Cataract dam wall as well as major streams and sensitive swamp land that overlie the lease. These changes are reflected in the life of mine model. Further exploration and coal sampling are required to upgrade areas of the Inferred resource classification and hence the coal reserves reflecting the proposed life of mine operations. Although historical coal quality and washing data is available for the Wongawilli Seam plan, much of this data does not represent the coal seam working sections proposed to be targeted over the lease. Nearly all the resource area to be mined within the Wongawilli Seam over the life of mine planning period is beneath previously extracted Bulli Seam coal. This provides an excellent understanding of the geological structure and gives confidence in the plan even though parts are within Inferred Resources. The coal is sold as an unwashed product requiring vigilant control of the mining horizon and minimal dilution. Early experience with the longwall demonstrates that the seam section being selected within the 9 m Wongawilli Seam may require review to maintain acceptable product ash levels. Gujarat have in place a plan to further examine seam ash as well as installing smaller cutting drums on the longwall shear to improve horizon control. The mine production ramp up from the present 1 Mtpa to 3 Mtpa over the life of mine plan is reasonable as operations advance from the existing Wonga East area to less restrictive areas with wider longwall panels associated with the Central and Wonga West areas. Cash costs have been affected by the delay to approvals for longwall mining, high development to longwall ratios associated with the surface subsidence limitations and excluded mining areas with the Wonga East area. RPM has reviewed the life of mine cost estimates and has recommended slight changes based on benchmarking against industry standards. Estimated mine site cash costs over the life of mine are $40.09/t on an ROM basis. Capital costs associated with the mine expansion plans are appropriate. RPM has reviewed and increased provision for additional mining units to support the mine development to the west as well as increased sustaining capital over the LOM. Additional expenditure for further exploration and resource upgrading has also been included. The surface infrastructure is a combination of the older South Bulli equipment and recently installed services for the mine expansion. RPM generally found the older equipment in reasonably serviceable condition suitable for purpose until replaced. ADV-SY / August 2013 Page iv This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

94 Coal is transported by road the Port Kembla Coal Terminal. Restrictions apply to daily operating hours and larger capacity vehicles, similar to those in use elsewhere at Illawarra mines will be required to transport the planned mine annual output of 3 Mt. The Port Kembla Coal Terminal, located approximately 10 km from the mine, is managed by BHP Billiton for the six coal producers that use the port with equal interest. The port has spare capacity and approval to expand from the existing 18 Mtpa to 22.5 Mtpa. Currently approximately 14 Mt is exported through the port. Sufficient capacity will be available to meet the mine expansion. Mine closure costs require re-estimating to reflect the standards to be expected. This is particularly relevant for the proximity of the site to residential areas as well as shaft infrastructure located within the SCA. The NRE Wongawilli mine is located approximately 14 km southwest of Wollongong on the Illawarra Escarpment. The mine operating area is a combination of the former BHP Billiton Wongawilli and Nebo collieries purchased by Gujarat in Subsequent to this acquisition Gujarat also purchased the remaining resource areas of Huntley and Avondale mines to the south. The Avon reservoir lies above the central area of the colliery holding. RPM concludes from the review of the NRE Wongawilli mine that: Mining leases are held over the planned mining area together with surface rights for conducting mining activities. The principal mining lease expires on 7 October 2029 and those covering the former Huntley and Avondale areas expire on 9 October Approvals and licences are in place for carrying out current mining activities. Approvals are in place for conducting longwall activities in the former Elouera and Nebo areas. Studies for submitting an application for mining in the southwest area are in progress. Resource statements have been prepared in accordance with JORC (2004) and dated June A total 337 Mt of coal resources (of which 260 Mt Inferred) are estimated within three seams across the tenements. The targeted Wongawilli Seam has 198 Mt resource of which 129 Mt is Inferred. The high ratio of Inferred resources requires further exploration and coal sampling to enable reserves to be determined over the projected life of mine plans. Reserves estimated as at December 2010 within the Wongawilli Seam were 28 Mt. Approximately 2.9 Mt has since been extracted. The estimated reserves require updating to reflect any changes to the plan and renewed understanding of the modifying factors across the leasehold. The current life of mine plan has an estimated 26.8 Mt of recoverable coal. Some of these mining areas lie within Inferred Resources. The mine plan and productions schedule is reasonable with short term output restricted by the narrow and short longwall panels extracting remnant coal barriers within the Nebo area. Relocation to the southwest as part of the mine expansion will enable larger panels and production to increase to 3 Mtpa. Mine operating costs have been reviewed and adjusted by RPM to reflect the changed circumstance of the current position of mining. Costs are high while the mine remains in the former Nebo area with requiring a large expanse of roadways and services to be maintained. Proposed relocation to the southwest in the new mining area will result in substantial cost savings. An average life of mine operating cash cost of $44.05/t of ROM coal is estimated. Capital costs have been reviewed and found to reasonably reflect the expansion of the mine. The cost for developing the roadways to access the southwest area has been capitalised by RPM in its cash ADV-SY / August 2013 Page v This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

95 cost assumptions. RPM has allowed for major refurbishment of the longwall roof support equipment prior to relocating to the southwest. The surface infrastructure is a combination of the older Wongawilli/Elouera equipment and recently installed services for the mine expansion. RPM generally found the older equipment in reasonably serviceable condition suitable for purpose until replaced. Coal is transported by rail to the Port Kembla Coal Terminal. The rail from the mine to the South Coast Railway is owned by Gujarat and maintained under contract by the rail operator. Sufficient capacity and rail slots are available for the mine expansion. The Port Kembla Coal Terminal has spare capacity and approval to expand from the existing 18 Mtpa to 22.5 Mtpa. Currently approximately 14 Mt is exported through the port. Sufficient capacity will be available to meet the mine expansion. Mine closure costs require re-estimating to reflect the standards to be expected. Costs previously estimated in 2006/7 vary widely between $27 million and $70 million with a revised CL 50 estimate in 2010 of $46 million. For the purpose of costing RPM has used $50 million. RPM has estimated a value for the coal resources that remain beyond the LOM plans using a comparative transaction methodology based on recent transactions of underground coal mines and projects. The remaining resources at the mines are predominantly of Inferred status and these resources will only be capable of exploitation from the existing mines following the LOM production schedules. Additional exploration will be necessary. The remaining resources at the NRE No.1 mine will not be able to exploited until 2035 and those at NRE Wongawilli until The estimated values for the remaining resources, in today s dollars, are $64 million at NRE No.1 mine and $7 million at NRE Wongawilli mine. The signatory to this letter, Mr. Philip Mitchell, BE (Mining), Grad Dip App Fin, MAIMM, is a Member of the Australasian Institute of Mining and Metallurgy, and is an employee of RungePincockMinarco. He has forty years experience in the mining industry with significant experience in technical reviews, audits and due diligence assessments of mining assets. He has sufficient experience which is relevant to the style of mineralization and types of coal deposits under consideration, and to the activity he is undertaking, to qualify him as a Competent Person (as defined in the 2004 Edition of the JORC Code). RPM has been paid, and has agreed to be paid, professional fees, by Gujarat for its preparation of this Report. None of RPM or its directors, staff or specialists who contributed to this report has any interest or entitlement, direct or indirect, in the Company, the relevant Assets; or the outcome of this report. Yours sincerely, Philip Mitchell Executive Consultant ADV-SY / August 2013 Page vi This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

96 Table of Contents 1. Introduction Purpose of Report and Commissioning Entity Nature of Report Capability and Independence Remuneration Site Inspections Limitations and Exclusions Expert and Specialists Materiality Terms Inherent Mining Risks References Glossary NRE No.1 Mine Location, Background and Tenements Location Background Tenements Geology and Resources Geological Structure Seams Targeted Coal Seam Quality Resource Estimation Methodology Resources Geological and Resource Risks Reserves ADV-SY / August 2013 Page vii This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

97 2.4.1 Reserves Statement Reserves Update Bulli Seam Reserves Update Wongawilli Seam NRE No.1 Mine Operations Mine Plan Mining Method Mine Expansion and Production Forecasts Development Forecasts Longwall Production Risks Upside Potential Coal Handling Underground Coal Clearance Surface Coal Clearance Surface Coal Handling Plant Infrastructure Power Workshops Warehouses / stores Fans Buildings / Amenities Coal Transport and Port Road Transport Port Kembla Coal Terminal Coal Product and Yield Environment Current Approvals Community Sydney Catchment Authority ADV-SY / August 2013 Page viii This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

98 Noise and Dust Water Management Biodiversity Spontaneous Combustion Aboriginal and Natural Heritage Policies and Environmental Management Mine Closure Plans and Security Greenhouse Gas Emissions Environmental Risks Operating Costs Mine Development Costs Longwall Costs Outbye and Services Surface Administration and Corporate Charge Coal Handling Offsite Distribution Costs Royalty Carbon Tax Total FOB Costs Capital Expenditure NRE Wongawilli Mine Location, Background and Tenements Location Background Tenements Geology and Resources Geological Structure Seams Targeted ADV-SY / August 2013 Page ix This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

99 3.3.3 Coal Seam Quality Resource Estimation Methodology Resources Geological and Resource Risks Reserves NRE Wongawilli Operations Mine Production Mining Method Mine Expansion Production Forecast Development Performance Longwall Performance Estimate Risks Upside Coal Handling Underground Coal Clearance Wongawilli South Operations Surface Coal Clearance Surface Coal Handling Plant Infrastructure Site HV Supply UG Electrical Supply Surface Infrastructure Workshops Warehouses / stores Fans Buildings / Amenities Coal Transport Coal Product and Yield ADV-SY / August 2013 Page x This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

100 3.11 Environment Community Sydney Catchment Authority Noise and Dust Aboriginal and Natural Heritage Subsidence Water Management Policies and Environmental Management Biodiversity Mine Closure Plans and Security Environmental Risks Mine Operating Costs Mine Development Costs Longwall Costs Outbye and Services Surface Administration, Technical Services and Corporate Charge Coal Handling Offsite Distribution Costs Royalty Carbon Tax Total FOB Costs Capital Expenditure Valuation of Remaining Resources NRE No.1 Remaining Resources NRE Wongawilli Remaining Resources Valuation Methodology RPM s Valuation Approach NRE No.1 Value Estimate ADV-SY / August 2013 Page xi This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

101 4.4.2 NRE Wongawilli Value Estimate Conclusion...66 A1 A2 A3 Appendix A Glossary of Terms Appendix B References Appendix C Specialists used for Report List of Tables Table 2.1 NRE No. Leases... 5 Table 2.2 Raw Ash comparison between the Clay Band working section and the 1 st Machine Band working section for the East longwall areas Table 2.3 Raw Ash comparison between the Clay Band working section and the 1 st Machine Band working section for the West longwall areas Table 2.4 NRE No.1 Resources Table 2.5 NRE No1 Reserves (April 2010) Table 2.6 NRE No1 Estimated Reserves and Recoverable Coal as at July Table 2.7 Key Approvals NRE No.1 Colliery Table 2.8 Summary Rehabilitation Cost Calculation Gujarat NRE No1 Colliery- Combined Russel Vale And Catchment Area Sites as at June Table 2.9 NRE No.1 Mine Cash Costs Table 3.1 NRE Wongawilli Tenements Table 3.2 NRE Wongawilli Wongawilli Seam Ash and Yield Table 3.3 NRE Wongawilli Resources Table 3.4 NRE Wongawilli Reserves as at April Table 3.5 Key Approvals and Licences for Wongawilli Colliery Table 3.6 Excerpt from Gujarat NRE Coking Coal Limited Annual Report Table 3.7 Historical Mine Closure Cost Comparison Table 3.8 Wongawilli Mine Closure Cost Estimates - Probabilistic Modelling Table 3.9 NRE Wongawilli Mine Cash Costs Table 4.1 NRE No.1 Remaining Resources Table 4.2 NRE Wongawilli Remaining Resources Table 4.3 Underground Coal Transactions Table 4.4 Remaining Resource Valuation Estimate List of Figures Figure 1.1 Gujarat NRE Mine Locations... 2 Figure 2.1 NRE No.1 Geological Structure and Wongawilli Seam Ash... 7 Figure 2.2 Generalised section of the Wongawilli Seam showing the different working sections Figure 2.3 NRE No.1 Mine Layout Figure 2.4- NRE No.1 Schedule Output (RPM estimate) Figure 2.5 Development Performance Figure 2.6 Longwall Production v Depth of Cover (Australian Longwalls) Figure 2.7 Longwall Performance Relative to Panel Width Figure 2.8- Longwall Performance Figure 2.9 Noise Monitoring Locations Figure 2.10 NRE No.1 FOT Unit Cash Cost Figure 2.11 NRE No.1 Unit FOB Cash Cost Figure 2.12 NRE No.1 Capex Allowance ADV-SY / August 2013 Page xii This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

