MINING SECTOR UPDATE CORRS AUSTRALIAN AUGUST Insights and trends for the leading edge of the mining industry.

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1 CORRS AUSTRALIAN MINING SECTOR UPDATE AUGUST 2014 Insights and trends for the leading edge of the mining industry Introduction Welcome to the August 2014 edition of the Australian Mining Sector Update, a monthly publication prepared by Corrs Chambers Westgarth for clients and contacts who are interested in the Australian mining industry. This publication brings together a brief summary of information on recently completed deals, market rumours, potential opportunities and relevant regulatory updates. Recent announcements On 1 August 2014, Guildford Coal, the ASX-listed resources explorer, announced that it has reached agreement with SGX-listed Sino Construction Limited, to enter into a term sheet for Sino to acquire all of Guildford s Australian coal assets, comprising the Clyde Park, Pentland, Springsure and Hughenden Projects (Galilee / Eromanga Basins), the Sunrise Project (Surat/ Bowen Basin), the Monto Project (Nagoorin Graben and Mulgildie Basin), the Sierra Project (Bowen Basin) and the Kolan Project (Maryborough Basin). Sino will acquire these assets for a purchase price of US$25 million, payable by way of a non-interest bearing convertible promissory note which matures six months after issue. The promissory note will be payable in cash, though in certain circumstances, Sino may elect to convert the promissory note into ordinary shares in Sino to be issued to Guildford at an issue price of SG$0.20. The purchase price will also consist of a royalty paid to Guildford which is equal to US$0.35 per tonne of coal sold from all of the company s Australian coal assets. The royalty will be payable for five years from the date the first asset commences commercial production. Guildford will be appointed as sole and exclusive manager of the Australian coal assets (with a management fee to be agreed) and will have a first and last right to be appointed as the contract miner for each asset that moves into commercial production. The announcement notes that completion of the sale of Guildford s Australian coal assets to Sino will be subject to, amongst other things, confirmatory due diligence, obtaining necessary shareholder, regulatory and third party approvals, negotiation of binding documentation, entry into the management agreement and other customary conditions. On 4 August 2014, MetroCoal announced its intention to make an off-market scrip takeover offer for the remaining shares in Cape Alumina Limited. MetroCoal is offering existing Cape Alumina shareholders one MetroCoal share for every 1.3 Cape Alumina shares they own. The offer is not subject to a minimum acceptance condition. According to the announcement, if the takeover bid is successful (where MetroCoal achieves 100% ownership of Cape Alumina), the merged entity will hold extensive bauxite tenements in Cape York (including the Bauxite Hills Project) as well as an interest in extensive thermal coal assets in the Surat Basin and over A$6 million in cash. Full acceptance of the offer would reportedly result in existing Cape Alumina shareholders owning approximately 27.6% of the consolidated MetroCoal entity. On 11 August 2014, ASX-listed iron ore miner, BC Iron, announced an off-market takeover offer for Iron Ore Holdings, offering 0.44 new BC Iron shares and A$0.10 in cash for each Iron Ore Holdings share held. According to the announcement, this transaction would create a leading mid-cap iron ore company with an attractive