102 Figure 3.1 NRE Wongawilli Colliery Holding Figure 3.2 Wongawilli Seam showing the Standard Working Section Figure 3.3 Tongarra Seam Upper split ply details Figure 3.4 NRE Wongawilli Resource Areas Figure 3.5 Wongawilli Mine Plan Figure 3.6 Wongawilli Mine Schedule Output (RPM estimate) Figure 3.7 Development Performance Figure 3.8 Longwall Benchmarking Figure 3.9 Longwall Performance Figure 3.10 Closure Cost Components Figure 3.11 NRE Wongawilli FOR Unit Cash Cost Figure 3.12 NRE Wongawilli Unit FOB Cash Cost Figure 3.13 NRE Wongawilli Capital ADV-SY / August 2013 Page xiii This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

103 1. Introduction 1.1 Purpose of Report and Commissioning Entity BDO Corporate Finance (WA) Pty Ltd ( BDO or Client ) has been commissioned by Gujarat NRE Coking Coal Ltd ( Gujarat ) to prepare an Independent Expert s Report ( IER ) for the purpose of a share placement of $68 million to its existing shareholder Jindal Steel and Power (Australia) Pty Ltd. To assist BDO in the preparation of the IER RungePincockMinarco ( RPM ) has been engaged to undertake a technical review of Gujarat s NRE No.1 and NRE Wongawilli mines located near Wollongong, NSW Australia and prepare a Technical Specialist Report ( TSR ). The mine locations are shown on Figure Nature of Report This is a technical report addressing specific matters within the scope of work. RPM has conducted its review in recognition of the requirements of the Australasian Code for Reporting of Mineral Resources and Ore Reserves (December 2004) published by the Joint Ore Reserves Committee ( JORC ) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (the JORC Code ). The report has been prepared along the guidelines of the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (the VALMIN Code, 2005). 1.3 Capability and Independence RPM operates as an independent technical consultant providing independent technical review, resource evaluation, mining engineering and mine valuation services to the resources and financial services industry. This report was prepared on behalf of RPM by the signatory to this report, assisted by the subject specialists whose qualifications, experience and contribution to the report are set out in Annexure C to this report. The report is a revision of an Independent Technical Report prepared for Gujarat in February None of RPM or its management, staff or sub-consultants who contributed to this report has any interest in: Gujarat, or its related parties, or the asset reviewed, or the outcomes that may arise from the valuation. 1.4 Remuneration RPM has been paid, and has agreed to be paid, professional fees for its preparation of this report to the sum of $45, Site Inspections Site inspections were carried out at the NRE No.1 mine on 31 January 2013 and the NRE Wongawilli mine on 1 February Subsequent enquiries and discussions have been held with Gujarat staff in the preparation of this TSR. ADV-SY / August 2013 Page 1 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

104 150º30 0 E 150º45 0 E 151º00 0 E Sydney 34º00 0 S 34º00 0 S For personal use only 150º15 0 E Wollongong WARRAGAMBA SPECIAL AREA O HARES CREEK SPECIAL AREA West Cliff LEGEND North Cliff Tahmoor Appin and Appin West 34º15 0 S 34º15 0 S LOCALITY DIAGRAM WORONORA SPECIAL AREA Metropolitan Railway Major Water Bodies Major Watercourse 4th Order Watercourse NRE No.1 NRE No.1 (Bellambi West) Bargo Coal Proposal Colliery Holdings Pipeline Cordeaux Canals Dam Dendrobium SCA SPECIAL AREAS Wongawilli (Elouera) No Entry (Schedule 1) catchment area 34º30 0 S METROPOLITAN SPECIAL AREA Pumping Station Kemira 34º30 0 S Berrima Huntley PARKS AND RESERVES National Park / Nature Reserve Avondale 0 Sutton Forest Proposal Restricted Access (Schedule 2) catchment area State Conservation Area KILOMETRES Source: Southern Coalfield Inquiry, June º15 0 E 150º30 0 E 150º45 0 E 151º00 0 E Client : BDO CORPORATE FINANCE Job No. ADV-SY Project : SPECIALIST REPORT NRE NO.1 AND WONGAWILLI MINES Date : August 2013 Figure : SOUTHERN COALFIELD - COLLIERY HOLDINGS AND SCA WATER SUPPLY ASSETS FIGURE No.1.1

105 1.6 Limitations and Exclusions This Report specifically excludes all aspects of legal issues, commercial and financing matters, land titles, agreements, and Native Title excepting such aspects as may directly influence technical, operational or cost issues. RPM has not undertaken an independent evaluation of marketing or coal pricing or exchange rate forecasts. RPM has relied on the veracity and accuracy of the data presented by Gujarat, supplemented by a two-day site visit and independent enquiry by RPM of the operations and of available public sources. In RPM s opinion, the information provided by Gujarat was reasonable and nothing discovered during the preparation of this Report suggested that there was any significant error or misrepresentation in respect of that information. Information generated by third parties, consultants or contractors to Gujarat has not been independently validated by RPM through the generation of new work or new data. RPM has relied upon the accuracy of this information for this Report. RPM accepts no liability for the accuracy or completeness of data and information provided to it for the purposes of the preparation of this Report The Report has been produced by RPM in good faith using information that is available to RPM as at the date stated on the cover page. This Report contains forecasts, estimates and findings that may materially change in the event that any of the information supplied is inaccurate or materially changes in any way. This Report cannot be relied upon in any way if the information provided to RPM changes. RPM is under no obligation to update the information contained in the Report at any time. 1.7 Expert and Specialists The signatory to this report, Mr. Philip Mitchell, BE (Mining), Grad Dip (Applied Finance), is a Member of the Australasian Institute of Mining and Metallurgy, and is an employee of RungePincockMinarco. He has forty years experience in the mining industry with significant experience in technical reviews, audits and due diligence assessments of mining assets. He has sufficient experience which is relevant to the style of mineralization and types of coal deposits under consideration, and to the activity he is undertaking, to qualify him as a Competent Person (as defined in the 2004 Edition of the JORC Code). 1.8 Materiality RPM has adopted the Australian Society of Accountants Standard AASB 1031 which proposes that the materiality of information or data can be assessed in terms of the extent to which its omission or inclusion could lead to changes in total value: Equal to or less than five percent immaterial; Between five and ten percent discretionary; and Equal to or greater than ten percent material. 1.9 Terms All years referred to in the report are year beginning 1 April unless otherwise stated and all currency is Australian Dollars ( AUD ) unless otherwise stated Inherent Mining Risks Coal mining is carried out in an environment where not all events are predictable. The ability of any person to achieve forward-looking production and economic targets is dependent on numerous factors that are beyond RPM s control and that RPM cannot anticipate. These factors include, but are not limited to, site-specific mining and geological conditions, management and personnel capabilities, ADV-SY / August 2013 Page 3 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

106 availability of funding to properly operate and capitalize the operation, variations in cost elements and market conditions, developing and operating the mine in an efficient manner, unforeseen changes in legislation and new industry developments. Any of these factors may substantially alter the performance of any mining operation. Whilst an effective management team can identify the known risks and take measures to manage and mitigate those risks, there is still the possibility for unexpected and unpredictable events to occur. It is not possible therefore to totally remove all risks or state with certainty that an event that may have a material impact on the operation of a coal mine, will not occur References The documents referred in this report are listed in Appendix B Glossary A glossary of terms is included in Appendix C. 2. NRE No.1 Mine 2.1 Location, Background and Tenements Location The NRE No.1 mine is located at Russell Vale approximately 8 km north of Wollongong within the Illawarra district of NSW. The mine entrance, infrastructure and coal handling area are situated at the base of the Illawarra escarpment. The mine workings extend to the west beneath the Sydney Catchment Authority ( SCA ) land that is part of the Sydney metropolitan water supply. The Cataract reservoir is located above the mine lease. Shafts for ventilation and a winding shaft for personnel are situated on mining purpose leases within the SCA land. 2.2 Background The NRE No.1 mine was the former South Bulli Colliery and has a long history of operations extending over 100 years. The former mine had concentrated on extracting coal from the Bulli Seam together with a short period of mining in the thinner Balgownie Seam some 20 metres beneath. Longwall systems were introduced in the 1960 s. Gujarat had identified the lower Wongawilli Seam that was not previously mined, as a suitable coal for export coking prospects and has developed this seam from the outcrop on the escarpment. Longwall mining using modern high capacity equipment was introduced in The mine continues to expand westward to exploit the substantial resources in the Wongawilli Seam as well as unmined areas within the Bulli Seam. The coal is not processed and is transported as a run of mine product ( ROM ) by road to the Port Kembla Coal Terminal ( PKCT ) for export to Gujarat s parent integrated steelworks in India. A transfer pricing agreement linked to the benchmark coking coal price is used to derive a price for the exported coal Tenements The mine area includes leases CCL 745 and ML Consolidated coal lease CCL 745 expires in December 2023 for which renewal can be sought. This lease covers an area of 6,420.7 ha (according to Gujarat and sighted in Instrument of Renewal but listed as 6,001.0 Ha according to DRE) and includes the surface infrastructure area at the mine entrance extending down to the Princes Highway. The smaller lease ML 1575 of ha had been obtained in an area swap from BHP Billiton (Cordeaux Colliery) and extends along the southern part of the principle lease in the western area of the mine. Details of all the mine leases are presented in Table 2.1. ADV-SY / August 2013 Page 4 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

107 Table 2.1 NRE No. Leases Lease Expiry Area (ha) CCL December ,420.7 (as advised by Gujarat and sighted in instrument of renewal) (Note: 6,000.1 Ha according to DRE titles search) Significant Conditions Includes all coal seams beneath the surface. Various depths and surface exceptions. Surface at the escarpment for infrastructure. No surface within the Sydney Catchment Authority area. All conditions replaced with standard ML Conditions 2004 at time of last renewal on 7 October 2005 involving relatively prescriptive and stringent environmental protection requirements for operations in the SCA. Cl. 5 requires that at least 257 competent people are efficiently employed or at least $4,497,500 be expended for prospecting or mining in the lease area. Security $3,130,000 applies to CCL 745 and MPL 271* (see below) ML October Surface Exception: Whole Various Depth restriction: Whole various to a maximum depth of 900 m below AHD. Renewal on 22 March 2012 replaced all conditions with Mining Lease Conditions Cl 9 states that at least 22 competent people are efficiently employed in relation to the mining process or mining operations on the lease area or expending at least $385,000 on prospecting or mining the lease area. *Security $5,657,000 covering CCL 745, MPPL 271 and ML Mining Purposes Lease (MPL) May Shaft and fan sites, gas drainage & various infrastructure purposes Depth Restriction: Whole to m Renewal on 28 February 2012 replaced all conditions with Mining Lease Conditions *Security $5,657,000 covering CCL 745, MPL 271 and ML Geology and Resources Geological Structure Faulting is present across the mine lease the majority of which is normal faulting with some of the larger displacements in the northwest part of the lease. The faulting in this area has offsets of up to 35 m and generally defines the extent of mining. There are also some zones that have low angle thrust faults oriented approximately N-S with varying displacements. Some of these thrust fault areas are also associated with high strata pressure and gas zones. ADV-SY / August 2013 Page 5 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

108 The proposed mining in the Wongawilli Seam for the next 20 years is beneath the former workings of the Bulli Seam and therefore an excellent understanding of the location and displacement of faulting is available for determining the mine layout. Igneous intrusions are common in the lease area, generally occurring as dykes or sills. The dykes are generally orientated in a NE SW direction and are altered to clays. These can occur as individual dykes or as dyke swarms. Aeromagnetic surveys in the Western part of the lease have helped to identify the nature of the dykes. The silling that is associated with the dykes occurs mainly in the east of the lease and affects the Bulli, Balgownie and Wongawilli Seams. The exact extent of the silling has not been defined but is generally understood from previous working in the upper seams. It is noted that the extent of silling can vary markedly within the seams. The NRE No. 1 mine is affected by geological stress which has an effect on underground mining conditions and is a geotechnical consideration when planning the mine design. The principal horizontal stress direction is approximately 065 degrees but this can be altered locally by structural features. The No.1 mine has been declared outburst prone and a requirement for mine development is that the gas be drained to below the outburst threshold before mining takes place. The geological structures will have an effect on the distribution of gas in the lease area and it is expected that the gas levels and pressures will be higher in association with a dyke/fault complex. Compliance drilling is carried out ahead of mining to ensure the gas is appropriately drained Seams Targeted The remaining resources within the Bulli Seam are in the western side of the NRE No.1 lease beyond a recognised fault zone and a restricted mining area associated with a 4th Order surface watercourse. The area planned for Bulli Seam extraction is shown in Figure 2.1. The average thickness of the Bulli Seam in this area of the lease is 2.12 m with a decreasing coal thickness and increasing ash in the far west of the lease due to a thickening in-seam stone band. The seam often has a gradational roof and floor which is lower in quality. The average ash within the remaining west area resource that will be targeted for potential recovery is 17.4%. The higher ash zone influenced by the in-seam stone band towards the southwest is not included in the proposed mine plan for this area. The Balgownie Seam has historically been sampled over the upper section of the seam which is the best quality section. The insitu ash ranges from 11.2% to 39.9% and the thickness ranges from 0.58 m to 1.68 m. To successfully mine this seam more of the lower section poorer quality coal would need to be taken due to minimum practical operating height requirements. This would result in a lower quality higher ash ROM coal. In addition to the variable thickness and ash levels there is insufficient drillhole and sampling data in the Balgownie Seam for it to be considered any higher resource classification than Indicated. The Wongawilli Seam is the main target seam for the NRE No1 mine. The total Wongawilli Seam thickness varies between 7.7 m to 10.8 m across the deposit, however the total seam is not targeted for mining. The lower part of the seam is the best quality with the upper section containing increasing numbers of parting bands (Figure 2.2). A number of different working sections have been examined, the main two being the Clay Band Working Section (CBWS) and the 2 nd Machine Band Working Section (2MB). The thickness of the CBWS ranges from 1.87 m to 2.61 m, and the thickness of 2MB ranges from 2.35 m to 3.25 m. The insitu ash for the CBWS ranges from 21.6% to 34.9% throughout the lease area as shown on Figure 2.1. The resource estimates are based on the CBWS. However it may not always be possible to restrict mining to this horizon. Whether planned or otherwise (e.g. roof fall during mining), the quality of the coal being mined may often be closer to that of the 2 nd Machine Band Working Section. A comparison between the raw ash for CBWS and 2MB is shown in Table 2.2 and Table 2.3. The available resources and hence reserves require re-estimation to reflect the desired working section based on total ash and assumed dilution during mining. ADV-SY / August 2013 Page 6 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

109 m m m m m m For personal use only BULLI SEAM FUTURE WORKINGS N m m LEGEND WONGAWILLI SEAM FUTURE WORKINGS Holding Bulli Seam Proposal Wongawilli Current Mine Plan Extended Wongawilli Plan Bulli Seam Faults Dykes Faults Sill W a l l a n d o o l a C r e e k LW20 WONGAWILLI SEAM WORKINGS LW17 LW17 LW LW13 LW19 LW19 LW LW2 LW m m m METRES m m m m m Client : BDO CORPORATE FINANCE Project : ITR OF GUJARAT NRE NO.1 AND WONGAWILLI MINES Figure : NRE NO.1 GEOLOGICAL STRUCTURE AND WONGAWILLI SEAM ASH Job No. ADV-SY Date : August 2013 FIGURE No.2-1

110 2.3.3 Coal Seam Quality Iso-ash plots across each seam show increased ash towards the west in both the Bulli and Wongawilli seams. The Wongawilli Seam section is constrained to the CBWS with no comparable charts for a higher seam working section. It is noted that the seam ash does not include the clay band. There has been additional testing including washability over different working sections of the Wongawilli Seam in the east area of the mine shown in Figure 2.2, but there remains limited data for working sections above the CBWS for the western side of the deposit. Mining to progressively higher sections indicates a total ash increase of approximately 4% between the CBWS and First Machine Band and similarly to the 2MB. The crucible swelling number (CSN) for the coal reflecting its caking ability is extremely consistent and is approximately 8 across the whole lease area, indicating very good coking properties. The wash yield for the CBWS at F1.45 ranges from 42% to 60% in the proposed western longwall area while the yield ranges from 50% to 59% in the eastern area (this has not been dilution adjusted). Mining to date has been to a higher seam section and therefore yields are considerably lower. The raw ash is shown in Table 2.2 and Table 2.3 below. The Clay Band Working Section has a lower ash compared with the 1 st Machine Band Section since the CBWS does not include as much of the non-coal material at the top of the Wongawilli Seam. Table 2.2 Raw Ash comparison between the Clay Band working section and the 1 st Machine Band working section for the East longwall areas. Longwall Number (East LW Area) 1st Machine Band Working Section Ash% (raw) Clay Band Working Section Ash% (raw) Table 2.3 Raw Ash comparison between the Clay Band working section and the 1 st Machine Band working section for the West longwall areas. Longwall Number (West LW Area) 1st Machine Band Working Section Ash% (raw) W W W W W Clay Band Working Section Ash% (raw) ADV-SY / August 2013 Page 8 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

111 Figure 2.2 Generalised section of the Wongawilli Seam showing the different working sections Resource Estimation Methodology The points of observation (POB) used for the deposit are holes where there was a basic raw analysis at a minimum. For a hole to be used as a POB for a measured category it had as a minimum a proximate analysis with washability and float/sink data. It is not stated if there are any quality cutoffs at which point a drillhole will not be considered a POB. The resource plots indicate the POB radii for all seams is 350 m (Measured) and 500 m (Indicated). Considering the faulting and intrusions in the area, the POB spacing may not be close enough to adequately address the risk for a Measured classification. ADV-SY / August 2013 Page 9 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

112 2.3.5 Resources The most recent resources estimate was April 2010 by Bureau Veritas. In this report the Bulli and Wongawilli seam Resource estimates were updated from previous estimates, however the Balgownie Seam remained unchanged. The Resources as at April 2010 are shown in Table 2.4 below. There will be some decrease in the tonnages due to mining over the last three years. Although resources have been estimated for the Balgownie Seam, due to the undermining of this seam by longwall in the Wongawilli Seam the prospect of any eventual extraction is considered unlikely. The resource tonnages at NRE No.1 have been calculated using the following Insitu Moistures; 1.7% for the Bulli and Balgownie Seams and 2.8% for the Wongawilli Seam. These insitu moisture levels were calculated from laboratory derived density however the relationship used for this calculation is missing from the resource report. The reported resources have been reduced for geological uncertainty by 5% for the Bulli Seam and by 10% for the Balgownie and Wongawilli Seams. Table 2.4 NRE No.1 Resources Summary of Coal Resources for NRE No.1 Mine as at end April 2010 Seam Measured (Mt) Indicated (Mt) Inferred (Mt) Total (Mt) Bulli Balgownie Wongawilli Total Subsequent to 2010 the mining of remnant pillars in the Bulli Seam has been completed and with the proposed mining in the Wongawilli Seam up to the Wallandoola Creek (see Figure 2.3) prior to re-mining the Bulli Seam, the remaining resources in the Bulli Seam are restricted to the far west of the lease. Based on a West Area study by Gujarat (2011) the resources in this area are 15.4 Mt Indicated and 13.3 Mt Inferred. RPM would therefore re-estimate Bulli Seam resources to 28.7 Mt subject to revised modelling Geological and Resource Risks RPM makes the following observations: The resources for the Wongawilli Seam are based on the Clay Band Section which is the best quality section of the Wongawilli Seam. In many cases it is not possible to keep the longwall mining height to this section with more of the upper high ash material mined in addition to the Clay Band Section. The resource model should be updated to include an alternative working section to enable a better estimate of the possible reserves and ROM coal quality. This will assist for any option analysis in determining the best working section for the mine. The geological model needs to be updated to reflect recent coal quality sampling in the Wongawilli Seam east workings. Also a seam section sample at the base of the drifts near the No.4 shaft is warranted. ADV-SY / August 2013 Page 10 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

113 2.4 Reserves Reserves Statement A Reserves Statement was prepared in April 2010 with the results shown in Table 2.5. A mining height of 2.7 m was used for the Wongawilli Seam which corresponds to the Second Machine Band section although limited coal quality data has been obtained for this working section. The coal tonnes have been estimated on a moisture basis of 6%. It is noted that no ROM ash values have been quoted in the report. This is a material deficiency in the reporting as the economic performance depends on potential yields of the ROM coal obtained at the Gujarat NRE Coking Coal washplant in India and the maximum acceptable ROM ash value for third party customers. Table 2.5 NRE No1 Reserves (April 2010) Seam East Area West Area Total Proved Probable Subtotal Proved Probable Subtotal (Mt) (Mt) (Mt) (Mt) (Mt) (Mt) (Mt) Bulli Wongawilli Reserves Update Bulli Seam Subsequent to the 2010 Reserve estimate, the east area of the Bulli Seam is deemed to be fully extracted as well as coal immediately adjacent to the former western longwall operations. The west area of the Bulli Seam beyond the Wallandoola Creek was separately reviewed by Minarco-MineConsult (2011) where a revised mine plan was adopted with access by new mine entries. Options now include drifting up from the Wongawilli Seam which will eliminate the new surface entry requirements. The recoverable coal within the Bulli Seam to the west of the Wallandoola Creek was estimated at 14.2 Mt. RPM makes the distinction that not all this potential ROM coal is classified as reserves due to approximately 50% of the resources being at Inferred status. Additional Bulli Seam recoverable coal is estimated within two longwall panels immediately east of the Wallandoola Creek area Reserves Update Wongawilli Seam The estimated coal mined from the Wonga East area since April 2010 is 1.6 Mt. The production schedule for the Wongawilli Seam provided by Gujarat and adjusted by RPM extends to year 2034 with a total production output of 60.3 Mt of which 6.6 Mt is from the eastern area. Much of this coal is within Inferred Resource areas. In reviewing the Measured and Indicated resource polygons which are overlaid by the Wongawilli Seam plan there are an estimated 37.1 Mt of reserves. A further 12.3 Mt reserves are present beyond the Wallandoola Creek based on the Minarco-MineConsult (2011) study. The total estimated reserves are therefore 49.4 Mt. The reduction from the 56 Mt reported in 2010 is mostly due to a greater exclusion zone around the Cataract dam and reorientation of the longwall panels to avoid surface sensitive areas. An additional 23.2 Mt of coal is included in the mine plan that is within Inferred Resource areas. Therefore coal recovery from the Wongawilli Seam, subject to the proposed additional exploration and sampling, is 66.3 Mt. RPM s revised estimate of reserves and recoverable coal is included in Table 2.6 based on the mine plans. Additional reserves are being assessed by Gujarat for the Central area. ADV-SY / August 2013 Page 11 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

114 Table 2.6 NRE No1 Estimated Reserves and Recoverable Coal as at July 2013 Seam Proved (Mt) Probable (Mt) Total Reserves (Mt) Mine Plan Additional Coal (Mt) Total Potential Recoverable Coal (Mt) Wongawilli Bulli Total Note: The additional coal is that coal within the mine plan that is within defined Inferred resources. An updated reserves estimation and report is proposed to be completed based on the total mine plan area extending beyond the 4 th Order Wallandoola watercourse to the west and following resource upgrades. 2.5 NRE No.1 Mine Operations Mine Plan Figure 2.3 shows the mine layout for the NRE No.1 mine in the Wongawilli Seam. The project has three distinct areas, Wonga East, Central and Wonga West. The Wonga East area is part of the current Stage 2 expansion plan for which approval is being sought from the DRI. The longwall panels shown in green beyond the Wallandoola stream in Wonga West are conceptual in nature, however based on the year 2010 Reserves report the west area was included as mostly Probable. Therefore RPM has included all the Wonga West in its schedule. The Central area requires further coal sampling by drilling from the Bulli Seam to upgrade to Indicated Resources, although all this area is beneath previous mining in the Bulli Seam which provides an understanding of the geological structure. The historic drilling and coal sampling in the Central Area as well as drilling in adjacent mines show that the seam thickness is reasonably consistent and the insitu ash for the CBWS would be between 25%-28%. Based on this knowledge RPM considers the inclusion of this area in a LOM plan to be reasonable. The mine plan shows eleven longwall panels in the Wonga East area. Panels LW1 and LW2 were not mined due to quality issues. The series of panels commences with LW4 and continues through to LW13. Some of the longwall panel designs are subject to change with further subsidence and surface protection requirements being examined as part of major project application assessment by the NSW Government. The Wonga East panel designs are driven by an environmental requirement to manage subsidence and are 145 m wide with gateroad pillar widths of 65 m. In comparison to current industry norms (300 m longwall panels and 40 m pillar widths) these parameters place the operation at a disadvantage in terms of development requirements, resource recovery and productivity. The panel lengths vary from less than 800 m to just over 1,350 m and are truncated to the west by either the lease boundary, faulting or approval constraints to further manage surface subsidence impact. The panels are considered to be short in comparison to other Australian longwall operations and represent a hindrance to longwall productivity. Although the mine plan shows LW5 extending to the lease boundary, this panel was shortened to the same starting point as LW4 as an outcome of the approval process. The Central Area is located between branches of the Cataract Reservoir and lease boundary. Extraction limits are determined by offsets from the high water mark at appropriate angles of draw defined by historical studies. The Central Area is less restrictive and the longwall panel widths will be increased to 215 m. This will lead to a longwall productivity increase for which RPM has allowed in the production forecasts. Further environmental studies will be carried out to confirm the limits of the longwalls and offsets to the high water level of the Cataract reservoir. The ultimate definition of the permissible panel layout will only be known following determination of the relevant project application (09_0013) and ongoing detailed approvals for Extraction Plans/Subsidence Management Plans which are a condition of mine approvals. ADV-SY / August 2013 Page 12 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