2 portfolio of production and development assets in the Pilbara region in Western Australia. The Iron Ore Holdings board unanimously recommends that shareholders accept the offer, with major shareholder, Australian Capital Equity, reportedly intending to accept, in the absence of a superior proposal. Assuming BC Iron acquires 100%, current Iron Ore Holdings security holders will own approximately 36.6% of the combined group. Market rumours and opportunities On 22 July 2014, the Wall Street Journal reported that Itochu and Sumitomo Corp, two Japanese trading houses, are looking for buyers for their combined 45% stake in the NCA Coal Project in Queensland s Bowen Basin. The Project is a joint venture between the Japanese companies and Glencore (which holds the other 55%) and includes the Newlands open cut and underground longwall operations, the Collinsville open cut mine and a coal terminal at Abbot Point Port. The two mines reportedly produce as much as 17 million tonnes of thermal and coking coal per year. According to the article, Itochu has hired JPMorgan for the planned divestment of its 35% stake, while Sumitomo has hired Rothschild for the sale of its 10% interest in the Project. The Japanese companies reportedly expect to conclude a deal by the end of this year. On 16 July 2014, The Australian reported that the ASX-listed coal miner, Whitehaven, is preparing to sell up to a 30% interest in its Vickery Project. The article cited Managing Director, Paul Flynn, as saying that Whitehaven plans to commence the sale process shortly. Flynn reportedly claimed that the company would look to divest itself of a 20-30% stake in the coal project. The article noted that Whitehaven took 100% control of Vickery in March 2013 by acquiring a 29% stake from Itochu for A$29 million. On 23 July 2014, an unsourced article in The Australian speculated that Adani, the India-based mining giant, may sell its Abbot Point coal port assets in Queensland for A$2 billion. Adani bought a 99-year lease on the port assets three years ago from the North Queensland Bulk Ports Corporation for A$1.8 billion. However, according to the article, the company has now requested proposals from investment banks on business options for the assets (which include railways, two offshore berths, and two ship loaders). Those options reportedly include a complete sale, a partial sale or refinancing of the assets. This article was published just days before the Federal Minister for Environment announced that he had approved Adani s 60 Mtpa Carmichael Coal and Rail Project in the Galilee Basin (see below for more information about this approval). Mergermarket has reported on 10 July 2014 that the Perth-based, ASX-listed minerals explorer, Cazaly Resources, is open to fundraising approaches from financial advisors, private equity firms and strategic investors for its iron ore and copper projects in Australia. The article reported a company source as saying that Cazaly may consider forming a joint venture, or selling a stake in the company or in a project. The company s key asset is its 100%-owned Parker Range Iron Ore Project which has reportedly completed a feasibility study and is ready to mine. Cazaly is also reportedly seeking approaches from investors or strategic partners to develop its 75%-owned Halls Creek Copper Project, which is an early-stage copper asset. The report speculated that Hong Kong-listed iron ore distributor, China Hanking, may be interested. Regulatory updates CLEAN ENERGY LEGISLATION (CARBON TAX REPEAL) ACT 2014 (CTH) Following two failed attempts to repeal the carbon tax, the Senate passed a suite of carbon tax repeal legislation in a vote of 39 to 32 on 17 July The legislation has received royal assent and has retrospective effect from 1 July The Clean Energy Legislation (Carbon Tax Repeal) Act 2014 (Cth) (Carbon Tax Repeal Act) repeals the Clean Energy Act 2011 (Cth) and other related legislation which established the carbon pricing scheme. The Carbon Tax Repeal Act also amends a number of pieces of legislation including the Competition and Consumer Act 2010 (Cth) (CCA). Amendments to the CCA seek to prohibit carbon tax related price exploitation and false or misleading representations about the effect of the carbon tax repeal by providing the Australian Competition and Consumer Commission with additional PAGE 2

3 price monitoring powers in relation to the carbon tax repeal. These amendments also impose a hefty penalty on entities which fail to pass through to customers cost savings attributable to the carbon tax repeal. The Carbon Tax Repeal Act also amends the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act) by removing certain registration, reporting and record-keeping requirements which relate specifically to the (now repealed) Clean Energy Act. Registered corporations will, however, still need to comply with other, non-carbon tax related, reporting requirements under the NGER Act. Furthermore, although the reporting requirements of liable entities under the Clean Energy Act have been repealed, it is important to note that these entities will still be required to comply with reporting obligations relating to the financial year. According to the Clean Energy Regulator, liable entities must still meet their carbon price obligations for the financial year, including reporting their total emissions number to the Clean Energy Regulator by 31 October 2014, and satisfying their final carbon price liability for by 2 February The Australian Government says that repeal of the carbon tax will lower costs for Australian businesses and ease cost-of-living pressures for households. Stakeholders from the resources industry (including the Minerals Council of Australia and the Australian Petroleum Production and Exploration Association) have welcomed the repeal. A copy of the Act can be found here. Other news FEDERAL APPROVAL FOR NEW MINE IN QUEENSLAND S GALILEE BASIN On 28 July 2014, the Federal Minister for Environment, Greg Hunt, announced that he had approved Adani s $16.5 billion Carmichael Coal and Rail Project, subject to 36 specific conditions. The Project, located in Queensland s Galilee Basin, is expected to produce 60 million tonnes of thermal coal for export per annum, and provide electricity for up to 100 million people in India. The Project is also expected to contribute an estimated A$2.97 billion to the Queensland economy each year for the next 60 years and create thousands of jobs during the construction and operation phases. Federal approval of the Carmichael Project follows the Queensland Coordinator General s approval earlier this year, subject to 190 conditions. Deputy Premier and Minister for State Development, Infrastructure and Planning, Jeff Seeney, said that the Project would play a vital role in opening up the resource-rich Galilee Basin. Mr Seeney said that the Queensland Government will continue to work with Adani to ensure the Project is given its best possible chance of proceeding. STATE APPROVAL FOR NEW MINE IN QUEENSLAND S BOWEN BASIN On 2 July 2014, Queensland s Deputy Premier and Minister for State Development, Infrastructure and Planning, Jeff Seeney, announced that Queensland s Coordinator General had approved QCoal s A$1.76 billion Byerwen Coal Project, subject to 122 conditions. The Byerwen Project is located 140 kilometres west of Mackay and has the potential to produce 10 Mtpa of coking and thermal coal for export to primarily Asian markets. According to the 16 July 2014 edition of Project Finance International, the bulk of coal from the Byerwen Mine will be shipped to Japan. The Coordinator General s report will now progress to the Federal Environment Minister for a decision on issues covered by the Environment Protection and Biodiversity Conservation Act 1999 (Cth) under the assessment bilateral agreement between the State and Federal Governments. According to the article in Project PAGE 3