115 m m m m m N APPIN ROAD m m m LEGEND Project Application Area Measured Resource Indicated Resource Inferred Resource WONGAWILLI SEAM LONGWWALL EXTRACTION SEQUENCE FY 12/13 FY 17/18 FY 13/14 FY 18/19 FY 14/15 FY 19/20 FY 15/16 FY 20/21 FY 16/17 FY 21/22 W a l l a n d o o l a C r e e k WONGA WEST PICTON ROAD LW20 No. 5 Shaft No. 4 Shaft Fire Trail 8 LW14 LW17 CATARACT DAM CENTRAL AREA No. 3 Shaft LW13 LW19 No. 1 Shaft No. 2 Shaft LW12 Longwall 11 Longwall 10 Longwall 9 Longwall 8 Longwall 7 Longwall 6 Longwall 5 Longwall 4 LW2 LW1 WONGA EAST m m m METRES m m m m m Client : BDO CORPORATE FINANCE Project : GUJARAT NRE OPERATIONS Figure : NRE No.1 MINE RESOURCE AND MINE PLAN Job No. ADV-SY Date : August 2013 FIGURE No.2.3

116 The Wonga West area has less surface constraint and the planned widths of the longwalls range between 376 m and 390 m. Panel lengths within this region of the mine are also less constrained and range between 1,700 m and 2,270 m. The staggered lengths to the north are a result of the dam exclusion zone surrounding the Cataract dam wall and the finish lines vary due to faulting and protection barriers beneath Wallandoola Creek. The West and East mining areas are planned to be linked by utilising existing mains driveage and ventilation shafts (No.4 and No.5) in the overlaying Bulli Seam. The first connection will be driven in a south-easterly direction and consist of drifts down to the Wongawilli seam continuing as two heading mains that will meet the projected Wonga East mains. The Wonga West area will be reached from a second set of drifts from the Bulli Seam. In essence the mine services and transport will be via a combination of the Wonga East roadways, refurbishment of Bulli Seam roadways and then by drifts back down to the Wonga West area. Personnel will enter the west area via the existing No.4 shaft to the Bulli Seam. All equipment and materials will be via the new Wonga East mains Mining Method The mine currently operates as a conventional longwall operation with standard development operations. Development utilises Sandvik continuous miner-bolters with two units currently operating and a plan to expand up to four units. RPM were not made aware of the plan to expand the development fleet beyond four units. A Joy longwall system is employed cutting on a uni-di cycle. The mine operates a seven-day roster system with development targeting 16 production shifts per week and the longwall targeting 14 production shifts with no weekend night shift production Mine Expansion and Production Forecasts The production rates used are an estimation prepared by RPM based upon the production schedules provided by Gujarat. The original Gujarat schedule was found to require updating to reflect the current mining position. In addition RPM found some of the mining assumptions (rates and number of active development units) to be too aggressive and has made necessary adjustments. RPM makes note that recent development performance has been affected by the use of the crews for ancillary services work including conveyor drive installations and longwall relocation resulting in less than the scheduled operating shifts being worked. Historical performance and noting the actual mining rates for the operating shifts indicate that: Longwall development achieved an average 7.4 m/shift Mains development achieved an average 6.6 m/shift. To allow for process delays when operating to the total schedule shifts RPM has used rates of 6.5 m/shift for longwall development and 6.0 m/shift for Mains development. Longwall production is based on recent performances and an average retreat rate of 240 m/month has been adopted for the Wonga East panels. Explanation of the anticipated longwall production is discussed in Section The schedule has been prepared on the assumption that mining approvals are secured for each panel in a sufficient timeframe to ensure there is no impact on longwall continuity. Figure 2.4 illustrates the RPM estimate of potential total mine output. The figure demonstrates a steady increase in production from less than 1 Mt in 2013 to nearly 2.5 Mt in 2017 as the mine progresses through the Wonga East and Central areas. As the operation relocates to Wonga West a step up to the 3 Mt is shown, representing increased performance relating to the more favourable mine layout. ADV-SY / August 2013 Page 14 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

117 ROM Production (kt) Figure 2.4- NRE No.1 Schedule Output (RPM estimate) 4,000 Wonga East Area Central Area Wonga West Area 3,500 3,000 2,500 2,000 1,500 1, Year Ending 31 March Development Longwall Development Forecasts It is assumed that three development units will be deployed in the Wonga East area until it is fully developed. An additional unit will be deployed in the eastern link and two additional contractor units will operate in the Central Area. When access is established to the Wonga West area the number of development units will remain at four. The maximum number of units operating at any one time is six including contractor units. This occurs in the and again in when there is: a significant development requirement in the Central Area; to maintain longwall continuity, the back driving of roadways from the Bulli Seam drifts to the east and simultaneously extend the East main roadways to connect to the back driven roadways, and development of the Western Mains and LW-W1 gateroads commencing in year 2020/2021. The existing ventilation infrastructure for the Wonga East area is sufficient for three development units and a longwall unit. The existence of a separate ventilation split through the Bulli Seam and surface shafts, provide confidence that there should be sufficient ventilation for the six units. Figure 2.5 shows the total development output required by the mine and the average output per unit. Total output can be seen to fall within the range 10 km to 15 km in a year which is typical for most longwall operations although in and when the number of units peaks at six, nearly 25 km of development is required. When considering the output required for each unit the total generally falls in the range 3.5 km to 4.5 km which is achievable for modern operations. RPM has checked the scheduling of the units and the potential timing to complete the first longwall developments in the Central and Wonga West areas and note that for continuity of ongoing longwall ADV-SY / August 2013 Page 15 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

118 Total dvelopment (km) Average per Unit (km) operations there may be short-term requirements for an additional contracted development unit. This is the outcome of using super units in maingate developments while the Wonga East connecting roadways are required to be driven. The second mining machine in the super sections has been de-rated to 60% of normal productivity. The longwall is set-up for 5 day production, 14 shifts per week. While development is set up for 16 shifts per week on a seven-day roster but records show that current resourcing is insufficient to support this set-up and only 30% of the shifts are resourced. This has a significant and detrimental effect on the ability of the mine to meet its targets. RPM were assured that plans are in place to ramp up resourcing to close the gap between planned and actual performance. In-seam gas content will increase from current levels to above 12 m 3 /t in the Wonga West area. As contents increase so will gas flowing into the operation. Gujarat has developed an extensive gas drainage programme to pre-drain the first longwall panel development in the West area prior to entering the seam. Gas outburst conditions and associated controls are triggered at contents of 6.3 m 3 /t and up to two year drainage will be allowed using holes at three horizons within the approximately 9 m seam. Figure 2.5 Development Performance Total Developmemt Average Development per Unit Longwall Production Benchmarking against operations at a similar depth and similar panel width suggest that up to 2.3 Mtpa could be expected in the Wonga East as shown in Figure 2.6 and Figure 2.7. The depth range is approximately 280 m in Wonga East becoming progressively deeper towards Wonga West at approximately 480 m total depth. However the Wonga East panels are further impacted by short panel lengths, resulting in multiple longwall relocations per year and continuity issues from underperforming development. Geotechnical observations have shown that there to be no interaction of the longwall with overlying goaves during retreat. While within the east area, longwall output remains in the range 1 Mt to 2 Mt with longwall discontinuities expected between each longwall panel although decreasing to a negligible amount between LW 8 and LW 10 following the introduction of an additional development unit and super sections. ADV-SY / August 2013 Page 16 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

119 When the longwall relocates to the Central and Wonga West areas, longwall production continuity is reasonably assured with the introduction of additional development units and longer panels. The annual output is lifted to around 2.8 Mtpa reflecting the expected output suggested by RPM s benchmarking. Due to the size of the longwall blocks there are a number of years where no longwall relocation will be experienced. Longwall production in these years exceeds 3 Mtpa. The total LOM longwall production estimate is shown in Figure 2.8. Bracketing shows the East and West mining areas respectively. Figure 2.6 Longwall Production v Depth of Cover (Australian Longwalls) Figure 2.7 Longwall Performance Relative to Panel Width ADV-SY / August 2013 Page 17 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

120 ROM Production (kt) Figure 2.8- Longwall Performance 3,500 Wonga East Central Wonga West Area ,000 2,500 2,000 1,500 1, Year Ending 31 March Longwall Relocations Risks In reviewing the mine plan and production schedule RPM considers that the following require further assessment and evaluation: The ROM ash is currently 36% and the material is screened at the surface removing the larger stone resulting in a ROM product of 35%. The removal of stone is unsustainable due to emplacement limitations, therefore a combination of a correctly selected mining horizon and dilution control will be critical to not exceed acceptable ash limits. Smaller diameter shearer drums are proposed to be purchased to facilitate improved horizon control and a lower cutting height. The optimum working section over the life of mine requires further analysis to ensure that ash levels do not exceed the maximum acceptable limit for contracted supply. The in-situ gas content through the Central Area and in Wonga West progressively increases with gas levels exceeding the outburst threshold. This gas requires drainage ahead of mining which will translate into an additional direct cost. Although a plan is in place to pre-drain the gas there remains some uncertainty over drainage time and therefore the conceptual plan to mine the Central Area may provide some buffer to achieve low gas contents prior to mining in Wonga West. Outburst threshold testing will be required for each pillar under a permit to mine process in order to confirm that safe conditions have been achieved. This will provide logistical challenges as well as increase operational cost. RPM has made provision for costs for the pre-drainage and testing of the seam in the Wonga West area in the cost schedule. ADV-SY / August 2013 Page 18 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

121 The retreat of longwalls under cliff lines, goafs and solid pillars represents a significant hazard for any operation. The Wonga East area underlies previous extraction from both the Bulli Seam and the Balgownie Seam where both longwall and pillar extraction methods were used. To date the longwall has been successful but stress zones may occur when the face line transits beneath overlying goaf and solid coal resulting in poor face stability. The 370 m to 390 m wide longwall panels in the Wonga West area are significantly wider than those that have been historically extracted beneath the SCA area designated for water catchment. Although geotechnically sound with respect to mining beneath the Bulli Seam having the longwall gateroads beneath the overlying goaf, the surface impact needs to be scrutinised to assure approval of these panels. RPM notes that the recently approved longwalls at the nearby Dendrobium mine are 300 m wide, therefore a compromise to the extraction width may be required. The mine currently has formal approval to mine the existing longwall (LW5) and develop the roadways for the adjacent block. The mine operates in an environmentally sensitive area and the granting of approvals without modification is not guaranteed. The risk of the approval process delaying operations will continue until all approvals are in place. The existing mine schedule requires to be updated to reflect the current position of the operations. Additionally the schedule should include coal quality of the ROM output based on the seam section being mined and suitable allowance for dilution. Scheduling of the main conveyor installations during the development of the Eastern Mains, including the back driven section, and the inter-seam drift conveyors needs to be critically project managed to avoid delays in commissioning a new trunk conveyor system from Wonga West following the first longwall panel development. Additional development units will need to be introduced in 2014 to meet the required timeline for first Central Area longwall coal in mid The back driving of the main travelling and conveyor roads from the drifts near the No. 3 shaft to connect to the Wonga east roadways will need to commence by the end of Upside Potential The development of a mine layout and schedule for the Central Area may relieve the risk of discontinuity to the longwall production, allow additional gas drainage time in the Wonga West as well as delay capital expenditure for drifts and services extensions to the Wonga West area. This improves mine cash flow. 2.6 Coal Handling Underground Coal Clearance Bulli Seam Development operations in the western areas of the mine rely on a series of pre-existing conveyors to deliver the coal. Some 12 belts comprise this system with a variety of equipment in use. Much of the equipment is a legacy of the previous mine operations, and is in only fair condition. Access to the areas can be limited at times due to restricted overhead clearance. Old structure in place needs constant attention, but is well supported by sufficient spares on site. The presence of an inter-seam coal bin allows for some capacity in the event of a conveyor stoppage. The Bulli Seam conveyors will be in service up until the connection is completed within the Wongawilli Seam between the No.4 shaft area drifts and the Wonga East main roadways. In general the equipment is of sufficient, if not excess, capacity to support the necessary development operations. It was designed for, and operated at production levels in excess of 2 Mtpa. While aging and in ADV-SY / August 2013 Page 19 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

122 need of constant attention, the system should be sufficiently robust to support the development activity in the western areas until the Wonga East Mains is linked up. Wongawilli Seam In contrast to the Bulli Seam coal clearance systems, the Wongawilli Seam coal clearance system consists of five new, well designed and installed modern belts. The mains belts are 1,800 mm wide, with gate belts 1,400 mm wide. All belts have a common speed to 4 m/s, which provides sufficient capacity for the planned production and any surges in coal delivery. All belts are fitted with interchangeable motors and gearboxes, allowing for a consolidation of spare parts, and a degree of redundancy Surface Coal Clearance The main surface conveyor is a new, high capacity belt that has been designed and installed to a high standard. Significant excess capacity exists in this system to handle any likely increase in production across the life of the mine. While the belt has been commissioned into service, a number of minor issues remain outstanding to complete the installation, and evidence of addressing these issues was seen Surface Coal Handling Plant The surface coal handling plant is being constructed in several stages with Stage 1 having been completed to date. Stage 1 consists of an enclosed skyline stacker that distributes ROM coal to a raw coal stockpile. This new installation has a live capacity of 60,000 t with reclaim tunnels below. At this stage the reclaim tunnels have been completed, but the reclaim equipment is not installed. Significant space exists to push out with a dozer from the live stockpile to hold larger amounts of ROM coal if necessary. This will ensure that the mine production is not limited by ROM stockpile capacity. At the time of the inspection, raw coal was being loaded from the ROM stockpile by a contractor using excavators and 40 t articulated dump trucks. These trucks dumped to either a sizing screen or an intermediate stockpile adjacent to a screen. Screened material is stacked by a temporary conveyor to a product stockpile. Wheel loaders and dozers were in use to manage this stockpile and load the product coal onto road trucks for transport to the port. All mobile equipment is operated by a contractor, and sufficient additional equipment is on site to ensure continuity of operations. Screen reject is a small fraction (<2%) of the coal processed and this will diminish as mining moves to a lower working section with the aid of smaller diameter drums on the shearer. Oversize material is stored separately, and moved as required to a nearby emplacement area. The operation is capable of handling the current production of the mine. Stage 1A of the coal handling plant will add raw coal reclaim equipment, a permanent crushing and screening installation, a product coal stockpile, and a truck loadout facility. Initial foundation, electrical and control wiring for this stage has been completed, but work is currently stopped. Completion of this stage will be required to reliably handle the full production from the first eight longwalls and reduce contract personnel on site. Stage 2 of the facility will see the construction of a second product coal stockpile, reclaim and truck loading facilities. This work will not be required until the longwall relocates to the Wonga West longwall blocks, when a significant increase in production will occur. 2.7 Infrastructure Power Currently the site surface power distribution system is relying on the legacy equipment that is now less reliable and more maintenance intensive. Significant work has been expended on replacing the surface power lines, transformers, switch rooms and distribution equipment. Much of this equipment is on site, but the work is yet to be completed and commissioned. The surface aerial to the No.4 shaft winder and substation is proposed to ADV-SY / August 2013 Page 20 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

123 be replaced. This will be necessary prior to longwall operations relocating to the West area. Provision is allowed in the capital expenditure forecasts for this work. The underground supply and electrical network is new in the Wonga East and of sufficient capacity for the West area Workshops The mine is served by a large well equipped, but aged surface workshop. Sufficient facilities exist for the maintenance of all of the equipment at the mine Warehouses / stores The industrial areas have considerable area available for the storage of equipment, spare parts and consumables for the mine operations. Permanent staff are assigned to this area to manage the logistics. Both yard space and covered areas are available Fans A new surface fan installation that ventilates the eastern areas of the mine is located in the industrial area. This is a well-engineered fan, located in a suitable building near the mine portal. Significant effort has been made to reduce the ambient noise from the unit. The western areas are ventilated by a dedicated fan, upcast and downcast shafts. As the mine develops, further ventilation installations may be required in this area Buildings / Amenities At the industrial areas, a combination of legacy and new buildings provide offices and amenities for the mine. These are all being maintained to an appropriate condition, and are effective in supporting the mine operations. In particular, new bath house facilities have been co-located within the mining area, saving travel time to the old facilities that are located down the hill. The No. 4 shaft site also has a winder and headframe that provides access to the working via a cage. While dated, this installation has been maintained in good condition, and will be suitable for continued use. Regular structural, mechanical and electrical audits have revealed a number of minor problems that are being addressed. In general RPM considers the sites to be well maintained and on completion of the upgrades will be suitable for the LOM operations. 2.8 Coal Transport and Port Road Transport All coal is transported via road to the Port Kembla Coal Terminal (PKCT). Currently trucks of up to 32 t payload are in use and there are proposals to seek permission to use B-doubles on the transport route. These larger capacity trucks are in service on the coal route from the Appin/Westcliff mines via Mt Ousley. Trucking is permitted between the hours of 7:00am to 10:00pm weekdays and 8:00am to 6:00pm weekends and public holidays. For the proposed mine expansion to a production capacity of 3 Mtpa approximately 250 truck movements per day are required or one truck every 4 to 5 minutes. At least trucks will be required unless higher truck capacities are used. The estimated transport cost based on loading location (bin or stockpile), day of the week and including weighbridge fees is $4.80/t Port Kembla Coal Terminal The PKCT is a multiuser terminal owned by the NSW Government and leased to a consortium of six mine owners who operate and have equal share of the use of the port. The port services the two Gujarat mines and ADV-SY / August 2013 Page 21 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

124 a further five mines in the Illawarra district as well as four mines in the Western Coalfield. The port capacity is managed by BHP Billiton and port costs are generally charged at an estimated amount to cover costs. The current cost is in the order of $4.75/t. The capacity of the port is approximately 15 Mtpa and currently exports in the order of 11 Mtpa. Plans were announced in 2012 to expand the port up to 22.5 Mtpa. This was estimated to be completed in In general, RPM considers that sufficient port capacity will be available to handle the planned production expansion at the Gujarat mines. 2.9 Coal Product and Yield The coal is dispatched as a ROM product following minor scalping of non-coal material at the surface plant. Gujarat receives a price for the coal based on the coking coal benchmark price CIF India with adjustments for yield, shipping and ash content. A general pricing mechanism is 55% of the benchmark FOB coal price. RPM notes that this a global adjustment for coal from both the NRE No.1 and Wongawilli mines and coal yields will vary across the resource. The price received for each colliery is not transparent or readily related to the actual quality and expected yield for the actual shipment. Coking coal yield depends on the seam working section being mined and the size fractions of the coal received. Typical yields from float sink analysis of +0.5mm size fraction vary between 40% to 50% for a coking coal with an additional 12% to 5% for the -0.5mm flotation fraction. Based on a report by Barry Clark (June 2011) and historical borehole results, a trend line for coking coal yield shows a laboratory yield of 60% for a 25% ash sample reducing to 34% for a 35% ash sample. This demonstrates the need to carefully control the seam working horizon by not mining into the upper higher ash sections to maximise the coking coal product. A secondary 30% ash thermal coal product is obtained in the S1.45-F1.6 washed fraction. Thermal coal yields vary from approximately 20% for a feed ash of 25% to 32% for a feed ash of 35%. The total combined product yield for a representative ash range of 25% to 35% varies between 85% and 56% respectively. By balancing the product coal prices for both coking and thermal coals an equivalent coking yield of 55% is not unreasonable, but if a higher ash ROM coal becomes more prevalent the pricing mechanism will require adjustment. It will be necessary for Gujarat to review the LOM plans and determine the optimum seam section to mine to ensure that coking coal yields remain at the desired level. Further coal float/sink testing across the resource is required in association with resource and reserve updates Environment Current Approvals The key approvals and licences for NRE No. 1 Mine are set out in Table 2.7. Table 2.7 Key Approvals NRE No.1 Colliery Approval Date Issued Expiry Comments Part 3A Project approval for Preliminary Works Project (MP10_0046) Part 3A Project s75w Approval Modification (MOD 1) to MP 10_ October October 2014 Approval covers first workings and pillar extraction only at 1 Mtpa of ROM coal for 3 years. EPBC referral approved (2011/5891) on 12 January /12/ October 2014 Provides for mining approval of Longwalls 4 and 5 and Maingate 6 only. Daytime use of existing Bulli coal conveyor only. Bellambi Creek diversion required by 31 December Assessment to review acoustic ADV-SY / August 2013 Page 22 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

125 DA approval (DC 89/839) Subsidence Management Plan (DRE) Environment Protection Licence (EPL) Mining Operations Plan (MOP) screen/mitigation opportunities. Speed limit of 50kph on Bellambi Lane. 11 April 1990 Covers the emplacement area operation which requires direct consultation with Wollongong City Council (WCC). 8/1/2013 Relates to Longwall 5 only. current 1 January December 2017 This SMP approval Is not an approval under s130 of the CMR Act or under cl. 88 of the CMHS Regulation. Anniversary date 14 May. Covers coal mining and coal works. The NRE No.1 Colliery has Project Approval (MP 10_0046) under Part 3A of the Environmental Planning and Assessment Act 1979 (EP&A Act) for initial Preliminary Works which involves: Extracting up to 1 Mtpa ROM coking coal through first workings and pillar extraction from the Bulli and Wongawilli Seams for a period of three years. Upgrading the existing mining infrastructure at the surface facilities site. Trucking ROM coal from NRE No. 1 to PKCT. The existing Preliminary Works Project approval did not allow for longwall mining. However, Gujarat has recently extracted coal using longwall mining techniques from one panel (LW4) under a Subsidence Management Plan (SMP) approved by the Division of Resources and Energy (DRE) within the Department of Trade and Investment, Regional Infrastructure and Services (DTIRIS). Gujarat was able to undertake longwall mining operations under an approved SMP because a transitional provision relating to existing mining leases (clause 8K of the Environmental Planning and Assessment Regulation 2000) had the effect that development consent was not required for mining undertaken up until 30 September 2012, providing that Director-General s requirements had been issued for a project application prior to 16 December DRE granted SMP approval for the first half of LW4 on 26 March 2012, and the second half of this same longwall on 30 July The extraction of LW4 was completed under the approved SMP. Gujarat also sought SMP approval from DRE for LW5 but this element of its application was not determined. Approval for LW5 was granted at the end of A modification to the Part 3A Preliminary Works Project Approval was granted on 24 December 2012 which provides for mining approval of Longwalls 4 and 5 and Maingate 6 only. Conditions of the approval modification also included: Daytime use of existing Bulli coal conveyor only. Bellambi Creek diversion required by 31 December Assessment to review acoustic screen/mitigation opportunities. Speed limit of 50 kph on Bellambi Lane. NRE No.1 Colliery has also submitted a Part 3A project application for its Underground Expansion Project (MP09_0013) which would significantly expand mining to the west for a period of 18 years and involves ADV-SY / August 2013 Page 23 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