4 Finance International, it is expected that Byerwen will produce coal for 46 years, once operational, and that it will take two years to construct the mine. RECORD COAL EXPORTS EATING INTO PORT CAPACITY A media release by the Queensland Resources Council (QRC) on 25 July 2014 stated that Queensland is only a few years away from using up its existing coal export capacity according to the latest port data. According to QRC Chief Executive, Michael Roche, data from Queensland s coal port operators shows that exports totalled a record 209 million tonnes in , which is reportedly almost 30 million tonnes more than what passed through Queensland export coal terminals in The article noted that the value of coal exports from Queensland this financial year is forecast by independent analysts to be more than A$24 billion despite poor prices. The contents of this document are provided solely for information purposes. This document has been compiled using publicly available information from sources including newspapers, the websites of companies listed in this document and other publicly disclosed documents prepared by those companies. In some instances, references to the source documents relied upon in preparing this document have been provided in the footnotes. Although we have taken care in compiling this document, we do not in any way warrant that the information contained in this document is accurate, complete or correct and do not assume any responsibility or liability for that information. We do not make any recommendation that you should invest in any of the companies listed in this document. If any person intends to invest in one or more of the companies referred to in this document, they should first undertake, among other things, financial, tax, technical, engineering, geological and legal due diligence on the company or project (and the company s or project s assets) before making that investment. PAGE 4

5 BRISBANE MELBOURNE PERTH BRUCE ADKINS Tel Mob bruce.adkins@corrs.com.au MICHAEL MACGINLEY Tel Mob michael.macginley@corrs.com.au JAMES MINCHINTON Tel Mob james.minchinton@corrs.com.au JEREMY HORWOOD Tel Mob jeremy.horwood@corrs.com.au STEPHANIE DAVESON Tel Mob stephanie.daveson@corrs.com.au SYDNEY CLARE CORKE Partner, Melbourne Tel Mob clare.corke@corrs.com.au JONATHAN FARRER Partner, Melbourne Tel Mob jonathan.farrer@corrs.com.au LIMING HUANG Special Counsel, Melbourne Tel Mob liming.huang@corrs.com.au LINDA HUAN Senior Associate, Melbourne Tel Mob linda.huan@corrs.com.au ANDREW CHEW Tel Mob andrew.chew@corrs.com.au PETER JAROSEK Tel Mob peter.jarosek@corrs.com.au RUSSELL PHILIP Tel Mob russell.philip@corrs.com.au ROBERT FRANKLYN Tel Mob robert.franklyn@corrs.com.au ANDREW LUMSDEN Tel Mob andrew.lumsden@corrs.com.au LIZZIE KNIGHT Tel Mob lizzie.knight@corrs.com.au SHAUN McGUSHIN Tel Mob shaun.mcgushin@corrs.com.au PAGE 5