126 longwall mining for up to an additional 16 panels. The DGRs were issued on 18 August Following stakeholder review the expansion application will be split between the Wonga East and Wonga West sections with a revised application covering the east area. Base line studies are to commence for the Central Area. The mining proposal under this application has been cognisant of the environmental sensitivities in the mining area such as swamps, streams and other natural features as well as SCA water storage dams and infrastructure. The application has designed the mine plan in sympathy with these constraints and suitable documentation of impact assessments should assist in maximising the chances for gaining approval. Gujarat completed an Environmental Assessment (EA) report for its Part 3A application (09_0013) for its underground expansion project which was publicly exhibited between 18 February 2013 and 5 April Gujarat is currently reviewing submissions lodged by Government agencies and community stakeholders during the EA exhibition period. Submissions have raised various issues of environmental concern that require either additional information, technical clarification, and/or other response including possible review and revision of proposed mine plan and operations if assessed environmental and social impacts are required to be avoided or further mitigated. Gujarat will address all issues raised in submissions in a Response to Submissions report that will be lodged with Department of Planning and Infrastructure. In a media article in July 2013 (International Longwall News 4/7/13), Gujarat reportedly advised its Community Consultative Committee that it may consider revisions from the Part A project application that would involve reducing the longwall panel extraction nearest to Cataract reservoir but which could retain an overall maximum 3 Mtpa production rate by increasing longwall extraction in the Wonga East area. However, Gujarat noted that it had not finalised any Preferred Project Report that would be required to be prepared and posted on the DP&! website under the Part 3A process to address any revisions to its development proposal. According to the latest Annual Review Report (for year ending 30 June 2012), overall NRE No.1 Colliery complied generally with all approvals and consents during the period. However in the period Gujarat was issued with Pollution Infringement Notices (minor fines) in relation to contravention of licence conditions requiring coal truck covering and proper use of truck wheel wash. This has resulted in the Environment Protection Authority (EPA) imposing upon Gujarat a pollution reduction program that commenced on 27 May 2013 and will require the installation of a boom gate at the exit from the truck wash located adjacent to the coal stockpiles. A desktop audit of licence compliance was undertaken by EPA on 27 September 2012 and the audit process was finalised on 11 February 2013 following the review and response to a draft audit report. The audit found that additional minor information relating to monitoring data collection and presentation would be required in future. It is also noted in a separate media report on 4 July 2013 (International Longwall News) that Gujarat s operations must pay a combined $8.4 million for not reporting a single carbon unit to the federal regulator (the Clean Energy Regulator) by the June 17 deadline as required under the Clean Energy Act Gujarat NRE Coking Coal Ltd incurred a shortfall charge of $7,020,520 (equivalent to 234, 800 carbon units). Gujarat NRE Wonga Pty Ltd incurred a shortfall charge of $1,356,862 (equivalent to 45,380 carbon units). The report advised that the legislation required that by midnight on Monday June , the majority of liable entities were required to report and acquit their interim liability under the carbon pricing mechanism, representing an estimated 75% of their expected emissions for the current reporting year. Entities who failed to surrender enough eligible emissions units to satisfy their progressive liability by midnight on June 17 incurred a shortfall charge, which is 130% of the fixed charge per unit in shortfall. Gujarat NRE Coking Coal Ltd and Gujarat NRE Wonga Pty Ltd did not surrender units to acquit their interim liability and consequently incurred a shortfall charge. The 2012 Annual Review Report has identified key conclusions in specific areas of environmental and social management, as discussed in the following sections. ADV-SY / August 2013 Page 24 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

127 Community Community consultation continues to occur at NRE No.1 Colliery and a number of complaints were recorded during the most recent annual reporting period. A protocol has been put in place to register complaints and follow up on as required. Complaints appear to be dominated by noise and dust issues in particular, as well as traffic. A Community Consultative Committee (CCC) has been established to share and outline with the community the aspects of operational progression Sydney Catchment Authority A large part of the Colliery lease area is designated as a Schedule 1 Restricted Access Area (Metropolitan Special Area) under the Sydney Water Catchment Management Act 1998 and is managed by the Sydney Catchment Authority (SCA). All catchment activities are undertaken in close liaison with the SCA. Approvals for mining and surface facilities include monitoring for a number of parameters and activities. Subsidence, flora & fauna, aquatic ecology, groundwater inflows, stream water flow/quality, natural heritage features (cliffs, steep slopes and rock outcrops) and archaeology site monitoring and reporting as per consent conditions and SMP conditions. Bushfire management plans including firebreak maintenance is required around surface facilities. Incident reporting and clean up is to be undertaken as may be required, such as for previous occasion of minor quantities of hydraulic fluid spilt during exploration activity. Prior notification is required to be given to SCA (minimum 28 days) prior to any exploration ( prospecting ) or drilling activity that disturbs the surface of SCA lands. SCA has outlined its concerns in relation to the Part 3A project application in its submission to the EA report exhibition. These issues are currently being considered in detail and have been discussed in Section 2.5 in terms of likely revisions to mine plans Noise and Dust The colliery is highly constrained in terms of noise and dust emissions due to the proximity of residential areas and the general lack of topographic or other types of acoustic screening. The current noise management procedures have not proven to be adequate. Figure 2.9 shows the monitoring locations in place and proposed as part of an approved Noise Management Plan. Noise impact assessments to date indicate that additional screening opportunities need to be found as well as noise attenuation for mobile equipment associated with coal handling, loading and transport. It may be necessary to seek private noise licence agreements with relevant property owners in order to ensure improved compliance and complaints reductions. The results from the predictive noise modelling indicate that noise levels from normal operations incorporating low noise design and additional noise mitigation measures would comply with relevant Project-Specific Noise Levels (PSNLs) at most receivers for day and evening periods. The following exceedances were however predicted: Less than 1 db(a) at one receiver (R1) during day periods in Russell Vale. Less than 1 db(a) at three (3) receivers (R1 R3) during evening periods in Russell Vale. Up to 3 db(a) at five (5) receivers (R1-R4 and C5) during night time periods in Russell Vale and Corrimal. The noise levels reported would require validation from attended noise monitoring upon commencement of operations. ADV-SY / August 2013 Page 25 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

128 Figure 2.9 Noise Monitoring Locations The major contributing noise sources at these locations during the measurement period are the existing conveyors. The results indicate that in order to achieve further noise reductions during the night-time period, mitigation of the existing conveyors would be required. It is noted that the Bulli conveyor has already been decommissioned and demolished as stated in the EA for the recent Longwall Modification issued in August In addition, the requirement for the new Conveyor (RV1) was the incorporation of noise minimisation measures conforming to Best Available Technology Economically Achievable (BATEA) standards which would reduce noise generation and improve the surrounding amenity. Coal haulage activity continues to be a source of noise and dust on site that requires ongoing attention in order to meet compliance requirements. As discussed, a pollution reduction program involving installation of a boom gates after the truck wash near the coal stockpiles is currently in place under the site Environmental Protection Licence. As well as noise attenuation measures, it is expected that a number of coal stockpiling and handling activities, such as dozing, may be limited to daytime only depending on meteorological conditions. Additional monitoring facilities are likely to be required as well as implementation of new management procedures and stakeholder communication protocols. Otherwise the current air pollution management procedures have proven to be adequate based on the dust control measures applied to surface activities. The current air pollution management within the mining and/or catchment areas have proven to be adequate as there was no activity in these areas to generate air pollution during the reporting period Water Management A set of approved Water Management Plans covering surface facilities and general water management, is in place in accordance with EMP requirements in recent consents. The requirements under the plans are broad ADV-SY / August 2013 Page 26 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

129 reaching and apply to site surface facilities and discharges as well as management of features in the SCA lands. Monitoring of waterways (flow, channel changes, water quality, etc) especially through the subsidence process is a major management focus. In terms of surface water, the current surface water pollution management procedures have proven to be adequate and managed in accordance with EPL Surface Water monitoring is undertaken in mining and catchment areas of Wonga East regularly in accordance with SMP approval requirements and NRE No.1 Colliery s Water Management Plan (WMP). The current ground water pollution management procedures have proven to be adequate and Ground Water monitoring is undertaken in mining and catchment areas of Wonga East regularly in accordance with SMP approval requirements and NRE No.1 Colliery s Water Management Plan (WMP) Biodiversity The current threatened flora management procedures have proven to be adequate. Ongoing operations at the mine occur in previously disturbed surface areas and therefore have no potential effects on threatened aquatic or terrestrial vegetation as none have been identified in these areas. Additionally, flora monitoring is undertaken in mining and catchment areas of Wonga East regularly in accordance with SMP approval requirements and NRE No.1 Colliery s Biodiversity Management Plan (BMP). In accordance with MP10_0046 approval condition 29/schedule 3, the BMP includes management measures for the Green and Golden Bell Frog to satisfy the EPBC conditions of approval. Weed control has previously been undertaken on the Russell Vale and No.4 shaft sites in selected areas targeting Pampas grass. There are no weed related issues requiring management associated within mining and/or catchment areas Spontaneous Combustion The current spontaneous combustion management procedures for NRE No.1 Colliery have proven to be adequate. No instances of spontaneous combustion have been recorded at NRE No.1 Colliery or in the 90 years of mining the Wongawilli Seam in the NSW Southern Coalfields Aboriginal and Natural Heritage The current Aboriginal and Natural heritage management procedures have proven to be adequate. Ongoing operations at the mine occur in previously highly disturbed surface areas and therefore, have limited potential effects on Aboriginal and Natural heritage as none have been identified in these areas of current operations. This will change to become higher risk factor as mining moves to new areas subject of future applications. In accordance with MP10_0046 approval condition 38/schedule 3, a Heritage Management Plan (HMP) has been developed which includes Aboriginal heritage management and monitoring. Additionally, Aboriginal heritage monitoring is regularly undertaken in mining and catchment areas of Wonga East in accordance with SMP approval requirements and the HMP Policies and Environmental Management A series of Environmental Management Plans have been developed and continuously revised and improved under the requirements of recent conditions of consent and Environment Protection Licence (EPL): Noise Management Plan Water MP Surface Facilities Water MP Heritage MP Air Quality and Greenhouse gas MP ADV-SY / August 2013 Page 27 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

130 Traffic MP Biodiversity MP and Rehabilitation MP, and Rehabilitation MP. If approved, the Part 3A project application consent conditions will be expected to require revisions and updates to existing management plans Mine Closure Plans and Security Mine rehabilitation and closure costs have been assessed for the two key precincts: Russell Vale surface sites and Catchment area facilities. The estimates are shown in Table 2.8. The security figure that is in place for the tenements covering CCL 745, MPL 271 and ML 1575 totals $5,657,000. Table 2.8 Summary Rehabilitation Cost Calculation Gujarat NRE No1 Colliery- Combined Russel Vale And Catchment Area Sites as at June 2011 DOMAIN DETAILS SECURITY DEPOSIT - RUSSELL VALE ($) Domain 1: Infrastructure 2,014,297 1,649,420 SECURITY DEPOSIT - CATCHMENT AREA ($) Domain 2: Tailings & Rejects (1) Lower Development Area Rejects (2) 337,975 Nil Nil Nil Nil Nil Rejects (3) Domain 3: Overburden & Waste Dumps Nil Nil Domain 4: Surface Disturbance 186,690 Nil Domain 5: Other - Heritage and Fencing 121,000 49,500 Sub Total Rehab Estimate for 'Domains' 2,659,962 1,698,920 Third Party Project Management (Sundry Items) 448, ,838 Sub Total Rehab Estimate for 'Domains' and Third Party Proj Mgmt (Sundry Items) 3,108,956 [RPM Corrected] 2,033,758 [RPM Corrected] Plus 10% Contingency based on Sundry and Domains 310, ,375 Precinct Security Deposit For Each Site 3,419,851 2,237,134 Total Security Deposit for the NRE No.1 Mine 5,656,985 (Source: reformatted from original in Appendix E in NRE Annual Review Report MP10_0046 (November 2012) Greenhouse Gas Emissions As outlined in Section , Gujarat s operations had greenhouse emissions combined liability under the Clean Energy Act 2011 of $8.4 million for the year ending June This reportedly comprised Gujarat NRE Coking Coal Ltd incurring a shortfall charge of $7,020,520 (equivalent to emission of 234, 800 carbon units at $23 per tonne CO2-e and with a 30% loading for late payment). Gujarat NRE Wonga Pty Ltd incurred a shortfall charge of $1,356,862 (equivalent to emission of 45,380 carbon units under the same late payment cost basis). ADV-SY / August 2013 Page 28 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

131 Thus it is assumed that the combined equivalent emission units of 234,800 for Gujarat NRE Coking Coal Ltd and 45,380 units for Gujarat NRE Wonga Pty Ltd represent the respective 75% emission levels that are required to be acquitted under Progressive Surrender arrangements in this current $23/t CO2-e fixed price phase of the Carbon Pricing Mechanism. If so, then the 100% emissions in the year were approximately: 313,066 tonnes CO2-e (Gujarat NRE Coking Coal Ltd), and 60,506 tonnes CO2-e (Gujarat NRE Wongawilli Pty Ltd). This is a combined annual total of 373,572 tonnes CO2-e for the period which at the fixed price of $23/t equals $8,592,156. The carbon pricing mechanism has a fixed price for the first three years to provide stability and predictability. This was intended to give businesses time to get used to the new system, understand their obligations and start reducing their emissions. During the fixed price period of the Carbon Pricing Mechanism, the Government sells an unlimited number of Australian carbon units at the specified fixed price for the relevant year. Liable entities automatically surrender these carbon units they cannot be traded or banked for use in future years. The fixed price is: $23 a tonne in $24.15 a tonne in , and $25.40 a tonne in Assuming constant emissions rates from the mines, this would equate to an annual emissions cost liability of $9,021,176 in the year and $9,488,728 in the year, assuming on-time payment is made and that no shortfall charges apply. During the fixed price period, liable entities are generally required to discharge 75 per cent of their estimated liability by 15 June of a fixed charge year. This may be done by surrendering the required units or by paying a unit shortfall charge. They must then surrender units for the remainder of their liability by 1 February in the following year or pay a unit shortfall charge to cover the remaining liability. This is known as the Progressive Surrender arrangements. The impact of any future carbon pricing mechanism cannot be reliably determined Environmental Risks Noise and dust impact potential will continue to provide constraints in terms of operating limitations, increased monitoring requirements and compliance assurance risks. Acoustic mitigation measures and proposed improved stockpile and handling configuration will need to be fully explored. Accordingly, stakeholder relations will continue to be an important management focus given the proximity of residential neighbours to the mine. For longwall mining, the risks arising from subsidence on natural features such as swamps and streams appear to be capable of being satisfactorily managed throughout the forthcoming assessment and approvals phase of the long term project application. However, any inadequacies in the mine plan and key assessment factors relating to subsidence impacts could risk a failure to secure a long term mining approval. The current assessment process for the Part 3A project application has indicated the need for mine plan revisions and additional assessment to ensure that impacts and risks can be mitigated to the satisfaction of the Government ADV-SY / August 2013 Page 29 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

132 agencies and the delegated consent authority, the Planning Assessment Commission. if there are material changes to the project application then a Preferred Project Report will be required in additional to a Response to Submissions report that outlines project changes and the implications for (mitigated) environmental impacts. However, there is no information on such matters currently in the public domain, The mine closure evaluation contains several unknowns in terms of more details being required for certain areas and tasks, including potential soil contamination and possible water-related compensation Operating Costs RPM has adjusted the mine FOB cash costs from a review of the monthly operating costs and adjusted these costs to reflect the future mine schedules and production expansion. The costs have been split into a fixed and variable component that can more reliably represent the impact of fluctuating production. The derived LOM costs have also been adjusted as appropriate to reflect RPM s assessment of the mining conditions as the mine expands. The unit cash costs for the mine operations and surface works over the LOM forecast period to year 2035 is presented in Figure 2.10 the average mine site unit cash cost over the LOM period is $40.09/ROM t. A summary of the cost and production physicals for the ten years to 2023 is shown in Table 2.9 and the total LOM costs are presented in Appendix A. Table 2.9 NRE No.1 Mine Cash Costs Item Unit Production kt 422 2,163 1,897 2,307 2,761 2,611 2,771 3,005 3,112 3,025 Direct Mining $k 31,972 90, , ,031 95, , , , ,141 93,799 Admin/O head $k 7,408 12,700 12,700 12,700 12,700 12,700 12,700 12,700 12,700 12,700 Coal Handling $k 2,110 10,817 9,483 11,537 13,806 13,054 13,856 15,027 15,560 15,126 Total FOT $k 41, , , , , , , , , ,625 Unit Cash Cost $/ROMt Note: 1. All years are FY ending 31 March. For Year 2014 from 1 September 2013 (7 months). ADV-SY / August 2013 Page 30 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

133 Unit Cash Cost ($/ROM t) Figure 2.10 NRE No.1 FOT Unit Cash Cost Year Commencing April Development Longwall Outbye/Services Surface General Coal Handling Admin/Tech Services Corporate The initial years while longwall operations are within the Wongawilli East area are affected by the narrow and short longwall panels with a consequent high unit cost contributed by the additional development progressing towards the Central Area. The later years show the reduced costs with no further development mining in place Mine Development Costs RPM has estimated the cost of development to be in the order of $3,552/m including labour, consumables and maintenance services. This equates to approximately $119/dev t. The use of development units over the life of mine varies between 3 and 6 with a consequential variation in the total mine costs from the higher cost of development. The Gujarat model of using a cost of development equivalent to the ROM FOB coal price does not adequately reflect the actual cost of mining the roadways. Labour has been costed at an average $165k per employee with 45 persons per development unit over the seven day roster Longwall Costs Longwall costs have been built up using labour at nine per unit shift plus fixed and variable components for consumables, repair and maintenance. Longwall relocation is carried out by mine personnel although with the emphasis now on maintaining all scheduled shifts on development additional contractors will be required for face relocations. Consumables and equipment hire are estimated at $750k from the recent relocation to LW5. Over the initial years of longwall operation in the Wongawilli East area the cost for overhaul is minimal and when the longwall is relocated to the west area a provision of $4 million per longwall move has been allocated including equipment overhauls off site. The operating cost for the longwall, excluding relocation expenses, a fixed cost has been assessed from historical performance and this has been doubled for the western area longwalls which will be 390 m face width. Similarly a variable cost of $4.60/LW t has been used for the eastern area longwalls and increased to ADV-SY / August 2013 Page 31 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

134 $7.36/t for the western area panels to reflect the wider face and additional service and consumables required offset by higher production rates. Labour costs are additional to these costs. The total costs attributed to longwall operations also vary according to the number of relocations during the year. The average cost for longwall operations is $10.85/LWt Outbye and Services No costs have been separately allocated to underground services within the Gujarat LOM model and appear to be included in general mining cost centres. By separating the costs into key cost centres as per monthly reported performance RPM has estimated the outbye underground services costs from these reports and added labour costs identified by the monthly wages and shift allocations. RPM has included an additional 25 FTE contractors to carry out general services including conveyor installations, secondary support and ventilation seals following the redeployment of mine labour to the additional development units. Pre-drainage of the Wongawilli Seam ahead of development in the west resource is necessary. A transition plan has estimated as much as 74,400 m of drilling from the Bulli Seam as well as the Wongawilli Seam prior to the first panel development. RPM has estimated a cost of $4.00/t for initial drainage over two years and then $2.50/t thereafter. The typical outbye costs that include conveyor installations, secondary support and general servicing including diesel equipment have been determined as a fixed component of $13.6 million per year and a variable amount of $7.40/Development tonne. Total outbye services costs average $8.45/ROM t Surface Surface costs include workshop and labour. Based on the allocation of labour and the actual costs incurred over the six months to December 2012 these costs have been estimated to be $750k per year Administration and Corporate Charge The average administration cost based on a staff of 32 personnel and general administration charges has been estimated at $4 million per year. Corporate charge for 12 persons is at $3.1 million Coal Handling The costs allocated to coal handling include stockpile management, which is undertaken by contractor and based on hours for equipment usage has been an average of $4.80/ROM t Offsite Distribution Costs The LOM model has averaged the costs between both the NRE operations which include road transport from NRE1 and rail from NRE Wongawilli. RPM has used the contracted road transport costs for its valuation of the NRE No.1 mine. All other off-site costs presented in the LOM model are reasonable Royalty The royalty calculation is at a rate of 7.2% in the eastern area and 6.2% in the west area where mining is greater than 400 m depth. The royalty base revenue has been reduced by $0.5/ROM t for surface coal handling Carbon Tax Based on the average fugitive emission rates during the extraction of LW s 4 and 5 a carbon tax of $5.50/ROM t was determined for a tax rate of $23.00/ CO 2te. RPM has allowed a carbon tax of $10.00/t from year ADV-SY / August 2013 Page 32 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

135 Unit Cash Cost ($/Prod tonne) Total FOB Costs The unit FOB cash costs for the NRE No.1 operations are presented in Figure The average FOB cash cost including distribution, carbon tax and excluding royalty is $52.25/t. Figure 2.11 NRE No.1 Unit FOB Cash Cost Mining Coal handling Admin and Overhead Distribution Royalty and Levies Selling/Corporate Assuming a total coal yield of 55% for coking and thermal products the average cash cost for a washed coal is $95.00/t over the life of the mine. This compares very favourably with Bowen Basin underground operations where the FOB cash cost generally exceeds $105/t. Transport distances, higher wages and accommodation expenses are major cost factors for the Bowen Basin mines Capital Expenditure The capital expenditure over the life of the mine has been reviewed and assessed for the provision to replace mining equipment when at the end of its effective life and for general extension of services as the mine expands. The major capital expenditure over the initial years is for the extension of conveyors, services and the drifts for the Wongawilli Seam operations. Provision has also been allowed for gas drainage and vacuum pump system for pre-draining the west area. All capital expenditure is based on real unescalated costs. A number of works are yet to be completed on the surface including coal handling and the electrical upgrades. RPM has deferred some of the capital by approximately one year on account of progress delays of the mine development in the Wonga East mains. A capital provision of $3.50/ROM t for general items has been included in the total capital estimate. The capital expenditure provision is shown in Figure A mine closure cost of $110 million has been included in year on the assumption that mining will cease on completion of the Wongawilli Seam in the west area. RPM notes that the option of mining to the west boundary and Bulli Seam coal in the far west of the lease would extend the mine life. The annual estimated capital spend is shown in Appendix A. ADV-SY / August 2013 Page 33 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

136 Capital Spend ($000) Figure 2.12 NRE No.1 Capex Allowance 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Exploration/Studies Capital Development Electrics Mining Equipment - Development Other Conveyors Shafts/Fans Coal handling Longwall Equipment The average expenditure over the life of the mine excluding mine closure is $10.33/ROM t. ADV-SY / August 2013 Page 34 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

137 3. NRE Wongawilli Mine 3.1 Location, Background and Tenements Location The NRE Wongawilli mine is located approximately 14 km southwest of Wollongong on the Illawarra Escarpment. The mine operating area is a combination of the former BHP Billiton Wongawilli and Nebo collieries purchased by Gujarat in Subsequent to this acquisition Gujarat also purchased the remaining resource areas of Huntley and Avondale mines to the south. The combined colliery holding and location is shown on Figure 3.1. Coal is transported from the mine via rail to the PKCT of which a section of rail from the mine to the Main South Coast rail is owned by Gujarat. 3.2 Background The mine is currently operating in the former Nebo area of the colliery holding extracting remnant barriers and coal pillars using narrow longwall blocks. This operation will continue for approximately three years while the mine develops access roadways to a new resource area northwest of the pit top where extensive Wongawilli Seam coal remains. It is proposed to advance this area to the southwest of the former Huntley workings. The current mine is hampered by a long coal haulage network including underground bins. Travel roads wind through the previous workings of Nebo mine. Once the new northwest area is accessed the mine will become a simple high capacity longwall operation. Some resource areas of Bulli Seam coal exist within the central area of the mine and may be targeted in the future. Historically a small area of Bulli Seam coal was mined, the seam being relatively thin and of less quality than typical Bulli Seam coal in the northern Illawarra area. To the south within the former Huntley area the Tongarra Seam becomes a potential resource having been previously mined at that colliery Tenements The tenements which comprise the NRE Wongawilli colliery are shown in Table 3.1. Table 3.1 NRE Wongawilli Tenements Lease Leaseholder Expiry Area (ha) Significant Conditions Authorisation 295 Gujarat NRE Wonga Pty Ltd 27 October ,150 An exploration licence last renewed on 25 March 2010 at which time conditions were contemporised to incorporate the 2009 Exploration Licence standard conditions, including requirements for environmental protection. Security fee $10,000. Mining Lease (ML) 1596 (formerly the Elouera leases ) Gujarat NRE Wonga Pty Ltd 7 October ,074 Minerals covered are Agricultural Lime, Coal. Various depth restrictions to a maximum of 900m below AHD. All prior lease conditions were replaced and contemporised at renewal in Requires that at least 443 persons competent are efficiently employed in relation to the mining process or mining operations on the lease area ADV-SY / August 2013 Page 35 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

138 or expenditure of at least $7,652,500 annually for the life of the lease (Minister may alter these at any time). Rehabilitation Security of $40,000,000 to be lodged with Minister ML 1565 (formerly the unmined portion of the Huntley lease CCL700) 1 Gujarat NRE Wonga Pty Ltd 9 October ,177 Coal minerals only. Requires strict conformance to SCA regulatory requirements for catchment protection including SCA approvals where specified. Cl. 5 must ensure that at least 128 competent people are efficiently employed on the lease area on each week day except Sat/Public Holidays... or at least $2,240,000 expended annually in operations in the lease area. Security requirement $55,000 Consolidated Coal Lease (CCL) 766 (formerly the Avondale lease ) Gujarat NRE Wonga Pty Ltd 9 October Coal minerals only. Requires strict conformance to SCA regulatory requirements for catchment protection including SCA approvals where specified. Cl. 5 must ensure that at least 21 competent people are efficiently employed on the lease area on each week day except Sat/Public Holidays... or at least $367,500 expended annually in operations in the lease area. Security requirement $15,000 1 NRE purchased Avondale CCL 766 and the unmined portion of the Huntley CCL 700 from HTT Huntley Heritage Pty Ltd in July The unmined portion of CCL700 was created as a new lease area identified as ML Geology and Resources Geological Structure Faulting is common in the north of the Wongawilli lease area. The major faults are North West trending and can have lengths up to 7 km. There are also more numerous but smaller faults of less than 1 km in length. No major faults have been identified in the planned southwest area of the mine. Igneous intrusions in the Wongawilli area are common and occur as dykes and sills. Dykes have been found to generally have minimal impact on mining as the effect on the seam is localised. The heat affected zone of the coal is usually equal to the thickness of the dyke. The majority of the dykes in the lease area are less than 2 m thick and are composed of dolerite altered to white clay. Igneous sills in the Wongawilli lease are extensive and have a thickness ranging up to the known maximum of 68 m. Sills, unlike dykes have a major impact on mining, and all three target seams are affected by sills. The Bulli Seam has sills occurring throughout the lease. In the south and the northeast the intrusions are within an area of uneconomic coal (based on thickness and/or ash), however in the northwest corner of the lease the intrusion is limiting the resource where the coal would otherwise be economic. Major silling in the Wongawilli Seam exists on the western side of the lease and limits the resource. There are also two other sills of smaller extent that have prevented previous underground mining of the Wongawilli Seam. Silling limits mining to the south and west of the former Huntley Colliery. The proposed mine plan abuts the sills and there is some uncertainty as to the exact boundary limit of igneous material and heat affected coal. Resources have been reduced by 10% as a precaution. ADV-SY / August 2013 Page 36 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

139 m m m m For personal use only m m m m m m ML 1695 N SOUTH - WEST AREA LW7 LW8 LW9 LW10 LW11 LW12 LW13 LW14 ML 1565 WEST AREA LW1 LW2 LW2 LW3 LW3 LW6 LW5 LW LW7 LW6 LW RED 3 LW4 LW3 LW2 LW1 LW8 ENTERPRISE LW9 LW10 LW11 PROPOSED SHAFT SITE MG8 MG7 ELOURA MG6 LW12 MG5 MG10 MG11 TG12 SHORTLAND 2 LW20 MG12 LW19 MG4 MG9 MG3 HUME MG2 MG1 LW17 THOMPSON SHORTLAND LW15 LW16 SCOTT MG15 DRIFTS DRIFTS STAPLE MG14 LW14 LWN1 LWN5 LWN6 N4 LWN4 LWN2 LWN3 LWN7 Avon Colliery - Approximate outline of No 3 Seam Workings Huntley Colliery - Approximate outline of no 3seam workings Avondale Outline No 3 Seam from ISG RTs NEBO LEGEND ML1596, ML1565 CCL766 Wongawilli Outcrup Measured Resource Indicated Resource Inferred Resource Uneconomic Coal Limit of NRE Wongawilli Workings Limit of Huntley Wongawilli Workings Avondale Outline No 3 Seam from ISG RTs Avon Colliery - Approximate outline of No.3 Seam Workings Huntley Colliery - Approximate outline of No.3 Seam workings WONGAWILLI SEAM LONGWALL EXTRACTION SEQUENCE FY12/13 FY17/18 FY13/14 FY18/19 FY14/15 FY19/20 FY15/16 FY20/21 FY16/17 FY21/ m m m m METRES m m m m m m Client : BDO CORPORATE FINANCE Project : ITR AND VALUATION GUJARAT NRE NO.1 AND WONGAWILLI MINES Figure : NRE WONGAWILLI MINE RESOURCE AND MINE PLAN Job No. ADV-SY Date : August 2013 FIGURE No.3.1

140 The Tongarra Seam is less affected by sills than the Bulli or Wongawilli Seams. There is a sill on the central western edge of the lease and a smaller localised intruded area in the southwest of the lease. In the majority of cases the extent of the sills are not clearly identified due to insufficient borehole coverage Seams Targeted The three seams that are being targeted for the LOM are in increasing depth the Bulli, Wongawilli and Tongarra Seams. The remaining Bulli Seam resource that does not overlie previous workings is mainly in the western area of the lease. The thicker areas of the Bulli Seam are approximately 2 m in the central north of the lease. The seam thins and deteriorates towards the south. The claystone and mudstone bands in the seam become more prominent and large areas of the seam in the south are intruded. The Wongawilli Seam has increasing non-coal bands towards the top of the unit. The seam is divided into a number of different working sections which can be seen in Figure 3.2. Figure 3.2 Wongawilli Seam showing the Standard Working Section The working section for resource estimation is the Standard Working Section (SWS). The total Wongawilli seam thickness is fairly consistent at approximately 9 m but ranges from 7.5 m to 12 m across the lease. The SWS thins toward the south varying between 2.8 m to 3.3 m. The insitu ash for the SWS is approximately ADV-SY / August 2013 Page 38 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

141 25% in the north and 37.5% in the South. The SWS becomes marginal towards the south as the ash levels increase due to the banding in the upper part of the seam. The increasing ash is able to be managed by targeting a different working section such as the Clay Band Section as mining advances to the south. The Tongarra Seam ranges from approximately 5 m thick in the south to 10.5 m in the north. The seam is split with only the upper split considered to have economic potential. Figure 3.3 shows a generalised stratigraphy of the Tongarra Upper Split (TAS). The Tongarra Upper Split has been modelled using the TA5 section which is most likely to be the main mining section. This is due to reported problems in former workings at Huntley with floor heave when the A4 band remains in the floor instead of the A5 band. The Tongarra Upper Split is considered uneconomic in the north as it has a thickness of less than 1.5 m. It thickens towards the centre of the lease to approximately 3 m, and further south it thins again to approximately 2 m. The insitu ash for the TAS is between 21.4% and 45%. For resource purposes the coal is not considered economic if it has an insitu ash greater than 35%. Figure 3.3 Tongarra Seam Upper split ply details Coal Seam Quality The resource report does not report qualities for the seams but gives a general description of the insitu ash which has been noted in the seam descriptions. There has been a maximum ash cut off for the resources of 35%. ADV-SY / August 2013 Page 39 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

142 The Wongawilli Seam raw ash trend and coking coal yield at F1.40 for the Standard Working Section are presented in Table 3.2. There is a clear trend in increasing ash towards the west and southwest and reduced coking coal. A secondary thermal product will be necessary to enable an economic operation to extend to the southwest area. Further economic analysis and coal product options need to be undertaken. Table 3.2 NRE Wongawilli Wongawilli Seam Ash and Yield Location Working Section Ash (%) Coking F1.40 (%) Thermal Yield S1.40F1.60 (%) Former Nebo LW s N2-N Wongawilli LW Wongawilli West- LW Wongawilli West LW Wongawilli Southwest LW Figure 3.4 NRE Wongawilli Resource Areas ADV-SY / August 2013 Page 40 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

143 3.3.4 Resource Estimation Methodology There is a minimum thickness applied to the resources of 1.5 m. Areas of the Bulli Seam that are affected by subsidence in the Wongawilli Seam goaf below have been excluded from the resources. There are insitu ash level cut offs at which point the seam is no longer considered economic. These are: 40% for the Wongawilli Seam 35% for the Tongarra Seam No limit has been specified for the Bulli Seam (however the resource polygons for the Bulli Seam show areas that have been excluded as being uneconomic). Inherent Moisture for the resource calculations was assumed to be 1.7% for the Bulli Seam and 2.6% for Wongawilli and Tongarra Seams Resources The resources for the NRE Wongawilli Mine are shown in Table 3.3. There are only Inferred resources for the Tongarra Seam. The Bulli Seam has a small amount of Indicated as well as Inferred resources. The Wongawilli Seam is the only seam that has any Measured resources. All the Measured resources for the Wongawilli Seam are directly adjacent to previously mined out areas. Of note are the relatively low Measured and Indicated resources estimated for the Wongawilli Seam totalling 69 Mt of which the greater proportion are within the former Elouera and Nebo areas. The majority of the resources over the southwest area are Inferred. This is where the mine expansion is planned and it is imperative that further exploration and study be undertaken to upgrade these resources. The resource areas and overlying mine plan are shown in Error! Reference source not found.. Table 3.3 NRE Wongawilli Resources Summary of Coal Resources for NRE Wongawilli Mine as at end June 2010 Seam Measured (Mt) Indicated (Mt) Inferred (Mt) Total (Mt) Bulli Wongawilli Tongarra Total Geological and Resource Risks The planned west and south areas exhibit a number of risks that need to be further assessed through exploration and sampling. Of note are: The limited drilling of the deposit with the majority of this being historic drilling that has not included quality testing for all plies in the Wongawilli Seam. This restricts analysis of the working sections that can be considered for mining and therefore there is some risk attached to the selection of the working section over the LOM scheduling. The extent of the igneous sills throughout the deposit and the potential heat affected zones. There is insufficient drilling to understand the extent and nature of the intrusions in the area. ADV-SY / August 2013 Page 41 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

144 The potential reduced coking coal fraction in the washed product towards the southwest of the mine requires to be further assessed and a full understanding of the total washed product and quality, including a high ash thermal component, needs to be confirmed for a LOM plan. Much of the resources to the southwest are Inferred and further exploration, as suggested above, should provide improved confidence to upgrade the resource status. 3.4 Reserves Reserves have been reported to April 2010 and are presented in Table 3.4. Production since this date is estimated to be 2.9 Mt. The remaining reserves are therefore 25.1 Mt in the Wongawilli Seam subject to a new resource report being released. In addition to the estimated reserves the mine plans have been extended over Inferred Resources to the southwest for which recoverable tonnes have been estimated as shown in Mine Plan Additional Coal. This additional coal is not a reserve and the extraction will depend on further exploration to upgrade the resource status. Table 3.4 NRE Wongawilli Reserves as at April 2010 Proved (Mt) Probable (Mt) Total Reserves (Mt) Mine Plan Additional Coal (Mt) Total Recoverable Coal (Mt) Bulli Seam Wongawilli Seam Total Note: The recoverable coal is not a Reserve. Further assessment of the coal quality trend over the southwest area of the Wongawilli Seam as well as economic analysis of both seams ( Modifying Factors ) is required to update the mine reserves. 3.5 NRE Wongawilli Operations Mine Production Figure 3.5 shows the proposed layout for the Wongawilli Mine. The figure shows the extensive mining operations that have already been undertaken at the mine employing, bord and pillar, pillar extraction and longwall mining methods. In the current mine plan all future extraction will be by longwall mining methods in three areas; Nebo, Elouera and South Wongawilli. The South area is the new area into which the operation will expand, whilst the Elouera and Nebo workings are essentially scavenging blocks, working around and in some cases through existing workings. ADV-SY / August 2013 Page 42 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report

145 Figure 3.5 Wongawilli Mine Plan The Nebo area consists of seven panels with a typical width of 115 m (solid) although LWN5 and LWN6 are reduced to 50 m and 63 m respectively to work around existing workings. Panel lengths range from 310 m to 1,300 m. There is a panel width change in LWN5 as this longwall retreats around previous workings. Elouera has one remaining panel, LW16, which is 325 m long and 115 m wide. Access to the South area will be via 4.6 km long, two-heading drifts which advance in a north-westerly direction within the overlying Bulli Seam for three kilometres before dropping down to the Wongawilli Seam. Roadways will then be advanced west towards the Southern area for an additional 1.6 km. The path of this drift has been designed to remain deeper than the minimum depth of cover constraints of 65 m under the Avon reservoir. There are 22 panels laid out in the South area, which are not affected by existing workings in the Wongawilli Seam. The layout takes into consideration the surface features. The panels are 175 m wide and of the ten scheduled panels the length vary from 1.0 km to 3.2 km. The majority of the resources within the southeast are Inferred Mining Method Longwall mining has been selected as the appropriate method of extraction for the Wongawilli Mine. The success of longwall operations relies upon consistency and as such mining operations aim to standardise the mining parameters by maintaining the same width for all panels in a series and by maximising the tonnes from a block by designing panels to be as long as possible. The NRE Wongawilli operation can achieve this in the planned South area where there are no existing workings. However, the Nebo panels are very short and cover ADV-SY / August 2013 Page 43 This report has been prepared for BDO Corporate Finance and must be read in its entirety and subject to the third party disclaimer clauses contained in the body of the report